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Custodian REIT plc (CREI)
Custodian REIT plc : Interim Results
06-Dec-2018 / 07:00 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.
6 December 2018
Custodian REIT plc
("Custodian REIT" or "the Company")
Interim Results
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its interim results for the six months ended 30
September 2018 ("the Period").
Financial highlights and performance
· NAV per share total return[1] of 4.3% (2017: 4.2%)
· Basic and diluted earnings per share[2] up 13% to 4.3p (2017: 3.8p)
· EPRA[3] earnings per share[4] of 3.5p (2017: 3.4p)
· Portfolio value of GBP547.0m (2017: GBP474.3m)
· Profit before tax up 26% to GBP16.6m (2017: GBP13.2m)
· GBP8.4m[5] of new equity raised at an average premium of 13.2% to dividend
adjusted NAV
· Dividends of 3.275p per share paid and approved for the Period
· GBP27.7m[6] invested in seven acquisitions, one development and one
refurbishment
· GBP3.9m valuation uplift from successful asset management initiatives
· GBP3.5m valuation decrease due to company voluntary arrangements ("CVAs")
· GBP1.4m net valuation decrease[7]
· GBP4.3m profit on disposal of three properties for an aggregate
consideration of GBP15.4m
· EPRA occupancy[8] 96.9% (2017: 96.7%)
Unaudited Unaudited Audited
6 months to 6 months to 12 months to 31
30 Sept 30 Sept 2017 Mar 2018
2018
Total return
NAV per share total 4.3% 4.2% 9.6%
return
Share price total 10.3% 5.3% 6.7%
return[9]
Capital values
NAV (GBPm) 427.5 378.6 415.2
NAV per share (p) 108.6 104.9 107.3
Share price (p) 121.4 114.8 113.0
Portfolio value (GBPm) 547.0 474.3 528.9
Market 478.1 414.1 437.1
capitalisation (GBPm)
Premium to NAV per 11.8% 9.4% 5.3%
share
Net gearing[10] 20.5% 19.7% 21.0%
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 positive shareholder
returns and cautious investment in a market where value can still be found
with a disciplined approach to deployment. We continue to target growth to
realise the potential economies of scale offered by the Company's relatively
fixed administrative cost base and tiered annual management charge.
"The Board and Investment Manager are closely monitoring the potential
impact of evolving trends in the UK retail industry and 'Brexit' on
commercial property markets. Our role is to look beyond the media coverage
to weigh up dispassionately the associated risks, which often create
opportunity, and we expect proactive asset management will continue to drive
performance in the portfolio, as rental growth at lease renewal or rent
review remains robust. We also expect occupational demand, combined with a
limited supply of new development, to maintain low vacancy rates across our
regional portfolio.
"We are well placed to meet our target of paying further quarterly
dividends, fully covered by net income, to achieve an annual dividend for
the year of 6.55p per share, and remain committed to both growing the
dividend on a sustainable basis and delivering 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 8740
Imlach / Ian Mattioli MBE
www.custodiancapital.com [1]
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 2018. Earnings per share increased by 13%
to 4.3p (2017: 3.8p) and the property portfolio increased through the
investment of GBP27.7m in seven acquisitions, one refurbishment and one
development. This expansion was funded by GBP8.4m raised from the issue of new
shares and through the Company's existing debt facilities. We continue to
target growth to realise the potential economies of scale offered by the
Company's relatively fixed administrative cost base and the reducing scale
of management charges. The Company continues to adhere to its investment
policy and seeks to maintain 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 we have 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
regional assets at an average net initial yield[11] of 7.2% 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 13.2% above dividend adjusted NAV, more than
covering the costs of issue and deployment.
Market
During the Period we have taken a cautious approach to acquisitions in a
market where, in general, industrial values are increasing and certain
retail asset values are decreasing, with little clarity on where they will
settle. The Company has stuck firmly to its investment strategy of deploying
its available resources into the right property assets and disposed of two
weaker retail assets to improve the quality of the Company's retail
portfolio. Property market conditions have restricted our ability to acquire
properties that meet our strategy at a sufficient rate to satisfy demand for
new equity issuance. As a result new issuance has been limited which, in
turn, has seen the Company's shares trade at a premium well ahead of most of
our peers.
The Board and the Investment Manager follow closely the evolving trends in
the UK retail industry, and its impact on commercial property markets. Our
role is to look beyond the media coverage to weigh up dispassionately the
risks in a sector which often creates opportunity through a sweeping market
reaction, and we believe the current retail environment is no different.
Since the Period end we have acquired GBP25.0m of retail warehousing and GBP2.1m
of high street retail at a significant discount to recent market pricing.
These properties have been carefully selected with strong underlying
attributes, are leased at affordable rents to tenants with sustainable
business models and which trade strongly from those locations.
Net asset value
The Company delivered NAV per share total return of 4.3% for the Period,
where the initial costs (primarily stamp duty) of investing GBP27.7m in
property acquisitions, one development and one refurbishment diluted NAV per
share total return by circa 0.4p, partially offset by raising GBP8.3m from the
issue of new equity (net of costs), which added 0.2p per share.
Pence per share GBPm
NAV at 31 March 2018 107.3 415.2
Issue of equity (net of costs) 0.2 8.3
107.5 423.5
Valuation movements relating to:
- Asset management activity 1.0 3.9
- Other valuation movements (0.9) (3.7)
Gross valuation increase 0.1 0.2
Impact of acquisition costs (0.4) (1.6)
Net valuation decrease (0.3) (1.4)
Profit on disposal of investment 1.1 4.3
property
Net gain on investment property 0.8 2.9
Income 5.0 19.6
Expenses and net finance costs (1.5) (5.9)
Dividends paid[12] (3.2) (12.6)
NAV at 30 September 2018 108.6 427.5
Activity during the Period also centred on pro-active asset management,
which generated a GBP3.9m valuation uplift. However, these gains were largely
offset by a GBP3.5m valuation decrease due to the CVAs of Homebase, Office
Outlet (formerly Staples) and Carpetright impacting the Company's units in
Leighton Buzzard, Milton Keynes and Grantham respectively.
Share price
Share price total return for the first half of the financial year was 10.3%,
with a closing price of 121.4p per share on 30 September 2018 representing a
11.8% premium to NAV. During the Period the Company shares traded
consistently at a premium to NAV with low volatility offering shareholders
stable returns. I believe the increasing, but still relatively stable
premium to NAV, has been a function of strong demand for closed-ended
property funds, the increasing daily liquidity of the Company's shares, the
Company's regional property investment strategy, focused asset management
and the attractive level of income offered by the Company's dividend policy.
Issue of new ordinary shares
The Company issued 7.0m new shares during the Period at an average premium
to the prevailing dividend adjusted NAV of 13.2%. 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.
At the Annual General Meeting ("AGM") of the Company held on 19 July 2018,
shareholders voted to limit the authority to issue new shares with
pre-emption rights disapplied to a maximum of 10% of the Company's issued
share capital ("Limit"). The Board had proposed a Limit of 20% in line with
the 2017 changes to the EU Prospectus Directive, which increased the maximum
proportion of the Company's issued share capital that can be issued over a
12-month period on a non-pre-emptive basis before the Company is required to
publish a prospectus from 10% to 20%.
The Pre-Emption Group's Statement of Principles on Disapplying Pre-emption
Rights, however, continues to support a Limit of 10%. Accordingly, 26.0m
votes against a Limit of 20% were received, representing 47.4% of votes cast
but only 7.4% of eligible votes, largely from shareholders following
institutional proxy voting adviser recommendations which typically follow
the Pre-emption Group's guidance.
In the Board's opinion, a Limit of 20% is justified to continue the
Company's programme of tap issuance, allowing the Company to fund suitable
property acquisitions in a cost-efficient manner by avoiding the significant
costs of publishing a prospectus.
The Board believes that growing the Company efficiently is in the best
interests of all shareholders as it reduces the Company's ongoing charges,
diversifies income and increases share liquidity.
Due to the votes against a 20% Limit only representing 7.4% of eligible
votes, and based on feedback from Shareholders since the 2018 AGM, the Board
currently expects to request approval for a 20% Limit at the 2019 AGM.
Borrowings
As at 30 September 2018 net gearing equated to 20.5% 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 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 operates the following debt facilities:
· A GBP35m revolving credit facility 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 Real Estate Investors 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%.
The weighted average cost of the Company's agreed debt facilities is 3.1%
(2017: 3.1%) with a WAM of 9 years (2017: 10 years) and 77% (2017: 77%) of
the Company's debt facilities are at a fixed rate of interest, significantly
mitigating interest rate risk.
Investment Manager
The Board is pleased with the Investment Manager's performance, 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. Fees payable to the Investment Manager are set out in Note 16.
Dividends
Income is a major component of total return. The Company paid dividends
totalling 3.25p per share during the six-month Period, all classified as
property income distributions, comprising interim dividends of 1.6125p per
share and 1.6375p per share relating to the quarters ended 31 March 2018 and
30 June 2018 respectively.
The Board has approved an interim dividend of 1.6375p per share for the
quarter ended 30 September 2018 which was paid on 30 November 2018. In the
absence of unforeseen circumstances the Board believes the Company is well
placed to meet its target[13] of paying further quarterly dividends, fully
covered by income, to achieve an annual dividend 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.
Outlook
Notwithstanding our cautious approach to investment in the current market we
believe that value can still be found with a disciplined approach to
deployment. The strength of the occupational market and softening yields for
prime retail warehouse assets let to blue chip tenants both represent
exciting opportunities, discussed more fully in the Investment Manager's
report. Rental growth at lease renewal and rent review remains robust. We
expect proactive asset management and rental growth will continue to drive
performance in the portfolio and are confident we can maintain occupancy
levels, which in turn will sustain our policy of paying a growing and
fully-covered dividend to shareholders.
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
5 December 2018
Investment Manager's report
Property market
Investment market demand has continued in 2018 Q3 from property companies,
institutions, private investors and overseas investors. While there have
been marginal outflows from the open-ended funds and many REITs are trading
at a discount to NAV (whereas the Company is currently trading at a premium
to NAV), the demand for income focused investments has not abated. The rise
in UK interest rates was sufficiently well forecast that it only 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, in large part
explained by the rental growth prospects in the sector which are being
driven by occupational demand and more crucially, a lack of supply. This
demand 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 subsequently negotiated the sale of the
property to a special purchaser for GBP12.0m, GBP4.4m or 58% ahead of its 30
June 2018 valuation. 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[14]
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 economic and
environmental 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 where 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 are increasing and business rates
are too high.
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 the orderly disposal of those assets we believe are
ex-growth.
Across the portfolio we settled eight rent reviews and agreed six new
lettings during the Period with a weighted average rental increase of 11.1%
(5.4% simple average). This growth has come across all sectors from open
market lettings and rent reviews and two RPI linked rent reviews. These rent
reviews demonstrate the continuing opportunity to enhance earnings across
Custodian REIT's diverse regional portfolio.
Portfolio performance
At 30 September 2018 the Company's property portfolio comprised 151 assets,
218 tenants and 259 tenancies with an aggregate net initial yield ("NIY") of
6.6%. The portfolio is split between the main commercial property sectors,
in line with the Company's objective to maintain a suitably balanced
investment portfolio, with a relatively low exposure to office and a
relatively high exposure to industrial, retail warehouse and alternative
sectors, often referred to as 'other' in property market analysis. The
current sector weightings are:
Sector Valuation Weighting Weighting Gross Net
by by income valuati valuat
income[15] 31 Mar on ion
30 Sept movemen moveme
30 Sept 2018 t GBPm nt
2018
2018
GBPm GBPm
Industrial 218.8 39% 39% 6.7 6.2
Retail 101.1 18% 20% (4.6) (4.6)
warehouse
Other[16] 93.3 17% 15% (1.1) (2.0)
High street 73.4 14% 14% (0.8) (0.8)
retail
Office 60.4 12% 12% - (0.2)
547.0 100% 100% 0.2 (1.4)
Pipeline
We continue to find opportunities that fit our investment strategy as
demonstrated by the investment of GBP27.7m during the Period at an average NIY
of 7.2%.
Since the Period end, we have invested GBP27.1m in the following acquisitions:
· On 16 November 2018 the Company acquired the Evesham Shopping Park for
GBP14.2m comprising a terrace of five units occupied by Next, M&S, Boots,
Argos and Poundstretcher. The units have a weighted average unexpired
lease term to first break or expiry ("WAULT") of 6.8 years, and the price
reflects a NIY of 6.04%.
· On 3 December 2018 the Company acquired Jubilee Close Retail Park in
Weymouth for GBP10.8m comprising a terrace of three units occupied by B&Q,
Halfords and Sports Direct. The units have a WAULT of 7.8 years, and the
price reflects a NIY of 6.97%.
· On 2 November 2018 the Company acquired a high street unit on The Grove
in Stratford, East London for GBP2.1m let to Foxton's Estate Agents and The
Universal Church of the Kingdom of God with leases expiring on 30 April
2031 and 2 May 2025 respectively and the price reflects a NIY of 6.78%.
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 net 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 net gearing increases
towards the target level.
We expect to see continuing strong asset management performance as we secure
rental increases and extend contractual income.
We remain committed to a strategy principally focused on sub GBP10m lot-size
regional property, diversified 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 3.2% of the rent roll across
four properties, with the average tenant representing only 0.5% of the rent
roll.
Acquisitions
During the Period the Company completed the following property acquisitions:
Industrial
Location: Bellshill, Glasgow Location: Hilton, Derby
Tenant: Yodel Delivery Network Tenant: Daher Aerospace
NIY: 6.94% NIY: 6.72%
Purchase price[17]: GBP3.72m Purchase price: GBP5.585m
Other
Location: Lincoln Location: Shrewsbury
Tenant: Total Fitness Tenant: TJ Vickers
Subsector: Leisure Subsector: Motor trade
NIY: 7.64% NIY: 6.75%
Purchase price: GBP4.30m Purchase price: GBP1.675m
Location: Shrewsbury Location: Stafford
Tenant: VW Group Tenant: VW Group
Subsector: Motor trade Subsector: Motor trade
NIY: 6.58% NIY: 6.29%
Purchase price: GBP2.825m Purchase price: GBP4.55m
Office
Location: Sheffield
Tenant: Secretary of State for Communities and Local Government
NIY: 9.79%
Purchase price: GBP3.56m
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio.
Portfolio risk
The portfolio's security of income is enhanced by 13% of income benefitting
from either fixed or indexed rent reviews although there is 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 33% expiring in the next three years (8% within one
year).
The Investment Manager does not anticipate any changes to the principal
risks and uncertainties set out in the Company's Annual Report for the year
ended 31 March 2018 over the remainder of the financial year. The Board
considers it is too early to understand the full impact of 'Brexit' on
revenues and portfolio valuation while the terms of the UK's future trading
arrangement with the EU remain unclear. However, subject to there not being
a 'no deal' Brexit, this political risk is not considered likely to have a
material impact on the Company's performance due to the 'Mitigating factors'
set out on page 64 of the Annual Report.
Asset management
Owning the right properties at the right time is one 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 within the Company's investment strategy, is
important.
After focused pre-sale asset management, the following three properties were
sold during the Period for a total of GBP15.4m, realising a profit on disposal
of GBP4.3m at an aggregate NIY of 4.1%, with gross proceeds 39.8% ahead of
aggregate valuation:
· An industrial unit in Southwark for GBP12.0m, GBP4.4m (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 a significant recent valuation increase. In addition,
redevelopment potential and the identification of a special purchaser
offering a NIY of 2.95% allowed us to crystallise a substantial profit;
· A retail development in Stourbridge for GBP2.25m, in line with valuation,
as we did not anticipate future rental growth; and
· A town centre retail unit in Dumfries for GBP1.125m, in line with
valuation, as we did not anticipate future rental growth.
We intend to use the proceeds from these disposals to fund acquisitions
better aligned to the Company's long-term investment strategy.
Our 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 GBP3.9m valuation increase in the
Period. Key asset management initiatives completed during the Period
include:
· 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 GBP2.0m;
· 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; and
· Documenting a reversionary lease with Synergy Health for 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.
Further initiatives on other properties currently under review are expected
to complete during the remainder of the financial year, although growth in
rents and positive asset management outcomes were tempered by the following
events:
· The CVA of Homebase resulted in the Company experiencing a 35% annual
rent reduction from GBP524k to GBP341k at its Leighton Buzzard unit;
· 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;
· The CVA of Carpetright resulted in a 25% annual rent reduction from
GBP100k to GBP75k at the Company's Grantham unit; 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, thereby
regaining control 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 31 March 2018 to 5.6 years
principally due to the natural 0.5 of a year's decline due to the passage of
time over the Period and the Crewe lease forfeiture, partially offset by the
positive impact of acquisitions with an aggregate WAULT of 6.2 years and
asset management activities completed during the Period.
Outlook
We do not expect to see a meaningful change in investor demand for UK real
estate over the next few months. The conundrum of a 'soft Brexit' or a 'no
deal Brexit' appears increasingly to be occupying investors' thoughts and we
anticipate continued relative inaction while investors wait to see what
happens next. Meanwhile the occupational market in the regions remains short
of supply which continues to support rental growth in office and industrial
markets.
Secondary retail is also worrying the market and we may see further asset
sales with falling values to match. We also expect a clearer picture to
emerge as to which retail assets are in demand by occupiers which, in turn,
might start to allay investors' fears in this sector.
We remain confident that the Company's strategy of targeting income with
conservative net 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
5 December 2018
Portfolio
Location Tenant % Portfolio
Income[18]
Industrial
Ashby-de-la-Zouch Teleperformance 1.35%
Wolverhampton Assa Abloy 1.29%
Burton Kings Road Tyres 1.29%
Warrington JTF Wholesale 1.22%
Gateshead Multi-let 1.13%
Bedford Elma Electronics and 1.11%
Vertiv Infrastructure
Winsford H&M 1.07%
Salford Restore 1.02%
Hilton, Derby Daher Aerospace 1.01%
Tamworth ICT Express 0.91%
Doncaster Silgan Closures 0.90%
Eurocentral, Motherwell Next 0.88%
Normanton YESSS Electrical 0.85%
Stone Revlon International 0.81%
Redditch Amco Services 0.79%
Warrington DHL Supply Chain 0.78%
Redditch Hydro Extrusions 0.77%
Biggleswade Turpin Distribution 0.76%
Services
Kettering Multi-let 0.76%
Cannock HellermannTyton 0.72%
Warrington Procurri Europe and 0.71%
Synertec
Milton Keynes Massmould 0.71%
West Bromwich OyezStraker 0.71%
Team Valley, Gateshead Worthington Armstrong 0.70%
Bellshill, Glasgow Yodel Delivery Network 0.69%
Nuneaton DX Network Services 0.67%
Milton Keynes Saint-Gobain Building 0.67%
Distribution
Plymouth Sherwin-Williams 0.65%
Avonmouth Superdrug 0.65%
Bedford Heywood Williams 0.64%
Components
Bristol BSS 0.63%
Coventry Royal Mail 0.59%
Stevenage Morrison Utility 0.57%
Services
Daventry Cummins 0.56%
Livingston A Share & Sons (t/a SCS) 0.56%
Manchester Unilin Distribution 0.56%
Oldbury Sytner 0.53%
Aberdeen DHL Supply Chain 0.52%
Christchurch Interserve Project 0.52%
Services
Cambuslang Brenntag 0.50%
Warrington Dinex Exhausts 0.46%
Warwick Semcon 0.45%
Hamilton Ichor Systems 0.44%
Erdington West Midlands Ambulance 0.38%
Service NHS Trust
Langley Mill Warburtons 0.36%
Sheffield Synergy Health 0.36%
Farnborough Triumph Structures 0.36%
Irlam Northern Commercials 0.35%
Westerham Aqualisa Products 0.34%
Coalville MTS Logistics 0.33%
Castleford Bunzl 0.32%
Sheffield Arkote 0.30%
Liverpool DHL International 0.30%
Kettering Sealed Air 0.30%
Atherstone North Warwickshire 0.29%
Borough Council
Huntingdon PHS 0.26%
Kilmarnock Royal Mail 0.24%
Glasgow DHL Global Forwarding 0.23%
Normanton Acorn Web Offset 0.22%
Leeds Sovereign Air Movement 0.19%
Liverpool Powder Systems 0.18%
Sheffield River Island 0.06%
Vacant units 0.73%
39.21%
Location Tenant % Portfolio Income
Retail Warehouse
Carlisle Multi-let 2.09%
Winnersh Pets at Home and 1.44%
Wickes
Burton CDS Superstores and 1.36%
Wickes
Swindon B&M and Go Outdoors 1.32%
Leicester Matalan 1.27%
Banbury B&Q 1.21%
Plymouth - Coypool A Share & Sons (t/a 1.17%
SCS) and JB Global
(t/a Oak Furniture
Land)
Ashton-under-Lyne B&M 1.06%
Plymouth - Transit Way B&M and Magnet 1.01%
Gloucester Magnet and Smyths Toys 0.94%
Sheldon Dreams, Halfords and 0.91%
Pets at Home
Leighton Buzzard Homebase 0.86%
Grantham Carpetright, Laura 0.76%
Ashley and
Poundstretcher
Galashiels B&Q 0.69%
Torpoint Sainsburys 0.55%
Milton Keynes SUK Retail (formerly 0.53%
Staples)
Portishead Majestic Wine and TJ 0.48%
Morris (t/a Home
Bargains)
Vacant units 0.12%
17.77%
Location Tenant % Portfolio Income
Other
Stockport Benham Specialist Cars 1.87%
(t/a Williams BMW and
Mini)
Liverpool Multi-let 1.20%
Perth Multi-let 1.05%
Lincoln Total Fitness 0.88%
Stoke Nuffield Health 0.88%
Derby VW Group 0.86%
Crewe Multi-let 0.83%
Stafford VW Group 0.77%
Torquay Multi-let 0.72%
Gillingham Co-operative 0.68%
Leicester Magnet 0.63%
York Pendragon 0.61%
Portishead Travelodge 0.56%
Salisbury Parkwood Health & Fitness 0.50%
Shrewsbury VW Group 0.50%
Lincoln MKM Building Supplies 0.49%
Crewe Multi-let 0.40%
Redhill Honda Motor Europe 0.35%
Shrewsbury Azzuri Restaurants (t/a 0.35%
ASK) and Sam's Club (t/a
House of the Rising Sun)
Bath Chokdee (t/a Giggling 0.31%
Squid)
High Wycombe Stonegate Pub Co 0.31%
Maypole, Birmingham Starbucks 0.30%
Shrewsbury TJ Vickers & Sons 0.30%
Castleford MKM Buildings Supplies 0.28%
Leicester Pizza Hut 0.26%
Watford Pizza Hut 0.22%
Plymouth McDonald's 0.19%
Portishead JD Wetherspoon 0.18%
Basingstoke Bright Horizons 0.16%
Chesham Bright Horizons 0.13%
Knutsford Knutsford Day Nursery 0.13%
Vacant units 0.50%
17.40%
Location Tenant % Portfolio Income
High street retail
Shrewsbury Multi-let 1.33%
Portsmouth Multi-let 1.25%
Worcester Superdrug 0.97%
Cardiff Specsavers and Card 0.92%
Factory
Colchester Multi-let 0.76%
Colchester Kruidvat (t/a Savers) and 0.56%
Poundland
Southampton URBN 0.56%
Norwich Specsavers 0.51%
Guildford Reiss 0.50%
Shrewsbury Outdoor and Cycle Concepts 0.40%
Llandudno WH Smith 0.38%
Birmingham Multi-let 0.36%
Chester Felldale Retail (t/a 0.35%
Lakeland Leather) and
Signet (t/a Ernest Jones)
Nottingham The White Company 0.35%
Chester Ciel Concessions (t/a 0.32%
Chesca) and TSB
Weston-Super-Mare Superdrug 0.31%
Glasgow Greggs 0.30%
Southsea Portsmouth City Council 0.29%
and Superdrug
Chester Aslan Jewellery and Der 0.28%
Touristik
Edinburgh Phase Eight 0.28%
Portsmouth The Works 0.27%
Scarborough Waterstones 0.23%
Taunton Wilko Retail 0.23%
Bury St Edmunds The Works 0.23%
Edinburgh R Scott Bathrooms and 0.23%
Tesco
Bedford Waterstones 0.22%
Cirencester Framemakers Galleries and 0.17%
The Danish Wardrobe (t/a
Noa Noa)
Bury St Edmunds Savers 0.13%
Cheltenham Done Brothers (t/a 0.11%
Betfred)
Vacant Units 0.74%
13.54%
Location Tenant % Portfolio Income
Office
West Malling Regus 1.61%
Birmingham Multi-let 1.22%
Edinburgh Multi-let 1.01%
Sheffield Secretary of State for 0.94%
Communities and Local
Government
Castle Donington National Grid 0.88%
Leeds First Title (t/a Enact 0.86%
Conveyancing)
Leicester Mattioli Woods and Regus 0.82%
Cheadle Wienerberger 0.76%
Leeds First Title (t/a Enact 0.73%
Conveyancing)
Leicester Erskine Murray and Mattioli 0.69%
Woods
Derby Edwards Geldards 0.65%
Solihull Lyons Davidson 0.48%
Glasgow Multi-let 0.40%
Vacant units 1.03%
12.08%
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 Mar
2018 2017
2018
Note GBP000 GBP000 GBP000
Revenue 4 19,634 16,711 34,813
Investment (1,733) (1,537) (3,124)
management fee
Operating expenses
of rental property (758)
(787) (627)
- rechargeable to
tenants
- directly incurred (707) (417) (852)
Professional fees (244) (202) (433)
Directors' fees (92) (84) (167)
Administrative (313) (277) (653)
expenses
Expenses (3,876) (3,144) (5,987)
Operating profit
before financing
and revaluation of
investment property
15,758 13,567 28,826
Unrealised
gains/(losses) on
revaluation of
investment
property:
- relating to gross
property
revaluations
9 246 3,747 11,859
- relating to 9 (1,635) (3,452) (6,212)
acquisition costs
Net valuation (1,389) 295 5,647
(decrease)/increase
Profit on disposal 4,250 979 1,606
of investment
property
Net gains on 2,861 1,274 7,253
investment property
Operating profit 18,619 14,841 36,079
before financing
Finance income 5 41 83 99
Finance costs 6 (2,054) (1,693) (3,758)
Net finance costs (2,013) (1,610) (3,659)
Profit before tax 16,606 13,231 32,420
Income tax 7 - - -
Profit and total
comprehensive
income for the
Period, net of tax
16,606 13,231 32,420
Attributable to:
Owners of the 16,606 13,231 32,420
Company
Earnings per
ordinary share:
Basic and diluted 3 4.3 3.8 8.9
(p)
EPRA (p) 3 3.5 3.4 6.9
The profit for the Period arises from the Company's continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2018
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2018 2017 2018
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 9 546,963 474,318 528,943
Total non-current assets 546,963 474,318 528,943
Current assets
Trade and other receivables 10 4,597 9,056 7,883
Cash and cash equivalents 12 8,186 8,054 5,059
Total current assets 12,783 17,110 12,942
Total assets 559,746 491,428 541,885
Equity
Issued capital 14 3,939 3,609 3,869
Share premium 220,764 183,339 212,534
Retained earnings 202,832 191,610 198,799
Total equity attributable to
equity holders of the Company
427,535 378,558 415,202
Non-current liabilities
Borrowings 13 117,464 98,472 113,357
Other payables 571 571 571
Total non-current liabilities 118,035 99,043 113,928
Current liabilities
Trade and other payables 11 7,081 7,611 5,870
Deferred income 7,095 6,216 6,885
Total current liabilities 14,176 13,827 12,755
Total liabilities 132,211 112,870 126,683
Total equity and liabilities 559,746 491,428 541,885
These interim financial statements of Custodian REIT plc were approved and
authorised for issue by the Board of Directors on 5 December 2018 and are
signed on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2018
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept 2018 to 30 Sept 2017 to 31 Mar
2018
Note GBP000 GBP000 GBP000
Operating
activities
Profit for the 16,606 13,231 32,420
Period
Net finance costs 5,6 2,013 1,610 3,659
Net revaluation 9 1,389 (295) (5,647)
loss/(gain)
Profit on
disposal of
investment
property
(excluding costs (4,380) (1,067) (1,732)
of disposal)
Impact of lease 9 (1,112) (876) (1,547)
incentives
Income tax 7 - - -
Cash flows from
operating
activities before
changes in
working capital 14,516 12,603 27,153
and provisions
Decrease in trade 3,286 (3,881) 985
and other
receivables
Increase in trade 1,354 595 250
and other
payables
Cash generated 19,156 9,317 28,388
from operations
Interest and 6 (1,947) (1,583) (3,553)
other finance
charges
17,209 7,734
Net cash flows 24,835
from operating
activities
Investing
activities
Purchase of (26,215) (55,828) (103,796)
investment
property
Capital (1,442) (304) (2,498)
expenditure and
development
Acquisition costs (1,635) (3,452) (6,212)
Disposal of 15,375 6,052 6,622
investment
property
Interest received 5 108 21 32
and similar
income
Net cash used in (13,809) (53,511) (105,852)
investing
activities
Financing
activities
Proceeds from the 8,410 24,814 54,670
issue of share
capital
Costs of the (110) (357) (758)
issue of share
capital
New borrowings 13 4,000 34,574 49,364
(net of costs)
Dividends paid 8 (12,573) (11,007) (23,007)
Net cash (used (273) 48,024 80,269
in)/from
financing
activities
3,127 2,247
Net increase in (748)
cash and cash
equivalents
Cash and cash 5,059 5,807 5,807
equivalents at
start of the
Period
8,186 8,054
Cash and cash 5,059
equivalents at
end of the Period
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2018
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2018 3,869 212,534 198,799 415,202
(audited)
Profit and total
comprehensive income for
Period
- - 16,606 16,606
Transactions with owners
of the Company,
recognised directly in
equity
Dividends 8 - - (12,573) (12,573)
Issue of share capital 14 70 8,230 - 8,300
As at 30 September 2018
(unaudited)
3,939 220,764 202,832 427,535
For the six months ended 30 September 2017
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2017 3,390 159,101 189,386 351,877
(audited)
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
Notes to the interim financial statements for the period ended 30 September
2018
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 5 December 2018.
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 2019 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 2018 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 following new accounting standards in issue and effective from 1 April
2018:
· IFRS 15 'Revenue from Contracts with Customers' - revenue from the
Company's sole 'turnover rent' arrangement does not pass IFRS 15's 'highly
probable' test to recognise revenue over the service period, and quarterly
rent is therefore no longer accrued. The impact of this change is a
reduction in revenue of GBP46k, which has been recognised in the Period.
· IFRS 9 'Financial Instruments' - the Company's principal financial
assets and liabilities are trade receivables, cash and cash equivalents,
trade payables and other payables which will continue to be measured at
amortised cost. The new impairment model requires the recognition of
impairment provisions based on expected credit losses rather than the
incurred credit losses under IAS 39 'Financial Instruments: Recognition
and Measurement [2]' and the main impact of this change is the methodology
for the impairment of trade receivables using a provision matrix.
Historically the Company has had minimal write offs of balances due from
tenants and GBP9k additional impairment provision has been required as a
result of this change.
The Directors are currently assessing the impact on the financial statements
of IFRS 16 'Leases' (effective 1 January 2019), which is not yet effective
and has not been early adopted in this financial information. The Directors
do not expect the adoption of this standard to have a material impact on the
financial statements, other than on presentation and disclosure.
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 2018. 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.
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 6 months Unaudited 6 months Audited
to 30 Sept 2018 to 30 Sept 2017 12 months
to 31 Mar
2018
Net profit and 16,606 13,231
diluted net
profit
attributable to
equity holders 32,420
of the Company
(GBP000)
Net gains on (2,861) (1,274) (7,253)
investment
property (GBP000)
EPRA net profit 13,745 11,957
attributable to
equity holders
of the Company
(GBP000) 25,167
Weighted average
number of
ordinary shares:
Issued ordinary 386,853 339,013
shares at start
of the Period
(thousands)
339,013
1,563 8,829
Effect of shares 23,380
issued during
the Period
(thousands)
Basic and
diluted weighted
average number
of shares
(thousands) 388,416 347,842 362,393
Basic and 4.3 3.8 8.9
diluted EPS (p)
3.5 3.4
EPRA EPS (p) 6.9
4) Revenue
Unaudited 6 months Unaudited Audited
to 30 Sept 6 months 12 months
2018
to 30 Sept 2017 to 31 Mar
GBP000
GBP000 2018
GBP000
Gross rental 18,847 16,084 34,055
income from
investment
property
Income from 787 627 758
recharges to
tenants
19,634 16,711 34,813
5) Finance income
Unaudited 6 months Unaudited 6 months Audited
to 30 Sept 2018 to 30 Sept 2017 12 months
GBP000 GBP000 to 31 Mar
2018
GBP000
Bank interest 15 21 32
Finance income 26 62 67
41 83 99
6) Finance costs
Unaudited 6 months Unaudited Audited
6 months
to 30 Sept 2018 12 months
to 30 Sept
GBP000 to 31 Mar
2017
2018
GBP000
GBP000
Amortisation of 107 110 205
arrangement fees on
debt facilities
Other finance costs 25 - 157
Bank interest 1,922 1,583 3,396
2,054 1,693 3,758
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
6 months
to 30 Sept 2018 12 months
to 30 Sept 2017
GBP000 to 31 Mar
GBP000
2018
GBP000
Profit before 16,606 13,231 32,420
income tax
Tax charge on
profit at a
standard rate of
19.0% (30 September
2017: 19.0%, 31 3,155 2,514 6,160
March 2018: 19.0%)
Effects of:
REIT tax exempt (3,155) (2,514) (6,160)
rental profits and
gains
Income tax expense - - -
for the Period
Effective income 0.0% 0.0% 0.0%
tax rate
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 6 months Audited
6 months to 30 Sept 2017 12 months
to 30 Sept GBP000 to 31 Mar
2018 2018
GBP000 GBP000
Interim equity dividends
per ordinary share
relating to the quarters
ended:
31 March 2017: 1.5875p - 5,398 5,398
30 June 2017: 1.6125p - 5,609 5,609
30 September 2017: - - 5,899
1.6125p
31 December 2017: - - 6,101
1.6125p
31 March 2018: 1.6125p 6,238 - -
30 June 2018: 1.6375p 6,335 - -
12,573 11,007 23,007
All dividends paid are classified as property income distributions.
The Directors approved an interim dividend relating to the quarter ended 30
September 2018 of 1.6375p per ordinary share in October 2018 which has not
been included as a liability in these interim financial statements. This
interim dividend was paid on 30 November 2018 to shareholders on the
register at the close of business on 27 October 2018. In the absence of
unforeseen circumstances, the Board intends to pay further quarterly
dividends to achieve an annual dividend of 6.55p per share for the financial
year ending 31 March 2019[19].
9) Investment property
GBP000
At 31 March 2018 528,943
Gross valuation gain 246
Acquisition costs (1,635)
Net valuation decrease (1,389)
Impact of lease incentives 1,112
Additions 27,850
Capital expenditure and development 1,442
Disposals (10,995)
As at 30 September 2018 546,963
GBP000
At 31 March 2017 418,548
Gross valuation gain 3,747
Acquisition costs (3,452)
Net revaluation gain 295
Impact of lease incentives 876
Additions 59,584
Disposals (4,985)
As at 30 September 2017 474,318
The investment property is stated at the Directors' estimate of its 30
September 2018 fair values. Lambert Smith Hampton Group Limited ("LSH"), a
professionally qualified independent valuer, valued the properties as at 30
September 2018 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 4.8% to 9.4%. 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 as at Unaudited as at Audited
30 Sept 2018 30 Sept 2017 as at 31 Mar
2018
GBP000 GBP000
GBP000
Trade receivables 3,460 3,437 2,137
Other receivables 736 5,167 5,194
Prepayments and 401 452 552
accrued income
4,597 9,056 7,883
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 as at Unaudited as at Audited
30 Sept 2018 30 Sept 2017 as at 31 Mar
2018
GBP000 GBP000
GBP000
Falling due in
less than one
year:
Trade and other 1,001 638 937
payables
Social security 2,449 3,142 1,226
and other taxes
Accruals 2,414 2,442 2,490
Rental deposits 1,217 1,389 1,217
and retentions
7,081 7,611 5,870
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 as at Unaudited as at Audited
30 Sept 2018 30 Sept 2017 as at 31 Mar
2018
GBP000 GBP000
GBP000
Cash and 8,186 8,054 5,059
cash
equivalents
Cash and cash equivalents include GBP1.3m (2017: GBP1.4m, 2018: GBP1.3m) of
restricted cash comprising GBP1.2m rental deposits and GBP0.1m retentions held
on behalf of tenants.
13) Borrowings
GBP000 GBP000
At 31 March 2018 113,357
New borrowings 4,000
Amortisation of arrangement fees 107
4,107
At 30 September 2018 117,464
GBP000 GBP000
At 31 March 2017 63,788
New borrowings 35,000
Amortisation of arrangement fees 110
Costs incurred in the arrangement of bank (426)
borrowings
34,684
At 30 September 2017 98,472
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 2018 is set out in the Annual
Report for the year ended 31 March 2018.
14) Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
At 31 March 2018 386,853,344 3,869
Issue of share capital 7,000,000 70
At 30 September 2018 393,853,344 3,939
Ordinary shares
Share capital of 1p GBP000
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 no further issues of new shares since the Period end.
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 half yearly financial report.
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 2018, the fair value of investment property was GBP547.0m and during
the Period the net valuation decrease was GBP1.4m.
Interest bearing loans and borrowings - level 3
As at 30 September 2018, the amortised cost of the Company's loans with
Lloyds Bank plc, Scottish Widows plc and Aviva Real Estate Investors
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")
The Investment Manager was reappointed under a three year IMA with effect
from 1 June 2017, under which the Investment Manager is 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 Period the Investment Manager was paid an annual management
charge ("AMC") 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;
· 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.
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 Period the Company paid the Investment Manager an administrative
fee calculated by reference to the NAV of the Company each quarter as
follows:
· 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% (2017: 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 Investment Manager charged the Company GBP1.73m (2017:
GBP1.54m, 2018: GBP3.12m) in respect of the AMC, GBP0.21m (2017: GBP0.20m, 2018:
GBP0.49m) in respect of administrative fees and GBP0.02m (2017: GBP0.05m, 2018:
GBP0.14m) in respect of marketing fees.
Properties
The Company owns MW House and Gateway House located at Grove Park,
Leicester, which were partially let to Mattioli Woods during the Period.
Mattioli Woods paid the Company rentals of GBP0.18m (2017: GBP0.21m, 2018:
GBP0.35m) during the Period.
17) Events after the reporting date
Property acquisitions
On 16 November 2018 the Company acquired the Evesham Shopping Park for
GBP14.2m comprising a terrace of five units occupied by Next, M&S, Boots,
Argos and Poundstretcher. The units have a WAULT of 6.8 years, and the price
reflects a NIY of 6.04%.
On 3 December 2018 the Company acquired Jubilee Close Retail Park in
Weymouth for GBP10.8m comprising a terrace of three units occupied by B&Q,
Halfords and Sports Direct. The units have a WAULT of 7.8 years, and the
price reflects a NIY of 6.97%.
On 2 November 2018 the Company acquired a high street unit on The Grove in
Stratford, East London for GBP2.1m let to Foxton's Estate Agents and The
Incorporated Trustees of the Universal Church of the Kingdom of God with
leases expiring on 30 April 2031 and 2 May 2025 respectively and the price
reflects a NIY of 6.78%.
Independent auditor's review report to Custodian REIT plc for the period
ended 30 September 2018
We have been engaged by the Company to review the condensed half yearly
financial report for the six-month period ended 30 September 2018 which
comprises 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 half-yearly financial report and considered
whether it contains 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 Financial Reporting Council. 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 half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2.1, 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 this half-yearly financial
report 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 half-yearly financial report
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 Financial
Reporting Council 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 half-yearly
financial report for the six months ended 30 September 2018 is not prepared,
in all material respects, in accordance with International Accounting
Standard 34 as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Crawley, United Kingdom
5 December 2018
Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of the Company
for the period from 1 April 2018 to 30 September 2018.
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
5 December 2018
Additional disclosures
1 NAV per share total return
A measure of performance taking into account both capital returns and
dividends by assuming dividends [3] declared are reinvested at NAV at the
time the shares are quoted ex-dividend [4], shown as a percentage change
from the start of the period.
Unaudited 6 months Unaudited Audited
6 months
to 30 Sept 2018 12 months
to 30 Sept 2017
to 31 Mar
2018
Net assets (GBP000) 427,535 378,558 415,202
Shares in issue at 393,853 360,853 386,853
the period end
(thousands)
NAV per share at 107.3 103.8 103.8
the start of the
Period (p)
Dividends per share 3.275 3.225 6.45
relating to the
Period (p)
NAV per share at 108.6 104.9 107.3
the end of the
Period (p)
NAV total return 4.3% 4.2% 9.6%
2 Net gearing
Gross borrowings less unrestricted cash, divided by portfolio value.
Unaudited as at Unaudited as at Audited
30 Sept 2018 30 Sept 2017 as at 31 Mar
2018
GBP000 GBP000
GBP000
Gross borrowings 119,000 100,000 115,000
Cash (8,186) (8,054) (5,059)
Restricted cash 1,305 1,389 1,341
Net borrowings 112,119 93,335 111,282
Investment 546,963 474,318 528,943
property
Net gearing 20.5% 19.7% 21.0%
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 6 months Unaudited Audited
6 months
to 30 Sept 2018 12 months
to 30 Sept 2017
GBP000 to 31 Mar
GBP000
2018
GBP000
Profit for the 16,606 13,231 32,420
period after
taxation
Net gains on (2,861) (1,274) (7,253)
investment property
EPRA earnings 13,745 11,957 25,167
Weighted average
number of shares in
issue (thousands)
388,416 347,842 362,393
EPRA EPS (p) 3.5 3.4 6.9
4 EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of
the whole portfolio.
Unaudited as at Unaudited as at Audited
30 Sept 2018 30 Sept 2017 as at 31 Mar
2018
GBP000 GBP000
GBP000
Annualised
potential rental
value of vacant
premises
1,237 1,172 1,332
Annualised
potential rental
value for the
property
portfolio 40,002 35,361 38,420
EPRA vacancy rate 3.1% 3.3% 3.5%
- Ends -
=---------------------------------------------------------------------------
[1] Net Asset Value ("NAV") movement including dividends paid and approved
relating to the Period on shares in issue at 31 March 2018.
[2] Profit after tax divided by weighted average number of shares in issue.
[3] The European Public Real Estate Association ("EPRA").
[4] Profit after tax excluding net gain on investment property divided by
weighted average number of shares in issue.
[5] Before costs and expenses of GBP0.1m.
[6] Before acquisition costs of GBP1.6m.
[7] Comprising GBP3.9m of valuation uplift from successful asset management
initiatives less GBP3.7m of other valuation decreases and GBP1.6m of acquisition
costs.
[8] Estimated rental value ("ERV") of let property divided by total
portfolio ERV.
[9] Share price movement including dividends paid and approved for the
Period.
[10] Gross borrowings less unrestricted cash, divided by portfolio value.
[11] Passing rent divided by valuation plus assumed purchaser's costs.
[12] Dividends of 3.25p per share were paid on shares in issue throughout
the Period. Dividends paid on shares in issue at the end of the Period
averaged 3.2p per share due to new shares being issued after the Period's
first ex-dividend date.
[13] 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.
[14] Edinburgh, Glasgow, Leeds Manchester, Liverpool and Birmingham.
[15] Current passing rent plus ERV of vacant properties.
[16] Includes car showrooms, petrol filling stations, children's day
nurseries, restaurants, gymnasiums, hotels and healthcare units.
[17] Purchase price stated for each acquisition represents purchase
consideration before acquisition costs.
[18] % of portfolio passing rent plus ERV of vacant units.
[19] 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.
ISIN: GB00BJFLFT45
Category Code: IR
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited
reviews
Sequence No.: 6776
EQS News ID: 754923
End of Announcement EQS News Service
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