Custodian REIT plc : Unaudited Net Asset Value as at 30 September 2018 (736493)
October 23 2018 - 3:33AM
UK Regulatory
Dow Jones received a payment from EQS/DGAP to publish this press
release.
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 30 September 2018
23-Oct-2018 / 08:26 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
23 October 2018
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 September 2018
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 30
September 2018 and highlights for the period from 1 July 2018 to 30
September 2018 ("the Period").
Financial highlights
· NAV total return per share1 for the Period of 2.3%
· Dividend per share approved for the Period of 1.6375p
· NAV per share of 108.6p (30 June 2018: 107.8p)
· NAV of GBP427.5m (30 June 2018: GBP416 .9m)
· Net gearing2 of 20.5% loan-to-value (30 June 2018: 21.0%)
· GBP8.4m3 of new equity raised during the Period at an average premium of
13.2% to dividend adjusted NAV per share at 30 June 2018
· Market capitalisation of GBP478.1m (30 June 2018: GBP467.3m)
Portfolio highlights
· Portfolio value of GBP547.0m (30 June 2018: GBP537.4m)
· GBP19.2m4 invested in five property acquisitions, one development and one
refurbishment
· GBP2.2m valuation increase from successful asset management initiatives
· EPRA occupancy5 96.9% (30 June 2018: 96.7%)
· GBP4.4m6 gross profit on disposal of two properties for an aggregate
consideration of GBP13.1m
1 NAV per share movement including dividends approved for the Period.
2 Gross borrowings less unrestricted cash divided by portfolio valuation.
3 Before costs and expenses of GBP0.1m.
4 Before acquisition costs of GBP1.1m.
5 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
6 Before disposal costs of GBP0.1m.
Net asset value
The unaudited NAV of the Company at 30 September 2018 was GBP427.5m,
reflecting approximately 108.6p per share, an increase of 0.7% since 30 June
2018:
Pence per GBPm
share
NAV at 30 June 2018 107.8 416.9
Issue of equity (net of costs) 0.2 8.3
Valuation movements relating to:
- Profit on disposal of investment 1.1 4.3
properties
- Asset management activity 0.5 2.2
- Other valuation movements (0.9) (3.7)
0.7 2.8
Acquisition costs (0.3) (1.1)
Net valuation movement 0.4 1.7
Income earned for the Period 2.5 9.7
Expenses and net finance costs for the (0.7) (2.8)
Period
Dividends paid7 (1.6) (6.3)
NAV at 30 September 2018 108.6 427.5
7 Dividends of 1.6375p per share were paid on shares in issue throughout the
Period.
During the Period the initial costs (primarily stamp duty) of investing
GBP19.2m (before acquisition costs) diluted NAV per share total return by
0.3p, partially offset by raising new equity of GBP8.3m (net of costs) at an
average 13.2% premium to dividend adjusted NAV, which added 0.2p per share.
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 2018 and income for the
Period but does not include any provision for the approved dividend for the
Period to be paid on 30 November 2018.
The Company completed the following investments during the Period:
· Acquisition of a car dealership in Shrewsbury occupied by TJ Vickers for
GBP1.675m, with a net initial yield8 ("NIY") of 6.75% and a weighted average
unexpired lease term to first break or expiry ("WAULT") of seven years;
· Acquisition of two car dealerships in Stafford and Shrewsbury occupied
by VW Group UK Limited for an aggregate purchase price of GBP7.375m, with a
NIY of 6.38% and a WAULT of six years;
· Acquisition of a distribution unit on Hilton Business Park, Derby
occupied by Daher Aerospace Limited for GBP5.585m, with a NIY of 6.72% and a
WAULT of 13 years;
· Acquisition of an office building within Riverside Exchange, Sheffield
occupied by branches of the Home Office and the Health and Safety
Executive for GBP3.56m, with a NIY of 9.79% and a WAULT of four years; and
· Capital expenditure of GBP1.0m, primarily on the development of a
Starbucks drive-through restaurant in Maypole, Birmingham and the
refurbishment of a multi-let office building in Birmingham.
8 Passing rent divided by property valuation plus assumed purchaser's costs.
Asset management
Owning the right properties at the right time is a key element of effective
portfolio management, which necessarily involves some selling from time to
time to balance the portfolio. While Custodian REIT is not a trader,
identifying opportunities to dispose of assets significantly ahead of
valuation, or that no longer fit the Company's investment strategy, is
important. During the Period the following properties were sold:
· An industrial unit in Southwark for GBP12.0m, GBP4.4 million (58%) ahead of
its 30 June 2018 valuation. The lack of available investment stock in
Central London, strong investment demand and a recent, substantial rental
increase had led to significant recent valuation increases. In addition,
redevelopment potential and the identification of a special purchaser
offering a NIY of 2.95% allowed us to crystallise a substantial profit;
and
· A town centre retail unit in Dumfries for GBP1.125m, in line with its 30
June 2018 valuation, as we did not anticipate future rental growth.
A continued focus on active asset management including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their
contractual break clauses resulted in a GBP2.2m valuation increase in the
Period, primarily due:
· Letting the Company's largest vacant property, an industrial unit in
Tamworth, to ICT Express on a 10 year lease without break at a 28% higher
rent, which increased the valuation by GBP1.3m;
· Agreeing a new 10 year lease with Teleperformance of an industrial unit
in Ashby-de-la-Zouch, with annual rent increasing by 15% to GBP0.5m, which
increased the valuation by GBP0.5m;
· Documenting a reversionary lease with Synergy Health at an industrial
building at Sheffield Parkway to extend the lease by 7.5 years until 2034
and adjust the rent review pattern to increase in line with RPI, which
increased the valuation by GBP0.2m;
· Securing an open market 10% rental increase at an office in, Grove Park,
Leicester which increased the valuation by GBP0.1m; and
· Securing an open market 7% rental increase at a public house in High
Wycombe, which increased the valuation by GBP0.1m.
Further initiatives on other properties currently under review are expected
to complete during the current quarter, although growth in rents and
positive asset management outcomes have been tempered by the following
recent events:
· The company voluntary arrangement ("CVA") of Homebase resulted in the
Company experiencing a 35% annual rent reduction from GBP524k to GBP341k, but
with the opportunity to terminate the lease if better terms can be agreed
with an alternative tenant. The property is centrally located in Leighton
Buzzard, adjacent to Tesco and Aldi;
· In Milton Keynes, the CVA of Office Outlet (formerly Staples) resulted
in the tenant contracting into 50% of the space previously occupied, with
rent halving from GBP419k pa to GBP209k pa; and
· In Crewe we took the difficult decision to implement a forfeiture of the
lease of a Bowling operator which failed to pay its rent, protecting the
Company's position and opening up the opportunity of re-letting to a
stronger tenant. Passing rent on the unit was GBP200k pa.
The portfolio's WAULT decreased from 5.9 years at 30 June 2018 to 5.6 years
principally due to the natural 0.25 of a year's decline due to the passage
of time over the Period, with the positive impact of acquisitions and asset
management activities offset by the CVA rent reductions and lease
forfeiture.
Property market
Commenting on the commercial property market outside London, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's discretionary investment manager) said:
"Investment market demand has continued in Q3 from property companies,
institutions, private investors and from overseas investors. While there
have been marginal outflows from the open-ended funds and many REIT's are
trading at a discount to NAV, the demand for income focused investments has
not abated. The rise in UK interest rates was sufficiently well forecast
that it had an imperceptible impact on the market and there does not appear
to be an imminent threat of meaningful rate rises in prospect.
"The continued demand for industrial/logistics properties has led to the
sector showing the lowest initial yields in regional markets. This is in
large part explained by the rental growth prospects in the sector, which are
being driven by both occupational demand but more crucially a lack of
supply. This has led to an increase in speculative development, principally
of 'big box' logistics units. We have yet to witness an increase in the
development of smaller or mid-sized industrial units, so the rental growth
dynamics might be stronger at this end of the market. The strength of the
industrial market was evident in the sale of the Company's industrial
building in Southwark. Not only had we recently secured a rental uplift from
GBP9 per sq ft to GBP16 per sq ft, demonstrating extraordinary rental growth,
but we managed to sell the property for a price reflecting a NIY of 2.95%,
based on the increased rent. Industrial property remains a very good fit
with the Company's strategy, but recent price inflation is limiting the
opportunity to acquire properties that meet the investment mandate.
Notwithstanding this challenge, we added to the industrial sector of the
portfolio during the Period and I expect the sector to remain a strong
driver of rental growth for the Company.
"Investment in the regional office market has also been consistently strong,
which has coincided with a number of the UK's 'big six' regional cities
hitting record rental levels for prime offices. Like the industrial sector
it is restricted supply, the lack of development and the extensive
conversion of secondary offices to residential which is maintaining the
upward pressure on rents. 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, so
we remain very selective, although open to opportunities.
"There is a general move against retail, as many institutional investors
feel overweight in the sector in a quarter when we have also witnessed an
increase in CVA activity. While the easy explanation for the changing retail
market is the rise of online retailing, the real picture is much more
complex. Over-gearing, poor management strategy and an inability to
modernise over an extended period of time has had a more detrimental impact
on certain retailers than the internet. The challenge in the retail sector
is not so much identifying the retailers who will prevail in the modern
retail environment, but to identify trends in rental levels in both retail
sub-sectors and locations. In many locations rents need to adjust to support
retailers, not least because labour costs and business rates are rising.
"We generally feel comfortable that retail warehousing, with low rents per
sq ft, 'big box' formats and free parking will be more robust than the High
Street. Following in the footsteps of the USA the UK retail landscape is
increasingly polarising, with robust city centre retail in the major
conurbations where the experience of retail and leisure together has
remained attractive, and resilient out of town retail in smaller towns where
convenience and choice is the stock-in-trade.
"There is continued weakness in secondary high street retail locations with
rental levels still under pressure and a very real threat of vacancy, but
retailers are still keen to have representation on prime high streets. The
challenge across all high street retail locations is to understand where
rental levels will settle following the current retail shakeout. We will
continue to rebalance the portfolio to focus on strong retail locations
while working on an orderly disposal of those assets we believe are
ex-growth.
"Across the portfolio we settled five rent reviews and agreed two new
lettings during the Period which have shown a weighted average increase in
rents of 9.5%. This growth has come from a mix of open market lettings and
rent reviews in industrial and office properties together with one public
house and two RPI linked rent reviews, one in retail warehousing and one in
the motor trade. This demonstrates the continuing opportunity to enhance
earnings across Custodian REIT's diverse regional portfolio."
Portfolio Analysis
At 30 September 2018 the Company's property portfolio comprised 151 assets
with a NIY of 6.59%. The portfolio is split between the main commercial
property sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio. Slight swings in sector weightings
are reflective of market pricing at any given time and the desire to
maintain an opportunistic approach to acquisitions. Sector weightings are
shown below:
Valuation Period Weighting by Weighting by
valuation income9 30 income9 30
movement Sep 2018 Jun 2018
30 Sep 2018
GBPm
GBPm
Sector
Industrial 218.8 3.5 39% 40%
Retail 101.1 (3.5) 18% 20%
warehouse
Other10 93.3 (1.0) 17% 15%
High street 73.4 (0.3) 14% 14%
retail
Office 60.4 (0.2) 12% 11%
Total 547.0 (1.5) 100% 100%
9 Current passing rent plus ERV of vacant properties.
10 Includes car showrooms, petrol filling stations, children's day
nurseries, restaurants, gymnasiums, hotels and healthcare units.
GBP3.2m of the valuation decrease within the retail warehouse sector was due
to the CVA's of Homebase and Office Outlet (formerly Staples) impacting the
Company's units in Leighton Buzzard and Milton Keynes respectively.
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 2018 was
as follows:
Valuation Period Weighting Weighting
valuation by income11 by income11
movement 30 Sep 30 Jun 2018
2018
30 Sep 2018
GBPm
GBPm
Location
West Midlands 118.1 1.4 21% 19%
North-West 90.7 (1.0) 17% 18%
South-East 78.8 (3.5) 13% 15%
East Midlands 69.3 0.7 14% 13%
South-West 61.4 0.2 11% 11%
North-East 49.1 0.4 9% 8%
Scotland 44.5 0.3 8% 9%
Eastern 28.6 - 6% 6%
Wales 6.5 - 1% 1%
Total 547.0 (1.5) 100% 100%
11 Current passing rent plus ERV of vacant properties.
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio [1].
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"The benefit of a diversified investment strategy is that it allows us to
review all sectors and regions of the UK to identify opportunities that will
support the dividend policy. This has allowed us to acquire GBP18.2m of assets
in the last quarter at an average NIY of 7.16%. We have a committed pipeline
of opportunities with terms agreed totaling GBP27.1m at an average NIY of
6.45% which keeps us on course for the year in relation to target income
yield. Looking ahead, we are not averse to making judicious, contra-cyclical
acquisitions where we believe that short-term market weakness can unlock
long term value for the Company."
Financing
Equity
The Company issued 7m new ordinary shares of 1p each in the capital of the
Company during the Period ("the New Shares") raising GBP8.4m (before costs and
expenses). The New Shares were issued at an average premium of 13.2% to the
unaudited NAV per share at 30 June 2018, adjusted to exclude the dividend
paid on 31 August 2018.
Debt
At the Period end the Company operated:
· 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 with Scottish Widows plc which attracts interest fixed
at 2.987% and is repayable on 5 June 2028; and
· A GBP50m term loan with Aviva Investors Real Estate Finance comprising:
i) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual
interest of 3.02%; and
ii) A GBP15m tranche repayable on 3 November 2032 attracting fixed annual
interest of 3.26%.
Dividends
An interim dividend of 1.6375p per share for the quarter ended 30 June 2018
was paid on 31 August 2018. The Board has approved an interim dividend
relating to the Period of 1.6375p per share payable on 30 November 2018 to
shareholders on the register on 26 October 2018.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend12 per share for the year
ending 31 March 2019 of 6.55p (2018: 6.45p). 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.
12 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 [2] or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240 8740
Imlach / Ian Mattioli MBE
www.custodiancapital.com [3]
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 principally characterised by properties
with individual 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 sub GBP10 million lot-size, regional 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 [2] and
www.custodiancapital.com [3].
ISIN: GB00BJFLFT45
Category Code: NAV
TIDM: CREI
Sequence No.: 6289
EQS News ID: 736493
End of Announcement EQS News Service
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=be531edfb7113375e33d32944df93de5&application_id=736493&site_id=vwd_london&application_name=news
2: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=736493&site_id=vwd_london&application_name=news
3: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=c24dec6d0ea6c746569ddd52de0eca8d&application_id=736493&site_id=vwd_london&application_name=news
(END) Dow Jones Newswires
October 23, 2018 03:33 ET (07:33 GMT)
Custodian Property Incom... (LSE:CREI)
Historical Stock Chart
From Aug 2024 to Sep 2024
Custodian Property Incom... (LSE:CREI)
Historical Stock Chart
From Sep 2023 to Sep 2024