Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2019 (804877)
April 30 2019 - 2:01AM
UK Regulatory
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release.
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2019
30-Apr-2019 / 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.
30 April 2019
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 March 2019
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31 March
2019 and highlights for the period from 1 January 2019 to 31 March 2019
("the Period").
Financial highlights
· NAV total return per share1 for the year ended 31 March 2019 ("FY19") of
5.9% (year ended 31 March 2018 ("FY18"): 9.6%), comprising 6.1% income
(FY18: 6.2%) and a 0.2% capital decrease (FY18: 3.4% capital increase)
· NAV per share of 107.1p (31 December 2018: 108.1p)
· NAV of GBP426.6m (31 December 2018: also GBP42 6.6m)
· FY19 EPRA earnings per share2 7.3p (FY18: 6.9p)
· Target dividend per share3 for the year ending 31 March 2020 increased
1.5% to 6.65p (FY19: 6.55p)
· Net gearing4 of 24.1% loan-to-value (31 December 2018: 24.7%)
· GBP4.1m of new equity raised during the Period at an average premium of
8.0% to dividend adjusted NAV per share
· Market capitalisation of GBP442.8m (31 December 2018: GBP460.1m)
Portfolio highlights
· Portfolio value of GBP572.7m (31 December 2018: GBP576.2m)
· GBP1.4m valuation increase from successful asset management initiatives
· GBP5.0m overall valuation decrease (0.9% of portfolio)
· EPRA occupancy5 95.9% (31 December 2018: 96.5%)
1 NAV per share movement including dividends paid and approved for the
period.
2 Profit after tax excluding net gains on investment property and one-off
costs divided by weighted average number of shares in issue.
3 Dividends paid and approved relating to the year.
4 Gross borrowings less unrestricted cash divided by portfolio valuation.
5 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 31 March 2019 was GBP426.6m, reflecting
approximately 107.1p per share, a decrease of 1.0p (0.9%) since 31 December
2018:
Pence per share GBPm
NAV at 31 December 2018 108.1 426.6
Issue of equity (net of costs) 0.1 4.1
Valuation movements relating to:
- Asset management activity 0.3 1.4
- Other valuation movements (1.6) (6.4)
Net valuation movement (1.3) (5.0)
Income earned for the Period 2.5 10.3
Expenses and net finance costs for the (0.7) (2.9)
Period
Dividends paid6 (1.6) (6.5)
NAV at 31 March 2019 107.1 426.6
6 Dividends of 1.6375p per share were paid on shares in issue throughout the
Period.
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 31 March 2019 and income for the
Period but does not include any provision for the approved dividend of
1.6375p per share for the Period to be paid on 31 May 2019.
Commenting on the Company's performance during the Period, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's discretionary investment manager) said:
"In common with many participants in the UK property market the Company was
circumspect in relation to investment during the Period, following on from
much reduced activity through 2018. In part this has been due to market
pricing exceeding our expectations of value and in part due to limited
opportunities in our target sectors.
"The net valuation movement of GBP5.0m represents a 0.9% decrease in the value
of the portfolio during the Period. This valuation decrease was driven by
high street retail valuations falling by GBP5.2m, primarily due to the
reduction in ERVs at 17 of the Company's 33 high street retail assets, based
on recent transactional evidence. Sentiment in the UK property market has
moved quite quickly since September 2018, most notably against retail, and
perhaps a correction was a necessary and an important part of a functioning
market. Some of this negative movement may be recovered following the
conclusion of lease re-negotiations which are underway or under
consideration, although we cannot rule out further falls in confidence in
the property market from general economic or political turbulence. We
believe our strategy of focusing on sustainable income will support future
dividends through any market volatility and deliver capital growth for
shareholders over the long-term."
Asset management
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 GBP1.4m valuation increase in the
Period, primarily due to:
· Agreeing a new 10 year reversionary lease with Revlon International
Corporation for an industrial unit in Stone, with annual rent increasing
by 24% to GBP398k and valuation increasing by GBP0.7m;
· Agreeing a new 10 year lease with Age Scotland at Causewayside House,
Edinburgh where the tenant expanded its letting to take the whole first
floor office suite, increasing the annual rent by 44% to GBP157k and the
valuation by GBP0.4m;
· Documenting a 10 year reversionary lease with Synertec at Leacroft Road,
Warrington, extending the lease expiry from July 2022 to July 2032 and
increasing the valuation by GBP0.2m; and
· Agreeing a new lease for additional external seating with Chokdee
Limited (t/a Giggling Squid) at a restaurant in Bath, with annual rent
increasing by 12% to GBP135k and valuation increasing by GBP0.1m.
Further initiatives on other properties currently under review are expected
to complete during the current quarter. These positive asset management
outcomes have been tempered by the company voluntary arrangement ("CVA") of
Paperchase decreasing annual rent at the Company's Shrewsbury property by
45% from GBP150k to GBP83k, resulting in a GBP0.4m valuation decrease.
The portfolio's weighted average unexpired lease term to first break or
expiry ("WAULT") decreased from 5.8 years at 31 December 2018 to 5.6 years
at the Period end, reflecting principally the natural elapse of a quarter of
a year due to the passage of time.
Property market
Commenting on the commercial property market outside London, Richard
Shepherd-Cross said:
"Investment activity across the UK, as reported by JLL's UK capital market
research, is down 15% in Q1 2019, equivalent to nearly GBP2bn, as investors
reflect on the political and economic uncertainties. However, it is
understood that there is a significant weight of capital still targeting UK
commercial property. Investors appear to want to see prices fall before they
commit but, with vendors not motivated to sell, this caution is contributing
to low investment volumes.
"There are a number of events that might change the prevailing market: The
first would be a conclusion on Brexit, with an 'acceptable' outcome
potentially boosting investor confidence.
"The second might be continued political uncertainty unbalancing the
equilibrium of the economy leading to a repeat of the redemption crisis
experienced by open-ended property funds in the wake of the EU referendum in
the summer of 2016. While there have been net outflows from these funds over
recent months, the flow has not become a flood. Fund managers are bolstering
their cash reserves with selective asset sales, but not at sufficiently
reduced prices to tempt investors back in meaningful volumes.
"A third issue could be a further deterioration in the retail trade and
retail investment values, leading to a general contagion across other
sectors. It is acknowledged that the UK has too many shops and retailers are
actively reducing the size of their store portfolios while acknowledging
that physical stores remain a very important part of their sales proposition
and a key interface with the customer. This reduction in store portfolios is
not all about on-line retailing, although on-line is clearly having a real
impact. As shopping habits evolve retailers need to be flexible enough to
meet those changing requirements and landlords may need to accept that
retailers will need greater flexibility.
"Retail is an unfolding story but the short-term impact on retail property
investment is being felt keenly by investors. The long-term picture for
retail is likely to be polarised. Prime and good secondary locations will
remain popular with retailers and investors alike, although rents may need
to adjust downwards. Poor secondary retail locations may need to be
re-purposed into residential, leisure or other uses.
"Despite many negative predictions for the UK economy in the face of Brexit
or even as a result of Brexit indecision, to date the economy has defied the
sceptics. GDP continues to grow and unemployment is at a 44 year low. Both
of these indicators are positive for commercial property.
"Across all regions of the UK the industrial and logistics sector is
delivering new buildings to the market. For 'big box' (100,000 sq ft plus)
we have witnessed an increase in speculative development as developers try
to exploit demand and the relative lack of supply. Up to 50% of all big box
was speculatively developed last year and it was e-commerce, food and 'other
retailers' who dominated the new lettings.
"After five years of focus on big box logistics the market has identified
the lack of supply of smaller buildings and for the first time in recent
years we have started to see development focused on this sector. One area of
the letting market that has not fully matured is urban logistics. Meeting
the challenge of on-line sales fulfillment is going to see demand for
in-town or suburban logistics buildings. At present such buildings do not
exist or are in short supply as rental levels are not high enough to bring
forward new development, but the potential for rental growth in this
sub-sector is very real. The Company's portfolio is well positioned to
exploit this rental growth, with 19% of its assets in the
industrial/logistics sub-sector which continues to be a target for selective
acquisitions.
"The good news is not restricted to industrial/logistics. Regional office
markets have also performed well, demonstrating rental growth. Again it is
lack of supply combined with strength in regional economies that has driven
this growth and the pipeline of new development continues to look
restricted. New office lettings across all regional markets were 10% above
the five year average during 2018."
Portfolio analysis
At 31 March 2019 the Company's property portfolio comprised 155 assets (31
December 2018: 155 assets) with a net initial yield7 ("NIY") of 6.6% (31
December 2018: 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. Slight swings in sector weightings
reflect market pricing at any given time and the desire to maintain an
opportunistic approach to acquisitions. Sector weightings are shown below:
7 Passing rent divided by property valuation plus purchaser's costs.
Valuation Period Weighting by Weighting by
valuation income8 31 income8 31
movement Mar 2019 Dec 2018
31 Mar 2019
GBPm
GBPm
Sector
Industrial 224.3 1.9 38% 37%
Retail 123.4 (1.4) 22% 22%
warehouse
Other9 95.7 (0.3) 17% 17%
High street 68.6 (5.2) 12% 13%
retail
Office 60.7 - 11% 11%
Total 572.7 (5.0) 100% 100%
8 Current passing rent plus ERV of vacant properties.
9 Includes car showrooms, petrol filling stations, children's day nurseries,
restaurants, gymnasiums, hotels and healthcare units.
Diversification across sectors helps to remove volatility from the
portfolio, as demonstrated in the Period with the Industrial sector of the
portfolio seeing a GBP1.9m valuation increase.
Despite a GBP1.4m valuation decrease in the valuation of retail warehouse
assets during the Period, we believe low rents per sq ft, 'big box' formats,
free parking and a complimentary relationship with on-line through continued
growth in 'click-and-collect' mean valuations and rents are likely to remain
more robust than the High Street.
The Company also 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 31 March
2019 was as follows:
Valuation Period Weighting Weighting
valuation by income10 by income10
movement 31 Mar 31 Dec 2018
2019
31 Mar 2019
GBPm
GBPm
Location
West Midlands 132.8 (0.4) 22% 22%
North-West 91.2 (1.1) 18% 17%
South-East 77.0 (2.0) 12% 13%
South-West 71.3 (1.1) 11% 11%
East Midlands 70.6 (0.6) 13% 13%
North-East 51.3 1.3 10% 10%
Scotland 44.8 (0.1) 8% 8%
Eastern 27.3 (0.9) 5% 5%
Wales 6.4 (0.1) 1% 1%
Total 572.7 (5.0) 100% 100%
10 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:
"We are considering a pipeline of opportunities and believe there may be
potential to make contra-cyclical acquisitions where we believe that
short-term market weakness can unlock long-term value for the Company."
Financing
Equity
The Company issued 3.6m new ordinary shares of 1p each ("the New Shares")
during the Period raising GBP4.1m. The New Shares were issued at a premium of
8.0% to the unaudited NAV per share at 31 December 2018, adjusted to exclude
the dividend paid on 28 February 2019.
Debt
At the Period end the Company had:
· A GBP45m revolving credit facility ("RCF") with Lloyds Bank plc with
interest of 2.45% above three-month LIBOR of which GBP10m expires on 30 June
2019 and GBP35m expires on 13 November 2020;
· A GBP20m term loan with Scottish Widows plc with interest fixed at 3.935%
and is repayable on 13 August 2025;
· A GBP45m term loan with Scottish Widows plc with 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 with fixed annual interest of
3.02%; and
ii) A GBP15m tranche repayable on 3 November 2032 with fixed annual interest
of 3.26%.
On 14 January 2019, the Company increased the RCF facility from GBP35m to GBP45m
until 30 June 2019 to provide the Company with additional capacity for
property acquisitions.
Dividends
An interim dividend of 1.6375p per share for the quarter ended 31 December
2018 was paid on 28 February 2019. The Board has approved an interim
dividend relating to the Period of 1.6375p per share payable on 31 May 2019
to shareholders on the register on 26 April 2019.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend11 per share for the year
ending 31 March 2020 of 6.65p (FY19: 6.55p). 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.
11 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 GBP10m 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 GBP10m 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: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 8424
EQS News ID: 804877
End of Announcement EQS News Service
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