TIDMCREI
RNS Number : 5257E
Custodian REIT PLC
19 July 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THE INFORMATION IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT
FOR PUBLICATION, RELEASE OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN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 July 2016
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 June 2016
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company, today reports its unaudited net asset value
("NAV") as at 30 June 2016 and highlights for the period from 1
April 2016 to 30 June 2016 ("the Period").
Financial highlights
-- NAV total return(1) of 2.0%
-- Proposed dividend for the period of 1.5875p per share
-- NAV per share of 101.9p (31 March 2016: 101.5p)
-- Drawn down GBP45.0m 12-year fixed rate loan and repaid GBP20m
five-year variable rate loan, incurring no early repayment fees
-- Net gearing(2) of 14.5% loan-to-value ("LTV") (31 March 2016:
19.2%), rising to 20.1% on completion of committed pipeline of new
acquisition opportunities
-- GBP30.5m of new equity raised during the Period at an average
premium of 5.1% to adjusted(3) NAV
Portfolio highlights
-- Portfolio value of GBP339.1m (31 March 2016: GBP318.2m)
-- GBP19.7m invested in five acquisitions and on-going developments
-- GBP2.3m portfolio valuation uplift from successful asset management initiatives
-- Disposal of non-core residential building for GBP1.2m, ahead of 31 March 2016 valuation
-- GBP22.0m committed pipeline of new acquisitions
(1) NAV movement plus dividends paid.
(2) Gross borrowings less unrestricted cash divided by portfolio
valuation.
(3) Premium adjusted to deduct dividends earned but not paid
post ex-dividend date.
Net asset value
The unaudited NAV of the Company at 30 June 2016 was GBP285.5
million, reflecting approximately 101.9 pence per share, an
increase of 0.4% since 31 March 2016:
Pence
per
share GBPm
---------------------------------------- ----------- ----------
NAV at 31 March 2016 101.5 255.1
Issue of equity (net of costs) 0.3 30.0
101.8 285.1
Valuation movements relating to:
- Asset management activity 0.9 2.3
- Other valuation movements (0.2) (0.5)
---------------------------------------- ----------- ----------
0.7 1.8
Acquisition costs (0.4) (1.1)
Net valuation movement 0.3 0.7
Income earned for the Period 2.5 6.4
Expenses and net finance costs for
the Period (1.0) (2.5)
Dividends paid (1.7) (4.2)
NAV at 30 June 2016 101.9 285.5
---------------------------------------- ----------- ----------
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 30 June 2016
and income for the Period, but does not include any provision for
the proposed dividend for the Period, to be paid on 30 September
2016. Following the UK's decision to leave the European Union
("EU"), financial markets have experienced significant turbulence
and volatility with the potential to impact on property valuations.
The Company's valuer, Lambert Smith Hampton, has prepared its
valuation immediately after the outcome of the EU referendum but it
was not possible to gauge its effect by reference to transactions
in the marketplace. In line with the approach adopted by other
valuers, Lambert Smith Hampton has therefore provided caveats to
its 30 June valuation.
The Company invested GBP19.7 million in five acquisitions during
the Period, acquiring:
-- A high street retail unit in Chester let to TSB and Chesca
for GBP2.05 million with a net initial yield ("NIY") of 5.87%;
-- An industrial unit in Tamworth let to DB Schenker for GBP4.7
million with an expected reversionary yield of circa 7%; and
-- A portfolio comprising two offices in Castle Donington and
Cheadle, let to National Grid and Wienerberger respectively, and an
industrial unit in Wolverhampton let to Assa Abloy, for GBP11.5
million, with a NIY of 8.04% and a reversionary yield of 9.63%.
Asset management
Our continuing focus on active asset management has resulted in
a GBP2.3 million valuation increase with further initiatives
expected to complete in the coming months.
Successful asset management strategies including rent reviews,
new lettings, lease extensions and the retention of tenants beyond
their contractual break clauses have again had a positive impact on
the portfolio's valuation and weighted average unexpired lease term
("WAULT"). The Company's WAULT to the first lease break or expiry
is 6.4 years.
Key asset management initiatives completed recently include:
-- Arrangement of simultaneous surrender and agreement of new
lease of a retail unit on High Street, Colchester to Metro Bank.
The new lease secures an increase in rent from GBP145,000 to
GBP200,000 and a lease term of 25 years, with a break option in
year 15.
-- Extending Geldard LLP's lease at Pride Park, Derby by
removing a break clause with expiry now in June 2023.
-- Extension of two leases at the multi-let industrial estate in
Chepstow with expiries now in May 2026.
-- Letting a vacant retail unit in Portsmouth.
In addition, the Company has sold a purpose-built student
residential building in Lenton, Nottingham for GBP1.2 million. The
property was sold ahead of cost and 31 March 2016 valuation and the
Company intends to use the proceeds from the disposal to fund
acquisitions better aligned to its stated investment strategy.
Commenting on the disposal, Richard Shepherd-Cross, Managing
Director of Custodian Capital Limited (the Company's external fund
manager), said:
"Due to the size and nature of use, this asset was identified as
being non-core within our ongoing strategy. Over the last two years
we have secured rental growth and now a profit on exit. We believe
the proceeds can be reinvested to produce an enhanced income return
which is a stronger fit with the balance of the portfolio and
better supports dividends and future dividend growth."
Property market
Commenting on the commercial property market, Richard
Shepherd-Cross said:
"Property funds have been much in the news over the last two
weeks as the EU referendum vote exacerbated a change in market
sentiment for commercial property, triggering the decision by most
of the largest property unit trusts to put a block on redemptions,
leading to a fall in share price of most listed property investment
companies ("PICs"). Most PICs saw share prices move to a discount
to NAV of up to 28%, followed by more recent recovery to stand at
an average of 6.1% discount to NAV by 15 July. By contrast the
impact on Custodian REIT's share price was minimal, maintaining a
small premium to NAV over the same period.
"Custodian REIT's recent relatively stable pricing reflects a
number of factors, including recognition by investors that the
comparatively high, consistent income return from a regionally
diverse portfolio should be unaffected by recent events and a lack
of exposure to Central London property, which may prove to be more
volatile in current market conditions.
"It is important to note the change in market sentiment is not
exclusively the result of the UK's vote to leave the EU. PIC shares
had been re-pricing and property unit trusts had been experiencing
redemptions since the start of the year, as the market started to
accept that the phase of excess demand driven capital growth,
particularly in central London offices and residential, was at an
end.
"We believe Custodian REIT's performance is more closely linked
to the underlying occupational property market than to capital
markets. The regional occupational markets are in good health
driven in part by a lack of supply, following many years of limited
development, which continues to put pressure on rents to grow and
is positive for occupancy rates.
"As the recent announcement of the letting to Metro Bank in
Colchester shows, we remain focused on enhancing the cash flow from
the portfolio through the careful asset management of the
properties. We continue to work closely with tenants to extend
leases and remove short-term risk from lease expiries.
"It is the careful asset management of the portfolio and the
focus on rental growth that underpin the security of the dividend,
which remains fully covered by rental income. While we can never
rule out some future impact on NAV as a result of falling
confidence in the property market, we believe the medium-term
picture for sustainable dividends is secure and there remains
realistic long-term potential for NAV growth."
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:
"Custodian REIT is currently well funded, with cash reserves and
undrawn debt facilities, and we have taken advantage of market
conditions to agree terms to acquire three properties following the
EU referendum result, let to strong tenants and which enhance the
portfolio mix. The Company remains in a strong position to
capitalise on further opportunities from either forced sellers or a
lack of confidence from competing buyers to make acquisitions which
will enhance dividend cover and future dividend growth.
"As smaller lot-size, regional markets did not witness the price
inflation which was a feature of London and large lot-sizes through
2015/16, we are not expecting the same valuation adjustments that
are being mooted in prime Central London markets. Of course, it is
still too early to see where market pricing settles but the stable
and relatively high income credentials of commercial property will
not be overlooked in a volatile, low return environment. In
regional markets this will help to maintain market pricing and in
Central London the weak pound may lead to continued investor
interest from overseas.
"While the 'gating' of open-ended property funds might seem
reminiscent of the 2008 property market crash, circumstances are
somewhat different. The open-ended funds are better prepared, with
larger reserves of cash and portfolios of 'liquid' assets. Listed
property companies and PICs have much stronger balance sheets, with
sustainable levels of gearing. We would not be surprised to see
some pricing adjustment, particularly at the 'sharp end' of the
market, but we are not anticipating a wholesale collapse in
investment demand. This is in no small part due to the widespread
availability of equity and debt both chasing reliable income in a
low return environment, supported by the dynamics of the
occupational market, which should lead to continued rental growth
and low vacancy rates."
Financing
Equity
The Company issued 29.0 million new ordinary shares of 1 pence
each in the capital of the Company during the Period ("the Shares")
raising GBP30.5 million (before costs and expenses). The Shares
were issued at an average premium of 5.1% to the NAV per share at
30 June 2016, after adjusting this NAV to recognise the dividend of
1.6625 pence per share paid on 30 June 2016 to shareholders on the
register at the close of business on 6 May 2016.
Debt
The Company operates a GBP35 million revolving credit facility
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 Scottish
Widows plc, which attracts interest fixed at 3.935% and is
repayable on 14 August 2025.
On 6 June 2016 the Company agreed and drew down a new GBP45
million term loan facility with Scottish Widows plc which attracts
interest fixed at 2.987% and is repayable on 5 June 2028. The
Company used the loan to repay in full a GBP20 million term loan
with Lloyds Bank plc, which attracted interest of 1.95% above three
month LIBOR, incurring no early repayment charges.
Portfolio analysis
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
30 since Weighting Weighting
Sector Jun 31 Mar by income by income
2016 2016 30 Jun 31 Mar
GBPm GBPm 2016 2016
---------------- -------------- -------------- --------------- ---------------
Industrial 133.7 0.0 43% 39%
Retail 94.8 1.4 20% 28%
Other(4) 59.3 0.0 19% 18%
Office 51.3 0.4 18% 15%
Total 339.1 1.8 100% 100%
------------------ -------------- -------------- --------------- ---------------
(4) 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.
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. 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 30 June 2016 is as follows:
Quarter Weighting
Valuation valuation Weighting by income
30 Jun 2016 movement by income 31 Mar
Location GBPm GBPm 30 Jun 2016 2016
------------------- ----------------- --------------- ----------------- ---------------
South-East 69.3 0.4 19% 20%
West Midlands 60.9 (0.6) 18% 16%
North-West 45.0 0.2 13% 12%
East Midlands 38.0 0.3 13% 12%
Eastern 31.8 1.3 9% 10%
South-West 31.7 0.0 9% 9%
Scotland 28.8 0.0 9% 10%
North-East 28.4 0.0 8% 9%
Wales 5.2 0.2 2% 2%
Total 339.1 1.8 100% 100%
--------------------- ----------------- --------------- ----------------- ---------------
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio.php.
Dividends
An interim dividend of 1.6625 pence per share for the quarter
ended 31 March 2016 was paid on 30 June 2016. The Board expects to
propose an interim dividend relating to the Period of 1.5875 pence
per share.
In the absence of unforeseen circumstances, the Board intends to
pay further quarterly dividends to achieve a target dividend(5) for
the year ending 31 March 2017 of 6.35 pence per share (2016: 6.25
pence per share). 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.
(5) 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.
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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