TIDMCREI
RNS Number : 5679V
Custodian REIT PLC
19 April 2016
THE INFORMATION IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT
FOR PUBLICATION, RELEASE OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN
OR INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, THE
REPUBLIC OF SOUTH AFRICA, ANY EEA STATE (OTHER THAN THE UK) OR ANY
OTHER EXCLUDED TERRITORY.
19 April 2016
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 March 2016 and Intention to
Issue Equity
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company, today reports its unaudited net asset value
("NAV") as at 31 March 2016, highlights for the period from 1
January 2016 to 31 March 2016 ("the Period") and its intention to
issue equity.
Financial highlights
-- NAV per share of 101.5p (31 December 2015: 103.0p)
-- NAV total return(1) for the year ended 31 March 2016 ("FY16")
of 6.2% (period ended 31 March 2015 ("FY15"): 7.0%)
-- FY16 ongoing charges ratio(2) of 1.3% (FY15: 1.4%)
-- FY16 Q3 dividend paid on 31 March 2016 of 1.5875p per share (FY15 Q3: 1.25p per share)
-- Proposed FY16 Q4 dividend of 1.6625p per share (FY15 Q4: 1.5p per share)
-- Target FY16 dividend(3) of 6.25p per share (FY15: 5.25p per share)
-- Heads of terms agreed for a GBP45.0m, 12 year, fixed rate loan
-- Net gearing(4) of 19.2% loan-to-value (31 December 2015: 5.1%
loan-to-value), rising to 20.6% on completion of committed pipeline
of new acquisition opportunities
-- GBP13.7m of new equity raised during the Period at an average
premium of 5.0% to adjusted(5) NAV
-- Intention to issue equity at 104.9p per share implying a
target yield(6) on new shares of 6.05% for the year ending 31 March
2017
Portfolio highlights
-- Portfolio value of GBP318.2m (31 December 2015: GBP254.0m)
-- GBP66.7m invested in 11 acquisitions and on-going developments
-- GBP1.3m portfolio valuation uplift from successful asset management initiatives
-- Disposal of office for GBP1.35m, GBP0.15m ahead of 30 September 2015 valuation
-- GBP5.4m pipeline of committed funds
(1) NAV movement plus dividends paid.
(2) Expenses (excluding operating expenses of rental property)
divided by average quarterly NAV.
(3) Dividends paid and proposed.
(4) Gross borrowings less unrestricted cash divided by portfolio
valuation.
(5) Premium adjusted to deduct dividends earned but not paid
post ex-dividend date.
(6) Target dividend for the year ending 31 March 2017 divided by
proposed issue price of new shares.
Net asset value
The unaudited NAV of the Company at 31 March 2016 was GBP255.1
million, reflecting approximately 101.5 pence per share, a decrease
of 1.5% since 31 December 2015:
Pence
per
share GBPm
------------------------------------------------ ----------- ----------
NAV at 31 December 2015 103.0 245.5
Issue of equity (net of costs) 0.2 13.5
103.2 259.0
Valuation movements relating to:
- Asset management activity 0.5 1.3
- Increase in void rate (0.4) (1.0)
- Changes to stamp duty land tax ("SDLT") (0.4) (0.8)
- Other valuation movements (0.1) (0.3)
------------------------------------------------ ----------- ----------
(0.4) (0.8)
Acquisition costs (1.4) (3.4)
Net valuation movement (1.8) (4.2)
Income earned for the Period 2.4 5.7
Expenses and net finance costs for
the Period (0.7) (1.5)
Dividends paid (1.6) (3.9)
NAV at 31 March 2016 101.5 255.1
------------------------------------------------ ----------- ----------
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation as at 31 March
2016 and income for the Period, but does not include any provision
for the proposed dividend for the Period, to be paid on 30 June
2016.
The Company invested GBP66.1 million in 11 acquisitions during
the Period, its most significant quarter's activity since IPO in
2014, acquiring:
-- Nine of the 11 properties in the 'Target Portfolio' described
in the Company's November 2015 prospectus (together "the
Portfolio") for GBP55.1 million on 4 January 2016. The Portfolio's
passing rent of GBP3.68 million reflected a net initial yield
("NIY") of 6.32%, with an expected reversionary yield of 6.89%;
-- A retail warehouse in Banbury let to B&Q for GBP6.525 million with a NIY of 6.94%; and
-- A leisure park in Perth, comprising three units trading as
Bannatyne Health Clubs, KFC and Frankie and Benny's for GBP4.5
million, with a NIY of 8.17%.
These acquisitions incurred costs of GBP3.4 million reducing NAV
by 1.4 pence per share, but increased the Company's rent roll by
19.4% at an aggregate NIY of 6.5%, enhancing dividend cover while
maintaining the quality of property and security of income in line
with our investment strategy.
On 1 April 2016 the headline rate of SDLT for commercial
property increased from 4% to 5%, with relief for smaller
properties via a new SDLT-free band up to GBP0.15 million and a 2%
band from GBP0.15 million to GBP0.25 million, replacing the
previous flat rate. As a result, the increase in headline rate only
impacts transactions above GBP1.05 million and then on a sliding
scale as lot-size increases.
The Company's focus on properties with lot-sizes up to GBP7.5
million has partially insulated it against the one-off impact these
changes have had on valuations, with its average lot size of GBP2.9
million seeing a valuation decrease of 0.25%. To put this into
context, the costs of acquiring a GBP3 million property have
increased by 0.61% and a GBP10 million property by 0.85%, and
valuations are expected to adjust accordingly across the property
market this quarter.
Outside of recent SDLT changes, a 1.1% rise in vacancy following
the determination of a tenant's lease at expiry in Edinburgh
resulted in a GBP1.0 million valuation decrease, which was more
than offset by a GBP1.3 million uplift from asset management
activities during the Period. The recently vacated office space in
Edinburgh is being actively remarketed. Rental growth is in
evidence in Edinburgh and marketing advice suggests a new letting
could set an increased headline rent for the building. Proposals to
refurbish the reception area should also have a positive impact on
rental level and assist in attracting a new tenant.
Asset management
Successful asset management strategies including rent reviews,
new lettings, lease extensions and the retention of tenants beyond
their contractual break clauses have all helped to minimise the
impact of the SDLT changes. Key asset management initiatives
completed recently include:
-- Extending Pizza Hut UK Limited's lease at Triangle Retail
Park, Leicester with expiry moving from June 2018 to June 2033,
subject to a tenant-only break option in June 2028, and rent
increasing from GBP82,250 per annum to GBP104,512 per annum from
June 2018.
-- Extending leases at the 40 St. David Street and Cardinal
House offices in Leeds, occupied by Enact Direct Legal Solutions
(the Company's largest tenant by income representing 2.7% of the
rent roll) by five years to expire in December 2023. Both leases
have also been assigned to First Title Limited, Enact Direct Legal
Solutions' UK parent company, significantly strengthening the
covenant.
Other completed initiatives include:
-- Letting the last vacant office suite in Lancaster House, Birmingham;
-- Extending the lease on the industrial unit let to Triumph Structures, Farnborough; and
-- Agreeing new lease terms on the vacant retail unit in Portsmouth.
The Company intends to maintain a weighted average unexpired
lease term of over five years to the first lease break or lease
expiry across the portfolio. Through successful asset management
activities and acquiring long leases at Banbury and Perth, the
expiry profile has improved with income expiring within five years
falling from 53.5% at 4 January 2016 to 48.1% at 31 March 2016, as
follows:
31 Mar 4 Jan(7)
Income expiry 2016 2016
--------------------- ----------- -------------
0-1 years 8.9% 8.9%
1-3 years 20.5% 23.3%
3-5 years 18.7% 21.3%
5-10 years 29.1% 24.4%
10+ years 22.8% 22.1%
Total 100.0% 100.0%
------------------------ ----------- -------------
(7) Date of acquisition of the Portfolio.
Property market
Commenting on the commercial property market, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's external fund manager), said:
"The start of 2016 marked a watershed in recent attitudes to UK
commercial property. In January, many mainstream listed property
companies saw a dramatic fall in their share price, many property
investment companies saw their shares fall to a discount to NAV and
the open-ended property funds witnessed net outflows of capital
after three years of net positive inflows.
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:01 ET (06:01 GMT)
"Reasons for this shift in attitude could include the
uncertainty of 'Brexit' or the perceived end of a cycle, but
questioning whether commercial property investment remains a valid
choice or whether it's time to call time on property as an asset
class is too simplistic. Property is a diverse asset and its
investment performance is driven by myriad different dynamics.
Furthermore, it could be considered hasty to ignore a high yielding
asset in a largely low return environment or to conform to a
short-term change in sentiment when assessing an asset that
performs over the long-term.
"I believe the key determinants of return and the sustainability
of return in 2016 are likely to be income and income growth, both
of which are driven by the occupational market rather than the
investment market.
"In 2014 and particularly in 2015, excessive investment demand,
both domestic and overseas, was focused on London, the South-East
and the dominant regional cities. This imbalance of demand over
supply resulted in price inflation and thus capital value growth.
Capital growth is likely to be more muted in 2016 and in some
market 'hotspots' we might witness a decline in values as
investment demand weakens and significant redemptions from the
open-ended funds lead to increased supply.
"Despite the investment market dominating the headlines, the
real commercial property story of the last two years has been the
return to health of the occupational market. In office and
industrial markets, a lack of supply following seven years of
minimal speculative development is pushing vacancy rates to
all-time lows and driving rental growth. Low vacancy rates, which
are also a feature of the retail warehouse sector, enhance cash
flow from investment portfolios and support dividend cover. I
expect rental growth to offer Custodian REIT the potential for
dividend growth and sustainable capital growth over time.
"The occupational market story is particularly resonant in
regional property. Market pricing has been more stable as it has
not witnessed the excess demand pressure from the investment market
and returns have been more closely linked to the occupational
market performance. As a result we are witnessing rental growth and
low vacancy rates across the Company's portfolio.
"The market dynamics fit very well with Custodian REIT's
investment strategy and we anticipate there being further
opportunities to purchase properties that will enhance returns to
shareholders through rental growth and offer stable returns in an
uncertain environment."
Activity and pipeline
In the forthcoming quarter, the Company intends to continue its
asset management activities and complete on the current acquisition
pipeline, with the aim of deploying debt facilities to increase
gearing towards the target level of 25%.
Commenting on pipeline, Richard Shepherd-Cross said:
"We have a strong committed pipeline including pre-let
development funding projects totalling GBP3.4 million which, once
complete, will improve the portfolio's weighted average unexpired
lease term, plus an acquisition opportunity in Chester of GBP2.0
million. Following the Period end we achieved practical completion
of the development of a 63,000 sq ft warehouse unit in Cannock and
the comprehensive refurbishment of the vacant unit at Bradbourne
Drive, Milton Keynes, and completed the acquisition in Chester.
"The smaller lot-size, regional market has not yet seen the
price inflation which has been a feature of London and large
lot-sizes, so it is still possible to acquire properties with
strong investment credentials. We continue to see opportunities
consistent with our investment strategy and we are actively
considering GBP25 million - GBP50 million of opportunities that
maintain a threshold level of quality in building, location and
tenant.
"We are keen to capitalise on the strength of the occupational
market and are seeing a robust stream of opportunities which we
expect to improve if redemptions from the open-ended funds lead to
an increasing flow of sales."
Intention to issue equity
In response to continued investor demand, a pipeline of
attractive investment opportunities and the prevailing market
conditions, the Board today announces that the Company is intending
to raise additional equity capital through the issue of new
ordinary shares ("the New Shares") by way of a placing ("the
Placing"). The Placing price of 104.9 pence at per New Share
represents a premium of 5% to the ex-dividend unaudited NAV per
share at 31 March 2016 of 101.5 pence. The Company's existing
Placing Programme set out in the Company's November 2015 prospectus
will remain in place until its expiry on 3 November 2016.
Qualified investors (as defined in section 86(7) of the
Financial Services and Markets Act 2000 (as amended)) are invited
to apply for New Shares by contacting Numis Securities Limited
("Numis") on the contact details below. The decision to allot New
Shares to any qualified investor shall be at the absolute
discretion of the Company and Numis.
Reasons for the Placing and use of proceeds
Completion of the committed acquisition pipeline will increase
loan-to-value to 20.6%, compared to target gearing of 25.0%
loan-to-value, leaving limited headroom for further investment. The
net proceeds of the Placing are expected to be used first to repay
an element of the GBP26 million currently drawn under the Company's
revolving credit facility ("RCF") at 31 March 2016. The remaining
net proceeds are then expected to be used to acquire additional UK
commercial real estate that can further diversify the portfolio and
enhance income yield, such that the Placing is in Shareholders'
interests. Net proceeds are expected to be fully invested within
three to six months after admission of the New Shares, depending on
the amount of net proceeds of the Placing.
Expected timetable
Announcement of unaudited NAV as at 7.00 a.m. 19
31 March 2016, Placing opens April 2016
FY16 Q4 ex-dividend date 5 May 2016
Latest time and date for receipt of 11.00 a.m. 12
commitments under the Placing May 2016
Announcement of results of Placing 7.00 a.m. 13
May 2016
Admission and dealings in New Shares 8.00 a.m. 17
on the London Stock Exchange's Main May 2016
Market
Publication of final results 7.00 a.m. 7
June 2016
FY16 Q4 dividend payment date 30 June 2016
Financing
Equity
The Company issued 12.82 million new ordinary shares of 1 pence
each in the capital of the Company during the Period ("the Shares")
raising GBP13.7 million (before costs and expenses). The Shares
were issued at an average premium of 5.0% to the NAV per share at
31 December 2015, after adjusting this NAV to recognise the
dividend of 1.5875 pence per share paid on 31 March 2016 to
shareholders on the register at the close of business on 5 February
2016.
Debt
The Company operates a GBP35 million RCF with Lloyds Bank plc,
which attracts interest of 2.45% above three month LIBOR with no
commitment fee and expires on 13 November 2020. The Company also
operates a GBP20 million term loan with Lloyds Bank plc ("the Term
Loan"), which attracts interest of 1.95% above three month LIBOR
and is repayable on 10 October 2019, and a GBP20 million term loan
with Scottish Widows plc, which attracts interest fixed at 3.935%
and is repayable on 14 August 2025.
Heads of Terms have been agreed for Scottish Widows plc to
provide the Company with a new GBP45 million term loan facility
("the New Loan"), repayable 12 years from drawdown at a fixed rate
of interest. The Company intends to use GBP20 million of proceeds
from the New Loan to repay the Term Loan, with the remaining
proceeds used to repay an element of the GBP26 million currently
drawn under the RCF at 31 March 2016.
Portfolio analysis
The portfolio consists of 112 assets, with 228 tenancies and a
NIY of 6.88%.
The portfolio is split between the main commercial property
sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio, but with a relatively low
exposure to office and a relatively high exposure to industrial and
to alternative sectors, often referred to as 'other' in property
market analysis, as demonstrated in the sector weightings
below:
Valuation
Valuation movement
31 since Weighting Weighting
Sector Mar 4 Jan by income by income
2016 2016 31 Mar 4 Jan
GBPm GBPm 2016 2016
---------------- -------------- -------------- --------------- ---------------
Industrial 123.0 0.5 39% 40%
Retail 91.4 (1.3) 28% 27%
Other(8) 59.8 0.2 18% 17%
Office 44.0 (0.2) 15% 16%
Total 318.2 (0.8) 100% 100%
------------------ -------------- -------------- --------------- ---------------
(8) Includes car showrooms, petrol filling stations, children's
day nurseries, restaurants and hotels.
While deemed to be outside the core sectors of office, retail
and industrial the 'other' sector offers diversification of income
without adding to portfolio risk, containing assets considered
mainstream but which typically have not been owned by institutional
investors. The 'other' sector has proved to be an out-performer
over the long-term and continues to be a target for
acquisitions.
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:01 ET (06:01 GMT)
Office rents are growing strongly and supply is constrained by a
lack of development and the extensive conversion of secondary
offices to residential making returns very attractive. We were
pleased to increase exposure to the office sector through the
recent portfolio acquisition. However, the Company's relatively low
exposure to the office sector is a long-term strategic decision
rather than a short-term comment on the state of the office market.
We are conscious that obsolescence can be a real cost of office
ownership, which can hit cash flow and be at odds with the
Company's relatively high target dividend.
Similar to the office market, occupational demand is driving
rental growth in the industrial sector and returns are positive. As
industrial property is less exposed to obsolescence this sector
remains a very good fit with the Company's strategy.
Retail is split between high street and out-of-town retail
(retail warehousing). Strong comparison retail pitches in dominant
regional towns continue to show very low vacancy rates and offer
stable long-term cash flow, with the opportunity for rental growth.
Retail warehousing is witnessing close to record low vacancy rates
as a restricted planning policy and lack of development combine
with retailers' requirements to offer large format stores, free
parking and 'click and collect' to consumers.
The Company operates a geographically diversified portfolio
across the UK, seeking to ensure that no one area represents the
majority of the portfolio. The geographic analysis of the Company's
portfolio at 31 March 2016 is as follows:
Quarter Weighting
Valuation valuation Weighting by income
31 Mar 2016 movement by income 4 Jan
Location GBPm GBPm 31 Mar 2016 2016
------------------- ----------------- --------------- ----------------- ---------------
South-East 68.0 (1.0) 20% 19%
West Midlands 51.1 0.8 16% 16%
North-West 39.9 (0.3) 12% 13%
East Midlands 34.8 0.2 12% 13%
South-West 31.7 0.0 9% 9%
Eastern 30.5 (0.3) 10% 11%
Scotland 28.8 (1.0) 10% 8%
North-East 28.4 0.8 9% 9%
Wales 5.0 0.0 2% 2%
Total 318.2 (0.8) 100% 100%
--------------------- ----------------- --------------- ----------------- ---------------
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio.php.
Dividends
An interim dividend of 1.5875 pence per share for the quarter
ended 31 December 2015 was paid on 31 March 2016. The Board expects
to propose an interim dividend relating to the Period of 1.6625
pence per share to achieve the target dividend(9) of 6.25 pence per
share for the financial year ended 31 March 2016, which is expected
to be fully covered by net rental income.
In the absence of unforeseen circumstances, the Board intends to
pay further quarterly dividends to achieve a target dividend(9) of
6.35 pence per share for the financial year ending 31 March 2017.
The Company's aim is to continue to increase dividends in a
sustainable way, at a rate which is fully covered by net rental
income and which does not inhibit the flexibility of its investment
strategy.
(9) This is a target only and not a profit forecast. There can
be no assurance that the target can or will be met and it should
not be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
- Ends -
Further information:
Further information regarding the Company can be found at the
Company's website www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240
Imlach / Ian Mattioli 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260
1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757
4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which
listed on the main market of the London Stock Exchange on 26 March
2014. Its portfolio comprises properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
characterised by small lot sizes, with individual property values
of less than GBP7.5 million at acquisition.
The Company offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. By targeting smaller lot size properties, the
Company intends to provide investors with an attractive level of
income with the potential for capital growth.
Custodian Capital Limited is the discretionary investment
manager of the Company.
For more information visit www.custodianreit.com and
www.custodiancapital.com.
Important notice
This announcement does not constitute or form part of, and
should not be construed as, any offer for sale or subscription of,
or solicitation of any offer to buy or subscribe for, any shares in
Custodian REIT plc or securities in any other entity, in any
jurisdiction, including the United States, nor shall it, or any
part of it, or the fact of its distribution, form the basis of, or
be relied on in connection with, any contract or investment
decision whatsoever, in any jurisdiction. This announcement does
not constitute a recommendation regarding any securities. Neither
the content of the Company's website (or any other website) nor any
website accessible by hyperlinks to the Company's website (or any
other website) is incorporated in, or forms part of, this
announcement.
This announcement has been prepared by, and is the sole
responsibility of, Custodian REIT Plc. Terms used and not defined
in this announcement bear the meaning given to them in the
Company's November 2015 Prospectus.
Numis is acting only for Custodian REIT Plc in connection with
the matters described in this announcement and is not acting for or
advising any other person, or treating any other person as its
client, in relation thereto and will not be responsible to anyone
other than the Company for providing the regulatory protection
afforded to clients of Numis or advice to any other person in
relation to the matters contained herein.
The Company is not and will not be registered under the US
Investment Company Act of 1940, as amended. The Ordinary Shares
have not been, nor will they be, registered under the US Securities
Act of 1933, as amended or with any securities regulatory authority
of any state or other jurisdiction of the United States or under
the applicable securities laws of any other Excluded Territory.
Subject to certain exceptions, the Ordinary Shares may not be
offered or sold in the United States or any Excluded Territory or
to or for the account or benefit of any national, resident or
citizen of any Excluded Territory, which includes any person
located in the United States. Placings under the Placing Programme
and the distribution of this announcement in other jurisdictions
may be restricted by law and the persons into whose possession this
announcement comes should inform themselves about, and observe any
such restrictions.
This announcement includes "forward-looking statements". All
statements other than statements of historical facts included in
this announcement, including, without limitation, those regarding
the Company's business strategy and plans are forward-looking
statements.
Forward-looking statements are subject to risks and
uncertainties and accordingly the Company's actual future financial
results and operational performance may differ materially from the
results and performance expressed in, or implied by, the
statements. These factors include but are not limited to those that
are described in the Company's November 2015 prospectus. Given
these uncertainties, undue reliance should not be placed on such
forward-looking statements.
These forward-looking statements speak only as at the date of
this announcement. The Company expressly disclaims any obligation
or undertaking to update or revise any forward-looking statements
contained herein to reflect actual results or any change in the
assumptions, conditions or circumstances on which any such
statements are based unless required to do so by the Financial
Services and Markets Act 2000, the Financial Services Act 2012, the
Listing Rules, the Disclosure Rules and Transparency Rules or the
Prospectus Rules of the Financial Conduct Authority or other
applicable laws, regulations or rules.
(MORE TO FOLLOW) Dow Jones Newswires
April 19, 2016 02:01 ET (06:01 GMT)
Certain statements have been made with reference to forecast
price changes, economic conditions and the current regulatory
environment. Nothing in this announcement should be construed as a
profit forecast. Past share price performance cannot be relied on
as a guide to future performance.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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