TIDMCREI
RNS Number : 0355X
Custodian REIT PLC
21 November 2017
21 November 2017
Custodian REIT plc
("Custodian REIT" or "the Company")
Interim Results
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company focused on smaller lot sizes, today reports its
interim results for the six months ended 30 September 2017 ("the
Period").
Financial highlights and performance
-- NAV per share total return(1) of 4.2% (2016: 3.3%)
-- EPRA(2) earnings per share(3) 3.4p (2016: 3.0p)
-- Portfolio value of GBP474.3m (2016: GBP385.3m(4) )
-- Profit after tax of GBP13.2m (2016: GBP8.3m)
-- GBP24.8m(5) of new equity raised at an average premium of 11.0% to dividend adjusted NAV
-- Dividends of 3.2p per share paid in the Period(6)
-- Dividend approved for the quarter ended 30 September 2017 of 1.6125p per share
-- GBP56.1m(7) invested in 12 acquisitions during the Period
-- GBP1.7m valuation uplift from successful asset management
initiatives, GBP0.3m net valuation increase(8)
-- GBP1.0m profit on disposal of three properties for an aggregate consideration of GBP6.1m
-- EPRA occupancy(9) 96.7% (2016: 97.8%)
1. Net Asset Value ("NAV") movement including dividends paid and
approved relating to the Period on shares in issue at 31 March
2017.
2. The European Public Real Estate Association ("EPRA").
3. Profit after tax excluding net gain on investment property
divided by weighted average number of shares in issue.
4. Restated to reclassify the value of deferred lease incentives
from receivables to investment property.
5. Before costs and expenses of GBP0.3m.
6. Dividends per share of 1.5875p and 1.6125p paid during the
Period relating to the quarters ended 31 March 2017 and 30 June
2017 respectively.
7. Before acquisition costs of GBP3.4m.
8. Comprising GBP1.7m (2016: GBP3.3m) of valuation uplift from
successful asset management initiatives and GBP2.0m (2016: GBP0.2m)
of other valuation increases, less GBP3.4m (2016: GBP3.8m) of
acquisition costs.
9. Estimated rental value ("ERV") of let property divided by
total portfolio ERV.
Unaudited Unaudited
6 months 6 months Audited
to to 12 months
30 Sept 30 Sept to 31
2017 2016 Mar 2017
------------------------------ ---------- ---------- -----------
Total return
NAV per share total
return 4.2% 3.3% 8.5%
Share price total return(10) 5.3% 0.9% 10.3%
EPRA earnings per share
(p) 3.4 3.0 6.6
Capital values
NAV (GBPm) 378.6 297.1 351.9
NAV per share (p) 104.9 101.7 103.8
Share price (p) 114.75 105.0 112.0
Portfolio valuation
(GBPm) 474.3 385.3(4) 418.5(4)
Market capitalisation
(GBPm) 414.1 306.7 379.7
Premium to NAV per share 9.4% 3.2% 7.9%
Net gearing(11) 19.7% 21.0%(4) 14.4%(4)
10. Share price movement including dividends paid and approved
for the period.
11. Gross borrowings less unrestricted cash, divided by
portfolio value. Net gearing at 30 September 2017 was reported as
22.4% in the Q2 NAV statement due to incorrectly using a prior
period property valuation.
Alternative performance measures, including EPRA Best Practice
Recommendations, are used to assess the Company's performance.
Explanations as to why alternative performance measures give
valuable further insight into the Company's performance are given
in the Company's Annual Report. Supporting calculations for
alternative performance measures and reconciliations between
non-statutory performance measures and their IFRS equivalents are
set out in the Additional disclosures section of the interim
financial statements.
David Hunter, Chairman of Custodian REIT, said:
"I am pleased to report another successful period of capital
raising and investment. We continue to target growth to realise the
potential economies of scale offered by the Company's relatively
fixed cost base and the amendment to the Investment Manager's
charging structure announced in June, while maintaining the quality
of both properties and income.
"Occupational demand remains healthy and we are witnessing
rental growth and low vacancy rates across the portfolio, giving us
comfort that there is still an opportunity to invest. I believe the
current market supports our strategy of targeting high quality
properties across regional markets, with the type of institutional
grade property targeted by the Company showing value relative to
larger lots through a higher net income return and opportunities
for future rental growth.
"We remain well placed to meet our target of paying further
quarterly dividends, fully covered by income, to achieve an annual
dividend for the year of 6.45p per share. I expect occupational
demand, combined with a limited supply of new development, to drive
rental growth and lower vacancy rates across regional markets,
which will support our objectives to both grow the dividend on a
sustainable basis and deliver capital value growth for our
shareholders over the long-term."
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 MBE 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260
1000
www.numiscorp.com
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757
4984
www.camarco.co.uk
Chairman's statement
I am pleased to report the Company delivered further positive
returns for the six months ended 30 September 2017 with EPRA
earnings per share increasing from 3.0p to 3.4p, while expanding
the property portfolio through the investment of GBP56.1m in 12 new
acquisitions, funded by GBP24.8m raised from the issue of new
shares and GBP35m drawn from a new GBP50m term debt facility. We
continue to target growth to realise the potential economies of
scale offered by the Company's relatively fixed cost base and the
amendment to the Investment Manager's charging structure announced
in June, while adhering to the Company's investment policy and
maintaining the quality of both properties and income.
At the same time as growing the portfolio, we have continued to
pay fully covered dividends in line with target and minimised 'cash
drag' on the issue of new shares by taking advantage of the
flexibility offered by the Company's GBP35m revolving credit
facility.
The successful deployment of new monies on the acquisition of
high quality assets at an average net initial yield of 6.8%
supports our objective to deliver strong income returns from a
portfolio principally of sub GBP10m lots in strong, regional
markets.
The Company's share price performance has allowed the Board to
issue equity at an average premium of 11% above dividend adjusted
NAV, more than covering costs of issue and deployment.
Market
There has been significant new share issuance in the listed
property investment company space in 2017, largely focused on
specialist mandates such as social housing, student property and
healthcare, and on commercial property funds targeting long leases.
This activity is positive for the sector, demonstrating commercial
property's strength as an income generating asset in a low return
environment.
We believe an absolute focus on long leases can detract from a
property-focused approach and is making commercial property with
long income relatively expensive. Custodian REIT retains a
'property first' strategy, which we believe will deliver
sustainable long-term returns for shareholders.
Net asset value
The Company delivered NAV per share total return of 4.2% for the
Period. The first half was a period of significant new investment,
where the initial costs (primarily stamp duty) of investing
GBP56.1m in property acquisitions diluted NAV per share total
return by circa 1.0p, partially offset by raising GBP24.5m from the
issue of new equity (net of costs), which added 0.6p per share(12)
.
12. 0.5p per share through new issuance at a premium to NAV,
plus 0.1p per share notional dividend saving due to new shares
being issued ex-dividend.
Pence
per share GBPm
---------------------------------- ----------- -------
NAV at 31 March 2017 103.8 351.9
Issue of equity (net of costs) 0.5 24.5
104.3 376.4
---------------------------------- ----------- -------
Valuation movements relating
to:
* Asset management activity 0.5 1.7
* Other valuation movements 0.5 2.0
---------------------------------- ----------- -------
1.0 3.7
Impact of acquisition costs (1.0) (3.4)
---------------------------------- ----------- -------
Net valuation movement 0.0 0.3
Profit on disposal of investment
property 0.3 1.0
---------------------------------- ----------- -------
Net gain on investment property 0.3 1.3
---------------------------------- ----------- -------
Income 4.7 16.7
Expenses and net finance costs (1.3) (4.8)
Dividends paid(13) (3.1) (11.0)
NAV at 30 September 2017 104.9 378.6
---------------------------------- ----------- -------
13. Dividends of 3.2p per share were paid on shares in issue
throughout the Period. Dividends paid on shares in issue at the end
of the Period averaged 3.1p per share due to new shares being
issued after the Period's first ex-dividend date.
In addition to new acquisitions, activity during the Period also
centred on pro-active asset management, which generated GBP1.7m of
the GBP3.7m valuation uplift. During the remainder of this
financial year we intend to continue our asset management
activities and complete on the current acquisition pipeline,
deploying the new monies raised from recent equity issues and
drawing down debt to maintain net gearing at or around our target
level of 25% loan to value ("LTV").
Share price
Share price total return for the first half of the financial
year was 5.3%, with a closing price of 114.75p per share on 30
September 2017 representing a 9.4% premium to NAV. During the
Period the Company traded consistently at a premium to NAV, with
low volatility offering shareholders stable returns. I believe the
increasing premium to NAV has been a function of strong demand for
closed-ended property funds, the Company's regional property
investment strategy, focused asset management and the attractive
level of income offered by the Company's dividend policy.
Placing of new ordinary shares
The Company issued 21.8m new shares during the Period at an
average premium to dividend adjusted NAV of 11%. These issues have
been accretive to NAV, with positive investor demand for the
Company's shares a testament to the successful implementation of
our strategy to date.
Since the Period end, a further 7m new shares have been issued
raising GBP8.0m (before costs and expenses).
Borrowings
As at 30 September 2017 net gearing equated to 19.7% LTV. The
Board's strategy is to:
-- Increase debt facilities in line with portfolio growth, targeting net gearing of 25% LTV;
-- Facilitate expansion of the portfolio to take advantage of
expected rental growth and reduce ongoing charges; and
-- Reduce shareholders' exposure to risk by:
- Taking advantage of the prevailing low interest rates to
secure long-term, fixed rate borrowing; and
- Managing the weighted average maturity ("WAM") of the
Company's debt facilities.
The Company entered into an agreement with Aviva Investors Real
Estate Finance ("Aviva") on 5 April 2017 for Aviva to provide a new
15 year GBP50m term loan facility comprising two tranches of GBP35m
("Tranche 1") and GBP15m ("Tranche 2") respectively, resulting in
the Company now having the following agreed debt facilities:
-- A GBP35m revolving credit facility ("RCF") with Lloyds Bank
plc, which attracts interest of 2.45% above three month LIBOR and
expires on 13 November 2020;
-- A GBP20m term loan with Scottish Widows plc, which attracts
interest fixed at 3.935% and is repayable on 13 August 2025;
-- A GBP45m term loan facility with Scottish Widows plc which
attracts interest fixed at 2.987% and is repayable on 5 June 2028;
and
-- A GBP50m term loan facility with Aviva comprising:
a) GBP35m Tranche 1 repayable on 6 April 2032, attracting fixed annual interest of 3.02%; and
b) GBP15m Tranche 2 repayable on 3 November 2032, attracting fixed annual interest of 3.26%.
At the Period end the Company had circa GBP57m of available
funds to deploy on property acquisition opportunities, comprising
GBP7m uncommitted cash, GBP35m undrawn RCF and GBP15m Tranche
2.
The weighted average cost of the Company's agreed debt
facilities is 3.1% with a WAM of 10 years and 77% of the Company's
agreed debt facilities are at a fixed rate of interest,
significantly reducing interest rate risk.
Investment Manager
The Board is pleased with the performance of the Investment
Manager, particularly the timely deployment of new monies on high
quality assets, securing the earnings required to fully cover the
target dividend.
The Investment Manager is appointed under an investment
management agreement ("IMA") to provide property management and
administrative services to the Company. On 1 June 2017, the
Investment Manager was appointed for a further three years and fees
payable to the Investment Manager under the IMA were amended to
include:
-- A step down in the property management fee from 0.75% to
0.65% of NAV applied to NAV in excess of GBP500m; and
-- A step down in the administrative fee from 0.125% to 0.08% of
NAV applied to NAV between GBP200m and GBP500m and a further step
down to 0.05% of NAV applied to NAV in excess of GBP500m.
These amendments to the IMA secured an immediate reduction in
the administrative fee, increasing cover on target dividends for
the current year. Further growth in NAV, particularly above
GBP500m, will further reduce the Company's ongoing charges ratio
and increase dividend capacity.
Dividends
Income is a major component of total return. The Company paid
dividends totalling 3.2p per share during the six month Period, all
classified as property income distributions, comprising interim
dividends of 1.5875p per share and 1.6125p per share relating to
the quarters ended 31 March 2017 and 30 June 2017 respectively.
The Board has approved an interim dividend of 1.6125p per share
for the quarter ended 30 September 2017, which will be paid on 30
November 2017. In the absence of unforeseen circumstances the Board
believes the Company is well placed to meet its target of paying
further quarterly dividends, fully covered by income, to achieve an
annual dividend per share for the year ending 31 March 2018 of
6.45p (2017: 6.35p).
The Board's objective is to grow the dividend on a sustainable
basis, at a rate which is fully covered by projected net rental
income and does not inhibit the flexibility of the Company's
investment strategy.
Outlook
Our focus is on maintaining and enhancing cash flow from the
portfolio to support our objectives to pay fully covered dividends
and secure sustainable growth. We believe rental growth in regional
markets will be a key driver of the Company's performance, which
can be enhanced through the careful deployment of new debt and
equity and continued asset management of the portfolio. While we
can never rule out some future impact on NAV as a result of falling
confidence in the property market or general economic and political
turbulence, we believe our strategy of securing sustainable income
will support future dividends through any medium term market
volatility and deliver capital growth for shareholders over the
long-term.
David Hunter
Chairman
20 November 2017
Investment Manager's report
Investment market
Assets that produce reliable income returns secured against
contractual lease terms continue to attract a wide range of
investors. Last month Property Week reported that allocations to
commercial property now exceed 10% in global institutional
portfolios, up from 8.9% in 2013(14) . While a small percentage
increase, the absolute impact is significant, resulting in strong
competition for such assets when they come to market.
Our challenge in this environment is to find value and identify
areas of the market that appear mispriced against forecast
performance. There are more buyers than sellers in our target
market so we remain ever vigilant to pay a fair price, which is not
always the market price, and in many instances we are holding back
in the face of excessive competition. This issue is particularly
acute for properties let on long leases. However, we believe that
with greater liquidity in property markets and an increased supply
of investment opportunities the market should normalise before a
bubble emerges.
We have consciously targeted out of town retail (retail
warehousing) over the last 18 months, with the sector now
accounting for 16% of portfolio income (March 2017: 11%). We
believe retail warehousing is the sector of the physical retail
market that is complementary to online retailing, or at least not
negatively correlated to the growth of online retailing which, when
combined with a restricted planning regime, explains the record low
vacancy rates and rental growth we are experiencing.
14. Source: Propertyweek.com 13 October 2017.
Occupational market
Occupational demand remains healthy and we are witnessing rental
growth and low vacancy rates across the portfolio, giving us
comfort that there is still an opportunity to invest. There are no
signs of an oversupply of property in the occupational market and
there continues to be a low level of development. It is this,
rather than excessive demand, that is driving rental growth so we
believe the market should be better insulated from shocks than it
was in previous rental growth cycles.
Many regional markets are witnessing rental levels which remain
below the threshold necessary to bring forward new development. It
would appear that there is the opportunity for rental growth on
which the market must deliver before we see supply reach
equilibrium with demand, thus maintaining pressure on rents to
grow.
Across the market many tenant negotiations remain finely
balanced, with strong tenants keenly aware of their value to
landlords. However tenants are also accepting rental growth, which
they may have avoided for as long as 10 years in some instances.
This greater general acceptance of rental growth, combined with
limited supply of alternative premises, should make it possible to
minimise rental voids and secure rental growth across the Company's
portfolio in the remainder of the financial year ahead. The
Company's occupancy rate now stands at 96.7%.
Pipeline
We continue to find opportunities that fit our investment
strategy, as demonstrated by the investment of GBP56.1m during the
Period at an average net initial yield ("NIY") of 6.8%. We have
terms agreed on a further GBP18.9m of properties and are
considering an active and growing pipeline of new acquisition
opportunities as vendors prepare to conclude sales prior to the end
of 2017.
Investment objective
The Company's key objective is to provide shareholders with an
attractive level of income by maintaining the high level of
dividend, fully covered by earnings, with a conservative level of
gearing.
We continue to pursue a pipeline of new investment opportunities
with the aim of deploying the Company's undrawn debt facilities up
to the net gearing target of 25% LTV. While the cost of debt
remains near historical lows, we believe this strategy will improve
dividend cover as gearing increases towards the target level.
We remain committed to a strategy principally focused on sub
GBP10m lot size regional property. We expect to see long-term total
return out-performance from the higher income component of total
return compared to portfolios more concentrated on London and the
South East. Furthermore we expect strong asset management
performance as we secure rental increases and extend contractual
income.
The diversification strategy to invest principally in sub GBP10m
lots across sector, geography and a broad tenant mix stands the
portfolio in good stead against market shocks. The largest tenant
in the portfolio, B&M, represents only 2.7% of the rent roll
across three properties, with the average tenant representing only
0.5% of the rent roll.
Portfolio performance
During the Period the Company completed the following 12
property acquisitions:
Industrial
Location: Langley Mill Location: Eurocentral,
Tenant: Warburtons Motherwell
NIY: 6.29% Tenant: Next
Purchase price(15) : GBP2.15m NIY: 6.91%
Purchase price: GBP4.75m
Location: Livingston
Tenant: SCS
NIY: 7.50% (subject to
completion of rent review)
Purchase price: GBP2.59m
--------------------------
15. Purchase price represents purchase consideration before
acquisition costs of GBP3.5m and rent-free top-ups of GBP1.5m.
Retail Warehouse
Location: Gloucester Location: Galashiels
Tenant: Smyths Toys and Tenant: B&Q
Magnet NIY: 8.24%
NIY: 7.41% Purchase price: GBP3.15m
Purchase price: GBP4.73m
Location: Sheldon, Birmingham Location: Ashton-under-Lyne
Tenant: Dreams, Halfords Tenant: B&M
and Pets at Home NIY: 6.00%
NIY: 6.64% Purchase price: GBP6.6m
Purchase price: GBP5.1m
----------------------------
Location: Plymouth Location: Plymouth
Tenant: B&M and Magnet Tenant: SCS, Oak Furniture
NIY: 6.79% Land and McDonald's
Purchase price: GBP5.53m NIY: 6.74%
Purchase price: GBP7.49m
----------------------------
Other
Location: York Location: Stockport
Tenant: Evans Halshaw Tenant: Williams BMW
NIY: 5.75% and Mini
Purchase price: GBP3.92m NIY: 6.99%
Purchase price: GBP8.84m
Location: Salisbury
Tenant: Parkwood Health
& Fitness
NIY: 6.75%
Purchase price: GBP2.79m
--------------------------
At 30 September 2017 the Company's property portfolio comprised
141 assets, 206 tenants and 255 tenancies. 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. Sector
weightings are:
Valuation Weighting Weighting Gross Gross Net
30 Sept by income(16) by income valuation valuation valuation
2017 30 Sept 31 March movement movement(17) movement
Sector GBPm 2017 2017 GBPm % GBPm
------------------ ---------- --------------- ----------- ----------- -------------- -----------
Industrial 202.1 42% 45% 4.6 2.3% 4.0
Retail warehouse 80.2 16% 11% 1.3 1.9% (0.5)
Other(18) 73.3 15% 13% - - (1.0)
High street
retail 66.2 14% 17% (1.9) (2.6%) (1.9)
Office 52.5 13% 14% (0.3) (0.5%) (0.3)
474.3 100% 100% 3.7 0.3
------------------ ---------- --------------- ----------- ----------- -------------- -----------
16. Current passing rent plus ERV of vacant properties.
17. Excluding the impact of acquisitions and disposals.
18. Includes car showrooms, petrol filling stations, children's
day nurseries, restaurants, gymnasiums, hotels and healthcare
units.
Industrial property is a very good fit with the Company's
strategy where it is possible to acquire modern, 'fit-for-purpose'
buildings with high residual values (i.e. the vacant possession
value is closer to the investment value than in other sectors) and
where the real estate is less exposed to obsolescence. GBP1.6m of
the GBP4.6m gross valuation increase in the industrial sector was
driven by asset management initiatives, with occupational demand
driving rental growth and generating positive returns.
Retail represents 30% of total portfolio income, comprising 14%
high street and 16% out-of-town retail (retail warehousing). 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. These factors made retail
warehousing a target sector for acquisitions throughout the
Period.
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 in regional markets are still growing and supply is
constrained by a lack of development and the extensive conversion
of secondary offices to residential. However, we are conscious that
obsolescence and lease incentives 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.
For details of all properties in the portfolio please see
www.custodianreit.com/portfolio.
Portfolio risk
The portfolio's security of income is enhanced by 14% of income
benefitting from either fixed or indexed rent reviews, with
increasingly strong evidence of open market rental growth across
all sectors.
Short-term income at risk is a relatively low proportion of the
portfolio's total income, with 34% expiring in the next three years
(12% within one year).
Asset management
Our continuing focus on active asset management including new
lettings, lease extensions and the retention of tenants beyond
their contractual break clauses resulted in GBP1.7m of the GBP3.7m
valuation uplift during the Period, with further initiatives
expected to complete in the coming months.
Key asset management initiatives completed during the Period
include:
-- Finalising a rent review with DHL in Warrington at GBP0.31m
per annum, increasing valuation by GBP0.6m;
-- Exchanging on an agreement to lease a unit in Gateshead to WH
Partnership on a 10 year lease at GBP0.14m per annum, increasing
valuation by GBP0.4m;
-- Agreeing a rent review with Yesss Electrical in Normanton at
GBP0.33m per annum, increasing valuation by GBP0.4m; and
-- Removing an August 2018 break clause in Bunzl's lease in
Castleford increasing weighted average unexpired lease term to the
first lease break or expiry ("WAULT") from 1.2 years to 6.2 years,
increasing valuation by GBP0.2m.
A key part of effective portfolio management is the disposal of
assets which either no longer meet the long-term investment
strategy of the Company or which can be disposed of significantly
ahead of valuation, often to a special purchaser, such that holding
the asset is no longer appropriate. After focused pre-sale asset
management, the following three properties were sold during the
Period for a total of GBP6.1m, realising a profit on disposal of
GBP1m at an aggregate NIY of 5.5%, with gross proceeds 19.8% ahead
of aggregate valuation:
-- An 8,326 sq ft retail unit in Colchester for GBP4.25m, GBP0.7m ahead of valuation;
-- A 15,330 sq ft multi-tenanted industrial estate in Hinckley
for GBP1.2m, GBP0.2m ahead of valuation; and
-- A 9,332 sq ft multi-tenanted retail parade in Redcar for
GBP0.6m, GBP0.1m ahead of valuation.
The gains made on these disposals were primarily the result of a
sale to a special purchaser and the current strong market demand
for regional industrial units. We intend to use the proceeds from
these disposals to fund acquisitions better aligned to the
Company's long-term investment strategy.
The portfolio's WAULT decreased to 5.8 years from 5.9 years at
31 March 2017, primarily due to the completion of acquisitions
during the Period with a WAULT of 7.7 years partially offsetting
the 0.5 years natural decline through the passing of time. Although
we believe long leases are currently being over-valued by the
market and are unwilling to over-pay for long leases simply to
support the WAULT, we will continue to take advantage of situations
where we can find fair value and still benefit from long leases.
Our target WAULT for the portfolio is five years, but we believe
that with the current strength of the occupational market and a
portfolio comprising high quality properties, risk is better
managed by pursuing a strategy of buying high quality properties
that are likely to re-let should the tenant vacate, rather than
buying highly priced properties with long leases simply to mitigate
an artificial measure of risk.
Outlook
We expect to see larger funds selling smaller lots regarded as
being sub-scale for their ambitions, once they have further
invested their cash balances. While a number of competitor funds
are targeting sub GBP10m lot size properties, most are focused on
'value-add' opportunities. Custodian REIT follows a low to moderate
risk investment strategy, known as 'core' to 'core-plus', so we
anticipate the pipeline of new acquisition opportunities will offer
fundamentally strong investment credentials, but be subject to less
market competition relative to 'value-add' opportunities or larger
lots.
Rental growth in regional markets, driven by the significant
lack of supply of good quality, modern real estate combined with
healthy occupational demand, will be a key driver of
performance.
I am confident the Company's strategy of targeting income with
conservative gearing in a well-diversified regional portfolio will
continue to deliver the stable long-term returns demanded by our
shareholders.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
20 November 2017
Portfolio
Town Tenant % Portfolio
Income(19)
Industrial
Assa Abloy (sub-let to
Wolverhampton Kuehne + Nagel) 1.46%
Burton Kings Road Tyres 1.45%
Gateshead Multi-let 1.44%
Chesford Grange JTF Wholesale 1.38%
Ashby Teleperformance 1.32%
Winsford H&M 1.20%
Elma Electronics and
Bedford Vertiv Infrastructure 1.20%
Salford Restore 1.15%
Doncaster Portola Packaging 1.01%
Eurocentral,
Motherwell Next 1.00%
Normanton YESSS Electrical 0.96%
Stone Revlon International 0.92%
Redditch Amco Services 0.90%
Warrington DHL Supply Chain 0.88%
Redditch SAPA Profiles 0.87%
Biggleswade Turpin Distribution Services 0.85%
Cannock HellermannTyton 0.81%
Chepstow Multi-let 0.80%
Milton Keynes Massmould 0.80%
Kettering Multi-let 0.78%
Nuneaton DX Network Services 0.76%
Saint-Gobain Building
Milton Keynes Distribution 0.75%
EAF Supply Chain and
Warrington Synertec 0.74%
Plymouth Sherwin-Williams 0.73%
Bristol BSS 0.71%
West Bromwich OyezStraker 0.71%
Bedford Heywood Williams Components 0.67%
Coventry Royal Mail 0.67%
Stevenage Morrison Utility Services 0.64%
Daventry Cummins 0.63%
Manchester Unilin Distribution 0.63%
Avonmouth Superdrug Stores 0.61%
Oldbury Sytner 0.60%
Aberdeen DHL Supply Chain 0.59%
Southwark Constantine 0.57%
Christchurch Interserve Project Services 0.57%
Cambuslang Brenntag 0.56%
Sovereign Air Movement
and Nationwide Crash
Leeds Repair 0.53%
Warrington Dinex Exhausts 0.52%
Warwick Semcon 0.51%
Hamilton Ichor Systems 0.50%
Livingston SCS 0.50%
West Midlands Ambulance
Erdington Service NHS Trust 0.43%
Langley Mill Warburtons 0.41%
Sheffield Parkway Synergy Health 0.40%
Farnborough Triumph Structures 0.40%
Irlam Northern Commercials 0.40%
Liverpool Powder Systems 0.38%
Westerham Aqualisa Products 0.38%
Coalville MTS Logistics 0.37%
Castleford Bunzl 0.36%
Sheffield Arkote 0.34%
Liverpool DHL International 0.34%
Kettering Sealed Air 0.34%
North Warwickshire Borough
Atherstone Council 0.33%
River Island and Andrew
Sheffield Page 0.30%
Huntingdon PHS 0.30%
Kilmarnock Royal Mail 0.27%
Glasgow DHL Global Forwarding 0.26%
Normanton Acorn Web Offset 0.25%
Vacant units 0.91%
-------------------------------------------------- ------------
42.05%
-------------------------------------------------- ------------
19. % of portfolio passing rent plus ERV of vacant units.
Town Tenant % Portfolio
Income
Retail Warehouse
Winnersh Wickes and Pets at Home 1.63%
Swindon B&M and Go Outdoors 1.50%
Leighton Buzzard Homebase 1.49%
Banbury B&Q 1.36%
SCS and Oak Furniture
Plymouth Land 1.32%
Ashton-under-Lyne B&M 1.20%
Milton Keynes Staples UK 1.19%
Plymouth B&M and Magnet 1.14%
Gloucester Magnet and Smyths Toys 1.06%
Dreams, Halfords and
Sheldon Pets at Home 1.03%
Laura Ashley, Poundstretcher
Grantham and Carpetright 0.92%
Galashiels B&Q 0.78%
Stourbridge Multi-let 0.61%
Majestic Wine and Home
Portishead Bargains 0.54%
------------------- ------------------------------ ------------
15.77%
-------------------------------------------------- ------------
Town Tenant % Portfolio
Income
Other
Stockport Williams BMW and Mini 1.88%
Liverpool Multi-let 1.35%
Stoke Nuffield Health 0.99%
Gillingham Co-Op 0.76%
Leicester Magnet 0.71%
Perth Bannatyne Fitness 0.69%
York Evans Halshaw 0.68%
Portishead Travelodge 0.63%
Crewe MFA Bowl 0.57%
Salisbury Parkwood Health & Fitness 0.57%
Lincoln MKM Buildings Supplies 0.55%
Crewe Mecca Bingo 0.42%
Redhill Honda Motor Europe 0.40%
Bath Prezzo 0.35%
High Wycombe Stonegate Pub Co 0.33%
Mecca Bingo (sub-let
Crewe to Odeon Cinemas) 0.33%
Castleford MKM Buildings Supplies 0.31%
Torquay Las Iguanas 0.31%
Perth Frankie & Benny's 0.29%
Shrewsbury ASK 0.27%
Plymouth McDonald's 0.26%
Torquay Le Bistrot Pierre 0.26%
Leicester Pizza Hut 0.25%
Watford Pizza Hut 0.24%
Perth KFC 0.20%
Portishead JD Wetherspoons 0.20%
Basingstoke Bright Horizons 0.18%
Crewe Tile Giant 0.18%
Crewe Pizza Hut 0.18%
Torquay Loungers 0.17%
Chesham Bright Horizons 0.15%
Crewe F1 Autocentres 0.14%
Knutsford Knutsford Day Nursery 0.14%
Shrewsbury House of the Rising Sun 0.12%
Crewe Edmundson Electrical 0.08%
Torquay Costa Coffee 0.07%
Vacant units 0.05%
------------------------------------------ ------------
15.26%
------------------------------------------ ------------
Town Tenant % Portfolio
Income
High street
retail
Shrewsbury Multi-let 1.51%
Portsmouth Multi-let 1.49%
Southampton URBN 0.63%
Torpoint Sainsbury's 0.62%
Norwich Specsavers 0.57%
Guildford Reiss 0.56%
Shrewsbury Cotswold Outdoor 0.45%
Colchester Poundland 0.43%
Llandudno WHSmith 0.43%
Birmingham Multi-let 0.41%
Nottingham The White Company 0.40%
Weston-Super-Mare Superdrug Stores 0.35%
Glasgow Greggs 0.34%
Colchester Laura Ashley 0.33%
Edinburgh Phase Eight 0.31%
Der Touristik and Aslan
Chester Jewellery 0.31%
Portsmouth The Works 0.30%
Colchester Kruidvat Real Estate 0.28%
Scarborough Waterstones 0.26%
Taunton Wilko Retail 0.26%
Dumfries Iceland Foods 0.26%
Bury St Edmunds The Works 0.26%
Chester Ernest Jones 0.26%
Bedford Waterstones 0.24%
Colchester H Samuel 0.22%
Southsea Portsmouth City Council 0.22%
Colchester Lush 0.21%
Hinckley WHSmith 0.20%
Chester Chesca 0.20%
Edinburgh Tesco 0.20%
Chester Lloyds TSB 0.17%
Bury St Edmunds Savers Health & Beauty 0.15%
Chester Lakeland 0.14%
Cheltenham Betfred 0.12%
Southsea Superdrug Stores 0.11%
Cirencester Framemakers Galleries 0.10%
Colchester Leeds Building Society 0.10%
Cirencester Noa Noa 0.09%
Edinburgh R Scott Bathrooms 0.05%
Vacant Units 0.87%
--------------------------------------------- ------------
14.41%
--------------------------------------------- ------------
Town Tenant % Portfolio
Income
Office
West Malling Regus 1.59%
Birmingham Multi-let 1.33%
Edinburgh Multi-let 1.09%
Leeds Enact Conveyancing 0.97%
Leicester Mattioli Woods and Regus 0.92%
Castle Donnington National Grid 0.92%
Cheadle Wienerberger 0.86%
Leeds Enact Conveyancing 0.83%
Derby Edwards Geldards 0.73%
Mattioli Woods and Erskine
Leicester Murray 0.72%
Glasgow Multi-let 0.61%
Solihull Lyons Davidson 0.54%
Vacant units 1.40%
------------------------------------------------ ------------
12.51%
------------------------------------------------ ------------
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2017
Unaudited Audited
6 months Unaudited 12 months
to 30 6 months to
Sept to 30 31 Mar
2017 Sept 2016 2017
Note GBP000 GBP000 GBP000
----------------------------------- ----- ---------- ----------- -----------
Revenue 4 16,711 12,575 27,610
Investment management
fee (1,537) (1,245) (2,671)
Operating expenses of
rental property
- rechargeable to tenants (627) (590) (630)
- directly incurred (417) (569) (1,239)
Professional fees (202) (169) (337)
Directors' fees (84) (80) (160)
Administrative expenses (277) (232) (475)
Expenses (3,144) (2,885) (5,512)
Operating profit before
financing and revaluation
of investment property 13,567 9,690 22,098
----------------------------------- ----- ---------- ----------- -----------
Unrealised gains/(losses)
on revaluation of investment
property:
- relating to gross property
revaluations 9 3,747 3,502 9,016
- relating to acquisition
costs 9 (3,452) (3,759) (6,103)
----------------------------------- ----- ---------- ----------- -----------
Net valuation increase/(decrease) 295 (257) 2,913
Profit on disposal of
investment property 979 128 1,599
----------------------------------- ----- ---------- ----------- -----------
Net gains/(losses) on
investment property 1,274 (129) 4,512
Operating profit before
financing 14,841 9,561 26,610
----------------------------------- ----- ---------- ----------- -----------
Finance income 5 83 25 186
Finance costs 6 (1,693) (1,291) (2,591)
----------------------------------- ----- ---------- ----------- -----------
Net finance costs (1,610) (1,266) (2,405)
Profit before tax 13,231 8,295 24,205
----------------------------------- ----- ---------- ----------- -----------
Income tax 7 - - -
Profit and total comprehensive
income for the Period,
net of tax 13,231 8,295 24,205
Attributable to:
Owners of the Company 13,231 8,295 24,205
Earnings per ordinary
share:
Basic and diluted (p) 3 3.8 3.0 8.1
EPRA (p) 3 3.4 3.0 6.6
The profit for the Period arises from the Company's continuing
operations.
Condensed consolidated statement of financial position
As at 30 September 2017
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2017 2016 2017
Note GBP000 GBP000 GBP000
(restated) (restated)
------------------------------- ----- ---------- ------------ ------------
Non-current assets
Investment property 9 474,318 385,348 418,548
Total non-current assets 474,318 385,348 418,548
------------------------------- ----- ---------- ------------ ------------
Current assets
Trade and other receivables 10 9,056 2,234 4,453
Cash and cash equivalents 12 8,054 6,661 5,807
Total current assets 17,110 8,895 10,260
------------------------------- ----- ---------- ------------ ------------
Total assets 491,428 394,243 428,808
------------------------------- ----- ---------- ------------ ------------
Equity
Issued capital 14 3,609 2,921 3,390
Share premium 183,339 110,913 159,101
Retained earnings 191,610 183,250 189,386
Total equity attributable
to equity holders of the
Company 378,558 297,084 351,877
------------------------------- ----- ---------- ------------ ------------
Non-current liabilities
Borrowings 13 98,472 85,901 63,788
Other payables 571 571 571
------------------------------- ----- ---------- ------------ ------------
Total non-current liabilities 99,043 86,472 64,359
------------------------------- ----- ---------- ------------ ------------
Current liabilities
Trade and other payables 11 7,611 5,664 7,014
Deferred income 6,216 5,023 5,558
Total current liabilities 13,827 10,687 12,572
------------------------------- ----- ---------- ------------ ------------
Total liabilities 112,870 97,159 76,931
------------------------------- ----- ---------- ------------ ------------
Total equity and liabilities 491,428 394,243 428,808
------------------------------- ----- ---------- ------------ ------------
These interim financial statements of Custodian REIT plc were
approved and authorised for issue by the Board of Directors on 20
November 2017 and are signed on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the period ended 30 September 2017
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 to 30 to 31
Sept 2017 Sept Mar
2016 2017
Note GBP000 GBP000 GBP000
--------------------------------- ----- ----------- ---------- -----------
Operating activities
Profit for the Period 13,231 8,295 24,205
Net finance costs 5,6 1,610 1,266 2,405
Increase in fair value
of investment property 9 (295) 257 (2,913)
Profit on disposal of
investment property (excluding
costs of disposal) (1,067) (128) (1,807)
Income tax 7 - - -
Cash flows from operating
activities before changes
in working capital and
provisions 13,479 9,690 21,890
--------------------------------- ----- ----------- ---------- -----------
(Increase)/decrease in
trade and other receivables (4,605) 453 (3,225)
Increase in trade and
other payables 595 2,521 4,401
Cash generated from operations 9,469 12,664 23,066
--------------------------------- ----- ----------- ---------- -----------
Interest paid 6 (1,583) (1,026) (2,233)
--------------------------------- ----- ----------- ---------- -----------
Net cash flows from operating
activities 7,886 11,638 20,833
--------------------------------- ----- ----------- ---------- -----------
Investing activities
Purchase of investment
property (56,132) (66,591) (104,968)
Acquisition costs (3,452) (3,759) (6,103)
Disposal of investment
property 6,052 5,650 18,945
Interest received 5 21 25 33
Net cash from investing
activities (53,511) (64,675) (92,093)
--------------------------------- ----- ----------- ---------- -----------
Financing activities
Proceeds from the issue
of share capital 24,814 43,033 92,425
Payment of costs of share
issue (358) (585) (1,320)
New borrowings (net of
costs) 34,423 20,514 (1,000)
Dividends paid 8 (11,007) (8,719) (18,493)
Net cash from financing
activities 47,872 54,243 71,612
--------------------------------- ----- ----------- ---------- -----------
Net increase in cash and
cash equivalents 2,247 1,206 352
Cash and cash equivalents
at start of the Period 5,807 5,455 5,455
--------------------------------- ----- ----------- ---------- -----------
Cash and cash equivalents
at end of the Period 8,054 6,661 5,807
--------------------------------- ----- ----------- ---------- -----------
Condensed consolidated statements of changes in equity
For the period ended 30 September 2017
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
------------------------- ------- --------- ---------- ---------- ----------
As at 31 March 2017
(audited) 3,390 159,101 189,386 351,877
Profit and total
comprehensive income
for Period - - 13,231 13,231
Transactions with
owners of the Company,
recognised directly
in equity
Dividends 8 - - (11,007) (11,007)
Issue of share capital 14 219 24,238 - 24,457
As at 30 September
2017 (unaudited) 3,609 183,339 191,610 378,558
------------------------- ------- --------- ---------- ---------- ----------
For the period ended 30 September 2016
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
------------------------- ------- --------- ---------- ---------- ----------
As at 31 March 2016
(audited) 2,512 68,874 183,674 255,060
Profit and total
comprehensive income
for Period - - 8,295 8,295
Transactions with
owners of the Company,
recognised directly
in equity
Dividends 8 - - (8,719) (8,719)
Issue of share capital 409 42,039 - 42,448
As at 30 September
2016 (unaudited) 2,921 110,913 183,250 297,084
------------------------- ------- --------- ---------- ---------- ----------
Notes to the interim financial statements for the period ended
30 September 2017
1. Corporate information
The Company is a public limited company incorporated and
domiciled in England and Wales, whose shares are publicly traded on
the London Stock Exchange plc's main market for listed securities.
The interim financial statements have been prepared on a historical
cost basis, except for the revaluation of investment property, and
are presented in pounds sterling with all values rounded to the
nearest thousand pounds (GBP000), except when otherwise indicated.
The interim financial statements were authorised for issue in
accordance with a resolution of the Directors on 20 November
2017.
2. Basis of preparation and accounting policies
2.1. Basis of preparation
The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting. The interim
financial statements do not include all the information and
disclosures required in the annual financial statements. The annual
report for the year ending 31 March 2018 will be prepared in
accordance with International Financial Reporting Standards adopted
by the International Accounting Standards Board ("IASB") and
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC") of the IASB (together "IFRS")
as adopted by the European Union, and in accordance with the
requirements of the Companies Act applicable to companies reporting
under IFRS.
The information relating to the Period is unaudited and does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. A copy of the statutory
financial statements for the year ended 31 March 2017 has been
delivered to the Registrar of Companies. The auditor's report on
those financial statements was not qualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act
2006.
The interim financial statements have been reviewed by the
auditor and its report to the Company is included within these
interim financial statements.
Certain statements in this report are forward looking
statements. By their nature, forward looking statements involve a
number of risks, uncertainties or assumptions that could cause
actual results or events to differ materially from those expressed
or implied by those statements. Forward looking statements
regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the
future. Accordingly, undue reliance should not be placed on forward
looking statements.
2.2. Significant accounting policies
The principal accounting policies adopted by the Company and
applied to these interim financial statements are consistent with
those policies applied to the Company's annual report and financial
statements, except for the change in accounting presentation
described in paragraph 2.6.
2.3. Going concern
The Directors believe the Company is well placed to manage its
business risks successfully. The Company's projections show that
the Company should continue to be cash generative and able to
operate within the level of its current financing arrangements.
Accordingly, the Directors continue to adopt the going concern
basis for the preparation of the interim financial statements.
2.4. Segmental reporting
An operating segment is a distinguishable component of the
Company that engages in business activities from which it may earn
revenues and incur expenses, whose operating results are regularly
reviewed by the Company's chief operating decision maker to make
decisions about the allocation of resources and assessment of
performance and about which discrete financial information is
available. As the chief operating decision maker reviews financial
information for, and makes decisions about, the Company's
investment property as a portfolio the Directors have identified a
single operating segment, that of investment in commercial
properties.
2.5. Principal risks and uncertainties
The Company's assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the UK commercial property market in general, the particular
circumstances of the properties in which it is invested and their
tenants. Other risks faced by the Company include economic,
strategic, regulatory, management and control, financial and
operational.
These risks, and the way in which they are mitigated and
managed, are described in more detail under the heading 'Principal
risks and uncertainties' within the Company's Annual Report for the
year ended 31 March 2017. The Company's principal risks and
uncertainties have not changed materially since the date of that
report. The Company's principal risks and uncertainties are not
expected to change materially for the remaining six months of the
Company's financial year.
2.6. Change in accounting presentation
During the Period the classification of deferred lease
incentives has been reviewed and compared with industry peers,
resulting in a presentational change with no impact on total return
or NAV. These assets were previously reported as a separate
receivable and deducted from the independent property valuation in
arriving at the reported investment property balance. To align the
Company's accounting presentation with that adopted by many
industry peers, assets totalling GBP2.7m at 31 March 2017 and
GBP1.8m at 30 September 2016 have been reclassified from
receivables to investment property in retrospectively restating the
statement of financial position at those dates in these interim
financial statements.
3. Earnings per ordinary share
Basic earnings per share ("EPS") amounts are calculated by
dividing net profit for the Period attributable to ordinary equity
holders of the Company by the weighted average number of ordinary
shares outstanding during the Period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
Period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares. There are no dilutive
instruments.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 to 30 to
Sept 2017 Sept 2016 31 Mar
2017
---------------------------------- -------------- -------------- --------------
Net profit and diluted
net profit attributable
to equity holders of the
Company (GBP000) 13,231 8,295 24,205
Net (gains)/losses on investment
property (GBP000) (1,274) 129 (4,512)
---------------------------------- -------------- -------------- --------------
EPRA net profit attributable
to equity holders of the
Company (GBP000) 11,957 8,424 19,693
Weighted average number
of ordinary shares:
Issued ordinary shares
at start of the Period 339,013,345 251,242,071 251,242,071
Effect of shares issued
during the Period 8,829,071 25,045,659 47,489,151
---------------------------------- -------------- -------------- --------------
Basic and diluted weighted
average number of shares 347,842,416 276,287,730 298,731,222
Basic and diluted EPS (p) 3.8 3.0 8.1
---------------------------------- -------------- -------------- --------------
EPRA EPS (p) 3.4 3.0 6.6
---------------------------------- -------------- -------------- --------------
4. Revenue
Unaudited 6 months Unaudited Audited 12 months to
to 30 Sept 6 months 31 Mar
2017 to 30 Sept 2016 2017
GBP000 GBP000 GBP000
--------------------------------------------- ------------------ ---------------- --------------------
Gross rental income from investment property 16,084 11,985 26,980
Income from recharges to tenants 627 590 630
16,711 12,575 27,610
--------------------------------------------- ------------------ ---------------- --------------------
5. Finance income
Unaudited 6 months Unaudited 6 months Audited 12 months to
to 30 Sept 2017 to 30 Sept 2016 31 Mar
GBP000 GBP000 2017
GBP000
--------------- ------------------ ------------------ --------------------
Bank interest 21 25 33
Finance income 62 - 153
83 25 186
--------------- ------------------ ------------------ --------------------
6. Finance costs
Unaudited 6 months Unaudited Audited 12 months to
to 30 Sept 2017 6 months 31 Mar
GBP000 to 30 Sept 2017
2016 GBP000
GBP000
---------------------------------------------------- ------------------ ----------- --------------------
Amortisation of arrangement fees on debt facilities 110 265 358
Bank interest 1,583 1,026 2,233
1,693 1,291 2,591
---------------------------------------------------- ------------------ ----------- --------------------
During the period ended 30 September 2016 the Company repaid a
GBP20m term loan with Lloyds Bank plc resulting in one-off costs of
GBP0.165m related to the accelerated amortisation of the associated
deferred arrangement fees.
7. Income tax
The effective tax rate for the Period is lower than the standard
rate of corporation tax in the UK during the Period of 19.0%. The
differences are explained below:
Unaudited 6 months Unaudited Audited 12 months to
to 30 Sept 2017 6 months 31 Mar
GBP000 to 30 Sept 2016 2017
GBP000 GBP000
---------------------------------------------------------- ------------------ ---------------- --------------------
Profit before income tax 13,231 8,295 24,205
---------------------------------------------------------- ------------------ ---------------- --------------------
Tax charge on profit at a standard rate of 19.0% (30
September 2016 20.0%, 31 March 2017:
20.0%) 2,514 1,659 4,841
Effects of:
REIT tax exempt rental profits and gains (2,514) (1,659) (4,841)
Income tax expense for the Period - - -
---------------------------------------------------------- ------------------ ---------------- --------------------
Effective income tax rate 0.0% 0.0% 0.0%
---------------------------------------------------------- ------------------ ---------------- --------------------
The Company operates as a Real Estate Investment Trust and hence
profits and gains from the property investment business are
normally exempt from corporation tax.
8. Dividends
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 to 30 to
Sept Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
------------------------------ ---------- ---------- -----------
Interim equity dividends
per ordinary share relating
to the quarters ended:
31 March 2016: 1.6625p - 4,227 4,227
30 June 2016: 1.5875p - 4,492 4,492
30 September 2016: 1.5875p - - 4,638
31 December 2016: 1.5875p - - 5,136
31 March 2017: 1.5875p 5,398 - -
30 June 2017: 1.6125p 5,609 - -
11,007 8,719 18,493
------------------------------ ---------- ---------- -----------
All dividends paid are classified as property income
distributions.
The Directors approved an interim dividend relating to the
quarter ended 30 September 2017 of 1.6125p per ordinary share in
October 2017 which has not been included as a liability in these
interim financial statements. This interim dividend is expected to
be paid on 30 November 2017 to shareholders on the register at the
close of business on 27 October 2017.
In the absence of unforeseen circumstances, the Board intends to
pay further quarterly dividends to achieve an annual dividend of
6.45p per share for the financial year ending 31 March 2018(20)
.
20. 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.
9. Investment property
GBP000
(Restated)
------------------------------------ --- ------------
At 31 March 2017 (as previously
reported) 415,812
Prior period adjustment (Note 2.6) 2,736
----------------------------------------- ------------
At 31 March 2017 (as restated) 418,548
Gross valuation gain 3,747
Acquisition costs (3,452)
----------------------------------------- ------------
Net revaluation gain 295
Lease incentives 876
Additions (including acquisition
costs) 59,584
Disposals (4,985)
As at 30 September 2017 474,318
----------------------------------------- ------------
Included in investment property is GBP3.6m relating to an
ongoing development at Stevenage.
The investment property is stated at the Directors' estimate of
its 30 September 2017 fair values. Lambert Smith Hampton Group
Limited ("LSH"), a professionally qualified independent valuer,
valued the properties as at 30 September 2017 in accordance with
the Appraisal and Valuation Standards published by the Royal
Institution of Chartered Surveyors. LSH has recent experience in
the relevant location and category of the properties being
valued.
Investment property has been valued using the investment method
which involves applying a yield to rental income streams. Inputs
include yield, current rent and ERV. For the Period end valuation,
the equivalent yields used ranged from 4.9% to 9.0%. Valuation
reports are based on both information provided by the Company e.g.
current rents and lease terms which are derived from the Company's
financial and property management systems are subject to the
Company's overall control environment, and assumptions applied by
the valuer e.g. ERVs and yields. These assumptions are based on
market observation and the valuer's professional judgement. In
estimating the fair value of the property, the highest and best use
of the properties is their current use.
10. Trade and other receivables
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
(restated) (restated)
Trade receivables 3,437 1,653 1,342
Other receivables 5,167 308 2,771
Prepayments and accrued
income 452 273 340
9,056 2,234 4,453
------------------------- ---------- ------------ ------------
The Company has provided fully for those receivable balances
that it does not expect to recover. This assessment has been
undertaken by reviewing the status of all significant balances that
are past due and involves assessing both the reason for non-payment
and the creditworthiness of the counterparty.
11. Trade and other payables
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
Falling due in less than
one year:
Trade and other payables 638 958 608
Social security and other
taxes 3,142 1,607 2,423
Accruals 2,442 2,652 2,761
Rental deposits and retentions 1,389 447 1,222
7,611 5,664 7,014
-------------------------------- ---------- ---------- --------
The Directors consider that the carrying amount of trade and
other payables approximates their fair value. Trade payables and
accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. For most suppliers interest is charged
if payment is not made within the required terms. Thereafter,
interest is chargeable on the outstanding balances at various
rates. The Company has financial risk management policies in place
to ensure that all payables are paid within the credit
timescale.
12. Cash and cash equivalents
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
Cash and cash equivalents 8,054 6,661 5,807
--------------------------- ---------- ---------- --------
Cash and cash equivalents include GBP1.4m (30 September 2016:
GBP0.4m and 31 March 2017: GBP1.3m) of restricted cash comprising
rental deposits and retentions held on behalf of tenants.
13. Borrowings
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
Falling due in more than
one year:
Bank borrowings 100,000 87,000 65,000
Costs incurred in the arrangement
of bank borrowings (1,528) (1,099) (1,212)
98,472 85,901 63,788
----------------------------------- ---------- ---------- --------
On 5 April 2017, the Company and Aviva entered into an agreement
for Aviva to provide the Company with a new term loan facility of
GBP50m. The loan is secured by way of a first charge over a
discrete portfolio of properties, providing the lender with a
maximum LTV ratio of 50% on those properties specifically charged
to it and a floating charge. The Company drew down the first
tranche of GBP35m on 6 April 2017, which is repayable on 6 April
2032 with a fixed rate of interest of 3.02% per annum payable on
the balance, and drew down the second tranche of GBP15m on 3
November 2017, which is repayable on 3 November 2032 with a fixed
rate of interest of 3.26% per annum payable on the balance.
All of the Company's borrowing facilities require minimum
interest cover of 250% of the net rental income of the security
pool. The maximum LTV of the Company combining the value of all
property interests (including the properties secured against the
facilities) must be no more than 35%.
The Company's borrowing position at 31 March 2017 is set out in
the Annual Report for the year ended 31 March 2017.
14. Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
------------------------ ---------------- ---------
At 30 September 2016 292,132,071 2,921
Issue of share capital 46,881,274 469
At 31 March 2017 339,013,345 3,390
Issue of share capital 21,840,000 219
At 30 September 2017 360,853,345 3,609
------------------------ ---------------- ---------
The Company has made further issues of new shares since the
Period end, which are detailed in Note 17.
The following table describes the nature and purpose of each
reserve within equity:
Reserve Description and purpose
------------------ ------------------------------
Share premium Amounts subscribed for
share capital in excess
of nominal value less any
associated issue costs
that have been capitalised.
Retained earnings All other net gains and
losses and transactions
with owners (e.g. dividends)
not recognised elsewhere.
15. Financial instruments
Fair values
The fair values of financial assets and liabilities are not
materially different from their carrying values in the interim
financial statements. The IFRS 13 Fair Value Measurement fair value
hierarchy levels are as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets and liabilities;
-- Level 2 - inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for the assets or liability that are not
based on observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during
the Period. The main methods and assumptions used in estimating the
fair values of financial instruments and investment property are
detailed below.
Investment property - level 3
Fair value is based on valuations provided by an independent
firm of chartered surveyors and registered appraisers. These values
were determined after having taken into consideration recent market
transactions for similar properties in similar locations to the
investment property held by the Company. The fair value hierarchy
of investment property is level 3. At 30 September 2017, the fair
value of investment property was GBP474.3m and during the Period
the net valuation increase was GBP0.3m.
Interest bearing loans and borrowings - level 3
As at 30 September 2017 the amortised cost of the Company's
loans with Lloyds Bank plc, Scottish Widows plc and Aviva
approximated their fair value.
Trade and other receivables/payables - level 3
The carrying amount of all receivables and payables deemed to be
due within one year are considered to reflect the fair value.
16. Related party transactions
Transactions with directors
Each of the directors is engaged under a letter of appointment
with the Company and does not have a service contract with the
Company. Under the terms of their appointment, each director is
required to retire by rotation and seek re-election at least every
three years. Each director's appointment under their respective
letter of appointment is terminable immediately by either party
(the Company or the director) giving written notice and no
compensation or benefits are payable upon termination of office as
a director of the Company becoming effective.
Ian Mattioli is Chief Executive of Mattioli Woods plc ("Mattioli
Woods"), the parent company of the Investment Manager, and is a
director of the Investment Manager. As a result, Ian Mattioli is
not independent. The Company Secretary, Nathan Imlach, is also a
director of Mattioli Woods and the Investment Manager.
Investment Management Agreement ("IMA")
On 25 February 2014 the Company entered into a three year IMA
with the Investment Manager commencing on Admission, under which
the Investment Manager was delegated responsibility for the
property management of the Company's assets, subject to the overall
supervision of the Directors. The Investment Manager manages the
Company's investments in accordance with the policies laid down by
the Board and the investment restrictions referred to in the
IMA.
During the first two months of the Period the Investment Manager
was paid an annual management fee calculated by reference to the
NAV of the Company each quarter as follows:
-- 0.9% of the NAV of the Company as at the relevant quarter day
which is less than or equal to GBP200m divided by 4; plus
-- 0.75% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m divided by 4.
The Investment Manager provides day-to-day administration of the
Company and provides the services of the Company Secretary,
including maintenance of accounting records and preparing the
annual financial statements of the Company. During the first two
months of the Period the Company paid the Investment Manager an
administrative fee equal to 0.125% of the NAV of the Company at the
end of each quarter.
On 1 June 2017 the terms of the IMA were varied with effect from
that date to extend the appointment of the Investment Manager for a
further three years and to introduce further fee hurdles, such that
annual management fees payable to the Investment Manager for the
last four months of the Period were:
-- 0.9% of the NAV of the Company as at the relevant quarter day
which is less than or equal to GBP200m divided by 4;
-- 0.75% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m but below GBP500m divided by 4;
plus
-- 0.65% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP500m divided by 4.
Administrative fees payable to the Investment Manager for the
last four months of the Period were:
-- 0.125% of the NAV of the Company as at the relevant quarter
day which is less than or equal to GBP200m divided by 4;
-- 0.08% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m but below GBP500m divided by 4;
plus
-- 0.05% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP500m divided by 4.
The IMA is terminable by either party by giving not less than 12
months' prior written notice to the other, which notice may only be
given after the expiry of the three year term. The IMA may also be
terminated on the occurrence of an insolvency event in relation to
either party, if the Investment Manager is fraudulent, grossly
negligent or commits a material breach which, if capable of remedy,
is not remedied within three months, or on a force majeure event
continuing for more than 90 days.
The Investment Manager receives a fee of 0.25% (2016: 0.25%) of
the aggregate gross proceeds from any issue of new shares in
consideration of the marketing services it provides to the
Company.
During the Period the Company paid the Investment Manager
GBP1.54m (H1 2016: GBP1.24m, 2017: GBP2.67m) in respect of annual
management charges, GBP0.20m (H1 2016: GBP0.17m, 2017: GBP0.36m) in
respect of administrative fees and GBP0.05m (H1 2016: GBP0.13m,
2017: GBP0.25m) in respect of marketing fees.
Properties
The Company owns MW House and Gateway House located at Grove
Park, Leicester, which are partially let to Mattioli Woods.
Mattioli Woods paid the Company rentals of GBP0.21m (H1 2016:
GBP0.21m, 2017: GBP0.41m) during the Period.
17. Events after the reporting date
Property acquisitions and disposals
On 4 October 2017 the Company acquired two further
properties:
-- A high street retail unit in Cardiff for GBP5.16m let to Card
Factory and Specsavers with a NIY of 7.46%; and
-- A retail park in Burton upon Trent for GBP8.45m, comprising
three units let to Wickes, The Range and HSS Hire with a NIY of
6.45%.
New equity
Since the reporting date the Company raised GBP8.0m (before
costs and expenses) through the issue of 7,000,000 new ordinary
shares of 1p each in the capital of the Company.
Borrowings
On 3 November 2017, the Company drew down Tranche 2 of the Aviva
facility, repayable on 3 November 2032 with a fixed rate of
interest of 3.26% per annum payable on the balance.
Independent auditor's review report to Custodian REIT plc for
the period ended 30 September 2017
We have been engaged by the Company to review the condensed set
of interim financial statements in the interim financial statements
for the period ended 30 September 2017 which comprise the condensed
consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed
consolidated statement of cash flows, the condensed consolidated
statement of changes in equity and the related notes 1-17. We have
read the other information contained in the interim financial
statements and considered whether they contain any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial statements are the responsibility of, and
have been approved by, the Directors. The Directors are responsible
for preparing the interim financial statements in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in the notes, the annual financial statements of
the Company are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in these interim financial statements has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
statements based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial statements for the period ended 30
September 2017 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 November 2017
Directors' responsibilities for the interim financial
statements
The Directors have prepared the interim financial statements of
the Company for the period from 1 April 2017 to 30 September
2017.
We confirm that to the best of our knowledge:
a) The condensed interim financial statements have been prepared
in accordance with IAS 34 'Interim Financial Reporting' as adopted
by the EU;
b) The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.4R;
c) The interim financial statements includes a fair review of
the information required by DTR 4.2.7R of the Disclosure and
Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year,
and their impact on the Condensed Financial Statements, and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
d) The interim financial statements includes a fair review of
the information required by DTR 4.2.8R of the Disclosure and
Transparency Rules, being material related party transactions that
have taken place in the first six months of the current financial
year and any material changes in the related party transactions
described in the last Annual Report.
A list of the current directors of Custodian REIT plc is
maintained on the Company's website at www.custodianreit.com.
By order of the Board
David Hunter
Chairman
20 November 2017
Additional disclosures
1 NAV per share total return
A measure of performance taking into account both capital
returns and dividends by assuming dividends declared are reinvested
at NAV at the time the shares are quoted ex-dividend, shown as a
percentage change from the start of the period.
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 to 30 to
Sept Sept 31 Mar
2017 2016 2017
Net assets (GBP000) 378,558 297,084 351,877
Shares in issue at the period
end (thousands) 360,853 292,132 339,013
NAV per share at the start
of the period (p) 103.8 101.5 101.5
Dividends per share for the
period (p) 3.225 3.175 6.35
NAV per share at the end of
the period (p) 104.9 101.7 103.8
NAV total return 4.2% 3.3% 8.5%
------------------------------- ---------- ---------- -----------
2 Net gearing
Gross borrowings less unrestricted cash, divided by portfolio
value.
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
(restated) (restated)
Gross borrowings 100,000 87,000 65,000
Cash (8,054) (6,661) (5,807)
Restricted cash 1,389 447 1,307
Net borrowings 93,335 80,786 60,500
----------------------- ---------- ------------ ------------
Investment property 474,318 385,348 418,548
----------------------- ---------- ------------ ------------
Net gearing 19.7% 21.0% 14.4%
----------------------- ---------- ------------ ------------
3 EPRA EPS
EPRA earnings represent the earnings from core operational
activities, excluding investment property valuation movements and
gains or losses on asset disposals. It demonstrates the extent to
which dividend payments are underpinned by recurring operational
activities.
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 to 30 to
Sept Sept 31 Mar
2017 2016 2017
GBP000 GBP000 GBP000
Profit for the period after
taxation 13,231 8,295 24,205
Net (gain)/loss on investment
property (1,274) 129 (4,512)
EPRA earnings 11,957 8,424 19,693
------------------------------- ---------- ---------- -----------
Weighted average number of
shares in issue (thousands) 347,842 276,288 298,731
------------------------------- ---------- ---------- -----------
EPRA EPS (p) 3.4 3.0 6.6
------------------------------- ---------- ---------- -----------
4 EPRA occupancy rate
EPRA occupancy rate is the ERV of occupied space as a percentage
of the ERV of the whole portfolio.
Unaudited Unaudited Audited
as at as at as at
30 Sept 30 Sept 31
2017 2016 Mar 2017
GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- ----------
Annualised potential rental
value of occupied premises 34,189 28,457 30,748
Annualised potential rental
value for the property portfolio 35,361 29,110 31,197
----------------------------------- ---------- ---------- ----------
EPRA occupancy rate 96.7% 97.8% 98.6%
----------------------------------- ---------- ---------- ----------
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
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