TIDMCREI
RNS Number : 5067M
Custodian REIT PLC
14 October 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THE INFORMATION IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT
FOR PUBLICATION, RELEASE OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN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.
14 October 2016
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 September 2016
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company, today reports its unaudited net asset value
("NAV") as at 30 September 2016 and highlights for the period from
1 July 2016 to 30 September 2016 ("the Period").
Financial highlights
-- NAV total return(1) for the Period of 1.6%
-- Dividend approved for the Period of 1.5875p per share
-- NAV per share of 101.9p (30 June 2016: 101.9p)
-- Net gearing(2) of 21.1% loan-to-value ("LTV") (30 June 2016:
14.5%), rising to 24.0% on completion of committed pipeline of new
acquisition opportunities
-- GBP12.6m of new equity raised during the Period at an average
premium of 4.9% to adjusted(3) NAV
-- Intention to raise up to GBP20m additional equity capital at
103.9p per share, a 3.5% premium to adjusted(3) NAV
-- Heads of terms agreed for a GBP50m, 15 year, fixed rate loan
Portfolio highlights
-- Portfolio value of GBP383.5m (30 June 2016: GBP339.1m)
-- GBP2.5m portfolio valuation uplift including GBP1.0m from
successful asset management initiatives
-- Occupancy 97.8% (30 June 2016: 97.0%)
-- GBP47.0m invested in 13 property acquisitions and on-going developments
-- Disposal of hotel for GBP4.5m, GBP0.3m ahead of 31 March 2016 valuation
-- GBP15.0m committed pipeline of property acquisition opportunities
-- Since the Period end, GBP13.4m invested in three property
acquisitions, increasing net gearing to 23.5% LTV with GBP32.0m
deployed from the Company's GBP35.0m revolving credit facility
(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 September 2016 was
GBP297.7 million, reflecting approximately 101.9 pence per share,
in line with 30 June 2016:
Pence
per share GBPm
---------------------------------------- --------------- ----------
NAV at 30 June 2016 101.9 285.5
Issue of equity (net of costs) 0.1 12.4
102.0 297.9
Valuation movements relating to:
- Asset management activity 0.4 1.0
- Other valuation movements 0.5 1.5
---------------------------------------- --------------- ----------
0.9 2.5
Acquisition costs (1.0) (2.7)
Net valuation movement (0.1) (0.2)
Income earned for the Period 2.2 6.2
Expenses and net finance costs for
the Period (0.6) (1.7)
Dividends paid (1.6) (4.5)
NAV at 30 September 2016 101.9 297.7
---------------------------------------- --------------- ----------
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 September
2016 and income for the Period, but does not include any provision
for the approved dividend for the Period, to be paid on 31 December
2016.
The Company completed the following acquisitions during the
Period:
-- A distribution unit in Winsford let to H&M for GBP5.55
million, with a net initial yield ("NIY") of 7.15%;
-- Two retail warehouse units in Swindon let to Go Outdoors and
B&M for GBP7.18 million, with a NIY of 6.86%;
-- A portfolio comprising 10 light industrial units ("the Light
Industrial Portfolio") for GBP26.75 million, with a NIY of 7.86%;
and
-- A retail warehouse unit in Leighton Buzzard let to Homebase
for GBP7.12 million with a NIY of 6.91%.
Since the Period end the Company has acquired three further
properties for GBP13.4m, increasing net gearing to 23.5% LTV with
GBP32.0 million now deployed from the Company's GBP35.0 million
revolving credit facility ("RCF").
Acquisition costs incurred during the Period were 5.7% of total
consideration, below typical purchaser's costs of 6.5% as the Light
Industrial Portfolio was purchased via a corporate acquisition,
allowing the Company to share net cost savings with the vendor.
Asset management
Our continuing focus on active asset management including rent
reviews, new lettings, lease extensions and the retention of
tenants beyond their contractual break clauses resulted in GBP1.0
million of the GBP2.5 million valuation increase, with further
initiatives expected to complete in the coming months.
These strategies have also had a positive impact on the
portfolio's weighted average unexpired lease term to the first
lease break or expiry of 6.2 years.
Key asset management initiatives undertaken during the Period
include:
-- Extending Brenntag UK's lease at an industrial unit in
Cambuslang with expiry moving from April 2021 to April 2031 with a
2.5% (annually compounded) minimum rental uplift from 2026;
-- Extending Tesco's lease at Causewayside House, Edinburgh with
expiry moving from December 2019 to December 2029;
-- Extending Savers' lease at a retail unit in Colchester with
expiry moving from December 2017 to December 2022;
-- Letting a vacant retail unit in Portsmouth to The Works on a
10 year lease with rent of GBP105,000 per annum;
-- Agreeing terms for a new letting at Tilbrook 44 in Milton
Keynes on a 10 year lease with a rent of GBP265,000 per annum.
The Company sold a 63 room hotel on Castlegate Business and
Leisure Park, Dudley for GBP4.45 million in July 2016, representing
a net initial yield of 5.08%. The property was sold ahead of cost
and valuation and the Company intends to use the proceeds from the
disposal to fund acquisitions better aligned to its stated
investment strategy.
Property market
Commenting on the commercial property market, Richard
Shepherd-Cross said:
"While it is too early to fully understand the impact of
'Brexit', with negotiations expected to start in March 2017, the
impact of the EU referendum vote is now becoming clear.
"The property market appeared to free-wheel for four months in
the run up to the referendum, with most market protagonists
unprepared to make decisions either to buy or to sell, or to lease
or not to lease. The widespread expectation was for a 'remain' vote
and the consequential market shock saw the share price of listed
property companies move to deep discounts to NAV, open-end funds
'gate' redemptions and property valuers to offer their valuations
with a 'Brexit' qualification.
"Three months later there is investment market activity, listed
property stocks have recovered (in the case of property investment
companies to pre-referendum levels), some of the open-ended funds
have re-opened and valuers have removed their qualification. The
market has been sufficiently active for valuations to be
benchmarked against arm's length transactions and there is more
data to support further yield hardening than softening.
"In central London markets, the collapse in Sterling provided a
fillip to both overseas investors and open-ended fund managers
alike, allowing many fund managers to provide the liquidity they so
badly needed by selling prime London assets to overseas buyers who
were energised by currency gains.
"At the opposite end of the market, domestic UK private
investors have been spurred on by the low cost of debt and the near
zero interest rates on their savings to increase their property
investment activity and we have witnessed upwards pressure on
pricing for higher quality, small lot sized, well-let assets.
"Through this turbulent period in the capital markets, while
money has been withdrawn from property leading to liquidity issues
for open-ended funds and listed property stock volatility, the
regional occupational property market has remained robust. This
market is experiencing rental growth, driven by a lack of supply,
limited development and a generally low rental base from which to
see growth. We believe it is this strength in the occupational
market that will be the engine of performance through the next
phase of the market. The focus will be on income, occupancy levels
and income growth. Regional markets and sub-GBP10m lot sizes in
particular (where there has been less market pressure in the last
two years) are well placed to out-perform whole market forecasts,
with the benefit of higher yielding assets, fundamentally
under-rented properties and a lack of supply that will sustain
rental growth.
"We believe Custodian REIT's performance can be further enhanced
through the careful asset management of the portfolio and it has
been telling that in almost all cases over the last 18 months our
tenants have elected to remain in occupation at lease break or
expiry. The occupancy rate now stands at 97.8%, up from 96.8% six
months ago. The continued focus on maintaining and enhancing the
cash flow from the portfolio supports our dividend strategy of full
income cover and sustainable growth. 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
income to support dividends is secure and there remains realistic
long-term potential for NAV growth."
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"As at 30 September 2016 Custodian REIT had completed GBP47.0
million of acquisitions following the EU referendum, demonstrating
our confidence in the market. September valuations recorded an
increase compared to purchase prices agreed in July when market
volatility had hit confidence. A further GBP13.4 million of
acquisitions have completed post Period end.
"Due to our confidence in regional property markets' ability to
out-perform in a low return environment, we intend to raise new
equity through the recently announced placing, to continue with
Custodian REIT's investment strategy. We have access to a strong
pipeline of opportunities and a track record of committing new
equity promptly to the property market. While we are considering a
number of current opportunities our ability to progress these is
subject to raising new equity.
"We are seeing some premium prices being paid for sub-GBP2
million properties, with a very active private investor market. We
have two small properties under offer to sell and intend to take
advantage of this pricing arbitrage to sell some smaller assets and
to re-invest in our core GBP2-10 million lot size assets where we
have yet to witness price inflation."
Financing
Equity
The Company issued 11.9 million new ordinary shares of 1 pence
each in the capital of the Company during the Period ("the Shares")
raising GBP12.6 million (before costs and expenses). The Shares
were issued at an average premium of 4.9% to the unaudited NAV per
share at 30 June 2016, adjusted to exclude the dividend paid on 30
September 2016 to shareholders on the register at the close of
business on 5 August 2016.
On 29 September 2016 the Company announced its intention to
raise up to GBP20 million additional equity capital through the
issue of new ordinary shares ("the New Shares") by way of a placing
("the Placing"). The Board has the ability to increase the quantum
of the Placing dependent on demand and pipeline opportunities. The
New Shares will be issued at 103.9 pence per share, reflecting a
premium of 3.5% to the unaudited NAV per share at 30 September
2016, adjusted to exclude the dividend relating to the Period
payable on 31 December 2016 to shareholders on the register on 14
October 2016. The net proceeds of the Placing are expected to be
used to repay an element of the GBP32 million currently drawn under
the Company's RCF.
Debt
The Company operates a GBP35 million RCF with Lloyds Bank plc,
which attracts interest of 2.45% above three month LIBOR 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 13 August 2025, and a GBP45
million term loan facility with Scottish Widows plc which attracts
interest fixed at 2.987% and is repayable on 5 June 2028.
Heads of Terms have been agreed for a new GBP50 million term
loan facility ("the New Loan"), repayable 15 years from drawdown at
a fixed rate of interest. The Company intends to use the proceeds
from the New Loan to first repay any remaining amounts drawn under
the RCF with any remaining proceeds expected to be used to acquire
additional UK commercial real estate that can further diversify the
portfolio and enhance income yield.
Portfolio analysis
At 30 September 2016 the Company's property portfolio comprised
128 assets and 251 tenants with a NIY of 6.95%.
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 Period Weighting Weighting
30 Sept valuation by income(4) by income(4)
2016 movement 30 Sept 30 Jun
Sector GBPm GBPm 2016 2016
---------------- -------------- --------------- ------------------ ------------------
Industrial 167.6 1.5 44% 40%
Retail 109.3 0.2 27% 27%
Other(4) 54.9 0.5 14% 16%
Office 51.7 0.3 15% 17%
Total 383.5 2.5 100% 100%
------------------ -------------- --------------- ------------------ ------------------
(4) Current passing rent plus estimated rental value of vacant
properties.
(5) 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 September 2016 is as follows:
Valuation Weighting Weighting
30 Sept Period valuation by income(6)
2016 movement 30 Sept by income(6)
Location 30 Jun
GBPm GBPm 2016 2016
----------------- -------- -------- -------------- --------------------- ------------------- -------------------
South-East 78.9 1.4 20% 19%
West Midlands 62.1 0.4 15% 18%
North-West 57.2 (0.1) 16% 13%
East Midlands 42.4 0.6 11% 13%
Eastern 31.9 0.1 10% 9%
South-West 41.2 0.0 10% 9%
Scotland 29.3 0.4 8% 9%
North-East 35.3 (0.3) 8% 8%
Wales 5.2 0.0 2% 2%
Total 383.5 2.5 100% 100%
------------------------------------- -------------- --------------------- ------------------- -------------------
(6) Current passing rent plus estimated rental value of vacant
properties.
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 30 June 2016 was paid on 30 September 2016. The Board has
approved an interim dividend relating to the Period of 1.5875 pence
per share payable on 31 December 2016 to shareholders on the
register on 14 October 2016.
In the absence of unforeseen circumstances, the Board intends to
pay further quarterly dividends to achieve a target dividend(7) 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.
(7) 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 GBP10 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 New 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 New 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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