Custodian REIT plc : Unaudited Net Asset Value as at 30 June 2019 (848437)
July 30 2019 - 2:00AM
UK Regulatory
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 30 June 2019
30-Jul-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 July 2019
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 June 2019
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 30 June
2019 and highlights for the period from 1 April 2019 to 30 June 2019 ("the
Period").
Financial highlights
· NAV total return per share1 for the Period of 0.5%
· Dividend per share approved for the Period of 1.6625p
· NAV per share of 106.0p (31 March 2019: 107.1p)
· NAV of GBP432.7m (31 March 2019: GBP426.6m)
· Net gearing2 of 22.8% loan-to-value (31 March 2019: 24.1%)
· GBP11.7m3 of new equity raised during the Period at an average premium of
11.3% to dividend adjusted NAV per share
· Market capitalisation of GBP484.1m (31 March 2019: GBP442.8m)
Portfolio highlights
· Portfolio value of GBP568.0m (31 March 2019: GBP572.7m)
· GBP0.8m valuation increase from successful asset management initiatives
· GBP6.0m overall valuation decrease (1.0% of portfolio)
· EPRA occupancy4 95.9% (31 March 2019: 95.9%)
1 NAV per share movement including dividends paid and approved for the
Period.
2 Gross borrowings less unrestricted cash divided by portfolio valuation.
3 Before costs and expenses of GBP0.1m.
4 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 30 June 2019 was GBP432.7m, reflecting
approximately 106.0p per share, a decrease of 1.1p (1.0%) since 31 March
2019:
Pence per GBPm
share
NAV at 31 March 2019 107.1 426.6
Issue of equity (net of costs) 0.2 11.6
Valuation movements relating to:
- Asset management activity 0.2 0.8
- Other valuation movements (1.7) (6.8)
Net valuation movement (1.5) (6.0)
Income earned for the Period5 2.7 10.8
Expenses and net finance costs for the (0.9) (3.8)
Period5
Dividends paid6 (1.6) (6.5)
NAV at 30 June 2019 106.0 432.7
5 Including GBP0.9m of annual insurance premium recharged to tenants.
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 30 June 2019 of GBP568.0m (31 March
2019: GBP572.7m) and income for the Period but does not include any provision
for the approved dividend of 1.6625p per share for the Period to be paid on
30 August 2019.
Property market
Commenting on the regional commercial property market, Richard
Shepherd-Cross said:
"Demand continues for UK commercial property and the attractive income
returns on offer. However, demand is polarised between perceived low risk
and perceived higher risk assets.
"Those assets which the market perceives to be lower risk include most
industrial properties and properties let on longer leases, particularly
those with RPI/CPI indexed rent reviews. Valuations reflect this sentiment
and Custodian REIT has experienced further valuation gains across its
industrial portfolio, particularly where unexpired lease terms are longer.
The excess of demand over supply for longer let and industrial assets is
adding to upward pressure on pricing, with very few sellers and a long list
of buyers. There appears to be no immediate prospect of significant market
movements, particularly amongst smaller, regional assets where rental levels
remain affordable and the development pipeline is limited. Looking further
ahead, the increase in supply of speculative 'big box' logistics units could
start to limit rental growth which in turn could undermine some of the
keenest prices being paid in the market.
"The retail sector is considered higher risk, borne out by the recent wave
of Company Voluntary Arrangements ("CVAs") that have swept the retail
sector. To date retailers appear to have succeeded in persuading landlords
to approve most CVAs. Recently there has been more resistance from landlords
but I expect we will see further CVAs before concerted landlord action or
legislation restricts the practice. In core retail locations, the risk of
CVA is not one of vacancy, but of falling rents. It has been our experience
that retailers want to continue trading from their stores post CVA but at
lower rents and the widespread impact of CVA rents is hastening a fall in
retail rental values. We expect further falls in capital values in this
sector. One of the impacts of recent CVAs is to precipitate more widespread
retail rent reductions. However, lower rents are likely to support occupancy
levels as stores remain affordable. The desire to continue to trade from
stores appears to be supported by recent analysis of retailers' sales, which
strongly supports retailers retaining physical stores as part of a
multi-channel sales offering. The research shows that where retailers have a
physical store, they are likely to see higher levels of online sales through
a higher profile, click and collect or the ability of shoppers to make
returns more conveniently.
"We expect our out of town, retail warehouse portfolio to be more resilient
to rental decline than on high street properties for three reasons: Firstly,
we expect that well-located units, let off low rents which are complimentary
to a retailer's online offering will continue to be in demand. Secondly, as
the passing rents are currently much lower across our retail warehouse
portfolio than on the high street, we expect less impact from retailers
trying to reduce the costs of their physical stores; and finally, the supply
of well-located, out of town stores is more limited than high street units,
where there is an acknowledged oversupply.
"Regional offices have provided fairly stable returns over the period.
Sustained demand coupled with low levels of development and restricted
supply of Grade A offices in regional markets has led to rental growth,
which has percolated through wider markets. While the costs of office
ownership by way of landlord's capital expenditure and tenant lease
incentives remains higher for offices than other sectors, we expect to see a
relatively steady market ahead.
"Custodian REIT benefits from a balanced and diverse portfolio with 17% of
income derived from 'alternative' assets, which are broadly showing
resilience despite the challenges in retail markets. Current market
conditions make a strong case for maintaining our diverse portfolio, where
the largest tenant is responsible for only 3.4% of the rent roll, across
three properties in different locations and no more than 1.7% of rent due is
from any single-let property.
"Custodian REIT's diversified portfolio is mitigating some of the challenges
in retail and the continued asset management of the portfolio is supporting
net asset value."
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 GBP0.8m valuation increase in the
Period, primarily due to agreeing a five year extension to a lease with
Turpin Distribution at an industrial unit in Biggleswade, increasing annual
rent by 10% to GBP330k and valuation by GBP0.4m.
Further initiatives on other properties currently under review are expected
to complete during the coming months.
The portfolio's weighted average unexpired lease term to first break or
expiry ("WAULT") was maintained at 5.6 years with the impact of lease
re-gears and new lettings offsetting the natural elapse of a quarter of a
year due to the passage of time.
Portfolio analysis
At 30 June 2019 the Company's property portfolio comprised 155 assets (31
March 2019: 155 assets) with a net initial yield7 ("NIY") of 6.7% (31 March
2019: 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 Weighting Period Weighting Weighting
by value valuati by income8 by income8
30 Jun on 30 Jun 31 Mar
2019 movemen 2019 2019
30 Jun 2019 t
GBPm GBPm
Sector
Industrial 227.4 40% 2.0 38% 38%
Retail 122.4 21% (2.4) 22% 22%
warehouse
Other9 94.0 17% (1.1) 17% 17%
High street 64.1 11% (4.0) 12% 12%
retail
Office 60.1 11% (0.5) 11% 11%
Total 568.0 100% (6.0) 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.
The valuation decrease of GBP6.0m was primarily driven by high street retail
valuations falling by GBP4.0m, due to a marked reduction in ERVs across the
portfolio and the CVAs of Paperchase and Cotswold Outdoors which, in an
aggregate, resulted in a GBP140k reduction in annual contractual rent at the
Company's assets in Shrewsbury
Despite a GBP2.4m 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 complementary relationship with online through continued growth in
'click-and-collect' mean valuations and rents are likely to remain more
robust than in the High Street.
Diversification across sectors helps to remove volatility from the portfolio
as demonstrated by the Industrial sector of the portfolio seeing a GBP2.0m
valuation increase during the Period.
The Company operates a geographically diversified portfolio across the UK
seeking to ensure that no one region represents an overweight position
within the portfolio. The geographic analysis of the Company's portfolio at
30 June 2019 was as follows:
Weighting Period Weighting Weighting
by value valuati by by income10
30 Jun on income10 31 Mar 2019
2019 movemen 30 Jun
Valuation t 2019
30 Jun GBPm
2019
Location
GBPm
West 130.2 23% (3.1) 21% 22%
Midlands
North-West 91.2 16% (0.5) 18% 18%
South-East 75.6 13% (1.6) 13% 12%
South-West 70.4 12% (0.9) 11% 11%
East 69.7 12% (0.8) 13% 13%
Midlands
North-East 51.5 10% 0.2 10% 10%
Scotland 46.0 8% 1.1 8% 8%
Eastern 27.3 5% (0.2) 5% 5%
Wales 6.1 1% (0.2) 1% 1%
Total 568.0 100% (6.0) 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 have terms agreed on a
drive-through coffee shop."
Financing
Equity
The Company issued 10.0m new ordinary shares of 1p each ("the New Shares")
during the Period raising gross proceeds of GBP11.7m. The New Shares were
issued at an average premium of 11.3% to the unaudited NAV per share at 31
March 2019, adjusted to exclude the dividend paid on 31 May 2019.
Debt
At the Period end the Company had:
· A GBP35m revolving credit facility ("RCF") with Lloyds Bank plc with
interest of 2.45% above three-month LIBOR expiring 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%.
The Board expects the RCF facility to be permanently increased to GBP45m later
this year.
Dividends
An interim dividend of 1.6375p per share for the quarter ended 31 March 2019
was paid on 31 May 2019. The Board has approved an interim dividend relating
to the Period of 1.6625p per share payable on 30 August 2019 to shareholders
on the register on 26 July 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 (2019: 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: MSCU
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.: 14979
EQS News ID: 848437
End of Announcement EQS News Service
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