Custodian REIT plc : Unaudited Net Asset Value as at 30 September 2019 (898873)
October 29 2019 - 3:00AM
UK Regulatory
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 30 September 2019
29-Oct-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.
29 October 2019
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 September 2019
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 30
September 2019 and highlights for the period from 1 July 2019 to 30
September 2019 ("the Period").
Financial highlights
· NAV total return per share1 for the Period of -0.04% with a 1.6625p
dividend approved for the Period being offset by a 1.7p decrease in NAV,
primarily due to property valuation decreases
· NAV per share of 104.3p (30 June 2019: 106.0p)
· NAV of GBP428.5m (3 0 June 2019: GBP432.7m)
· Net gearing2 of 20.5% loan-to-value (30 June 2019: 22.8%)
· Increase in the Company's revolving credit facility ("RCF") from GBP35m to
GBP50m for a three year term plus a two year extension option, with the
interest rate margin above three-month LIBOR reduced from 2.45% to between
1.5% and 1.8%
· GBP2.9m of new equity raised during the Period at an average premium of
11.9% to dividend adjusted NAV per share
· Market capitalisation of GBP483.0m (30 June 2019: GBP484.1m)
Property highlights
· Property value of GBP547.2m (30 June 2019: GBP568.0m):
· Disposal of two properties at valuation3 for aggregate headline
consideration of GBP15.7m4
· GBP7.0m valuation decrease (1.2% of property value), primarily due to
decreases in the estimated rental value ("ERV") of high street retail
properties and negative market sentiment for retail assets
· EPRA occupancy5 95.5% (30 June 2019: 95.9%)
· Continued focus on active asset management
· Since the Period end GBP24.65m6 invested in the acquisition of eight
distribution units
1 NAV per share movement including dividends approved for the Period.
2 Gross borrowings less cash (excluding tenant rental deposits and
retentions) divided by property valuation.
3 Before disposal costs of GBP0.1m.
4 Before rental top-ups and cost guarantees of c. GBP0.3m.
5.ERV of let property divided by total property ERV.
6 Before acquisition costs and completion balance sheet adjustments.
Net asset value
The unaudited NAV of the Company at 30 September 2019 was GBP428.5m,
reflecting approximately 104.3p per share, a decrease of 1.7p (1.6%) since
30 June 2019:
Pence per share GBPm
NAV at 30 June 2019 106.0 432.7
Issue of equity 0.1 2.9
Valuation movements relating to:
- Loss on disposal of investment (0.0) (0.1)
properties (net of disposal costs)
- Valuation movements (1.8) (7.0)
Acquisition costs7 (0.0) (0.2)
Net valuation movement (1.8) (7.3)
Income earned for the Period 2.4 9.8
Expenses and net finance costs for the (0.7) (2.8)
Period
Dividends paid8 (1.7) (6.8)
NAV at 30 September 2019 104.3 428.5
7 Acquisition costs relate to unconditional costs incurred on acquisitions
completed following the Period-end.
8 A dividend of 1.6625p per share was 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 property valuation as at 30 September 2019 of GBP547.2m (30 June
2019: GBP568.0m) 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
29 November 2019.
Acquisitions since the Period end
On 1 October 2019 the Company acquired the share capital of John Menzies
Property 4 Limited to facilitate the purchase of a portfolio of distribution
units ("the Menzies Portfolio") for an agreed purchase price of GBP24.65m via
a sale and leaseback transaction with Menzies Distribution Limited ("MDL").
The Menzies Portfolio comprises eight units across the UK with a passing
rent of GBP1.61m, reflecting a net initial yield9 ("NIY") of 6.4%. The
Portfolio's weighted average unexpired lease term to first break or expiry
("WAULT") is 8.8 years and the acquisition increased the Company's net
borrowings to 23.2% loan-to-value ("LTV").
9 Passing rent divided by property valuation plus purchaser's costs.
Property market
Commenting on the regional commercial property market, Richard
Shepherd-Cross said:
"The investment market has been notably quiet this quarter with transaction
volumes down 20% from 2018 according to Knight Frank research. While
overseas investors still make up a significant proportion of buyers,
domestic investors have increased activity to account for 53% of the market.
That said, the institutional managers of open-ended funds have recorded low
acquisition activity, with most being net sellers of (typically) larger
lot-size assets to meet current redemption pressures.
"While reduced transaction volumes tell a story about demand, it is also an
issue for supply. Opportunities that meet the investment criteria of
Custodian REIT have been in very short supply, resulting in a third quarter
where the Company made no property acquisitions.
"Custodian REIT's investment strategy has always been weighted towards
regional industrial and logistics assets, which has stood the Company in
good stead again this quarter. Valuation gains of 2.1% in this sector during
the Period point to both underlying rental growth and continued investment
demand. We expect the addition of the Menzies Portfolio, post Period-end,
will prove to be an excellent addition to this sector of the Company's
property portfolio.
"There has been much focus in the press on the woes of retailers and the
resulting impact on real estate. There is no doubt that the over-supply of
shops on the high street needs to be addressed and, while a number of
Company Voluntary Arrangements ("CVAs") have reduced rents on specific
assets, there remains widespread rental value decline as a result of this
over-supply. Notwithstanding these falls in rental value, Custodian REIT has
continued to focus on maintaining occupancy whilst securing cash flow. We
have worked with tenants to retain them in occupation following CVAs and at
lease expiry or break, resulting in 96.2% occupancy across our high street
retail property portfolio.
"We have previously forecast greater resilience in the out of town retail
market, which benefits from a restricted supply, generally free parking and
the convenience that is complementary to online sales for both 'click &
collect' and customer returns. This forecast remains robust, although the
read-across from the impact on high street retailers and investors generally
turning away from the retail sector as a whole, for the moment is in turn
having a negative impact on retail warehouse values.
"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 is most apparent in the six major regional cities where Grade A rents
are hitting new headline peaks. Although the costs of office ownership
(through landlord's capital expenditure and tenant lease incentives) remain
higher for offices than other sectors, we expect to see a relatively steady
market ahead. WeWork is a relatively new entrant into the regional office
market but continues to make headlines both corporately and in new office
lettings. Time will tell whether it will be complementary or competitive to
the Custodian REIT strategy but at present it has minimal impact on the
markets in which we operate.
"Custodian REIT benefits from a balanced and diverse property portfolio with
17% of income derived from 'other' assets, which are broadly showing
resilience from occupiers and continued demand from investors seeking to
diversify out of retail.
"This diversification successfully mitigates some of the challenges in
retail, whilst the continued asset management of the property portfolio is
supporting the Company's NAV."
Asset management
Owning the right properties at the right time is one key element of
effective property portfolio management, which necessarily involves some
selling from time to time to balance the property portfolio. While Custodian
REIT is not a trader, it is important to identify opportunities to dispose
of assets significantly ahead of valuation or that no longer fit within the
Company's investment strategy.
After focused pre-sale asset management, the following two properties were
sold at valuation during the Period for a headline consideration of GBP15.7m:
· A city centre office unit with retail on the ground floor in Edinburgh
for GBP9.1m, in line with valuation; and
· An industrial unit in Wolverhampton for GBP6.6m, in line with valuation.
Since the Period-end we have promptly reinvested the proceeds from these
disposals into the Menzies Portfolio which is better aligned with the
Company's long-term investment strategy.
A continued focus on active asset management including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their
contractual break clauses have partially offset the negative valuation
impact of reductions in ERVs in the high street retail sector and a
reduction in valuation yields due to worsening market sentiment. Initiatives
completed during the Period were:
· Completing a lease renewal with Laura Ashley at Colchester where the
tenant has taken a five year lease with a third year tenant only break
option, with annual passing rent falling from GBP118k to GBP106k;
· Completing a lease renewal with Specsavers in Norwich which has taken a
10 year lease with a fifth year tenant only break option, with annual
passing rent falling from GBP200k to GBP126k;
· Retained Waterstones in Scarborough beyond its contractual lease expiry
on a flexible lease arrangement whilst the unit is re-marketed, with
annual passing rent falling from GBP93k to GBP45k;
· Completed a 10 year lease extension, subject to a fifth year tenant only
break option, with Equinox Aromas in Kettering with no change to annual
passing rent; and
· Completing six electric vehicle charging point leases to Instavolt
across a number of retail warehouse sites within the property portfolio,
generating an additional GBP18k in annual contracted rent on 15 year leases.
Further initiatives on other properties currently under review are expected
to complete during the coming months.
These positive asset management outcomes have been tempered by the recent
exercise of a tenant only break option effective from August 2020 and two
tenants confirming their intention to vacate premises at lease expiry in
2020, which put annual aggregate rent of GBP650k at risk.
Property portfolio analysis
The property portfolio's WAULT fell to 5.3 years from 5.6 years in June 2019
reflecting the natural elapse of a quarter of a year due to the passage of
time.
At 30 September 2019 the Company's property portfolio comprised 153 assets
(30 June 2019: 155 assets) with a NIY of 6.7% (30 June 2019: 6.7%). The
property portfolio is split between the main commercial property sectors, in
line with the Company's objective to maintain a suitably balanced property
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:
Valuation Weighting Period Weighting Weighting
by value valuati by by
30 Sep on income10 income10
2019 movemen 30 Sep 30 Jun
30 Sep 2019 t 2019 2019
GBPm GBPm
Sector
Industrial 226.6 41% 4.7 38% 38%
Retail 117.2 21% (5.3) 23% 22%
warehouse
Other11 92.5 17% (1.5) 17% 17%
High street 58.3 11% (4.9) 12% 12%
retail
Office 52.6 10% - 10% 11%
Total 547.2 100% (7.0) 100% 100%
10 Current passing rent plus ERV of vacant properties.
11 Includes car showrooms, petrol filling stations, children's day
nurseries, restaurants, gymnasiums, hotels and healthcare units.
The valuation decrease of GBP7.0m was primarily driven by high street retail
and retail warehouse valuations falling by GBP4.9m and GBP5.3m respectively, due
to a reduction in high street retail ERVs and a worsening of investment
market sentiment towards retail. We believe low rents per sq ft, 'big box'
formats, free parking and a complementary relationship with online through
continued growth in 'click & collect' mean retail warehouse valuations and
rents are likely to remain more robust than in the High Street during the
remainder of the year. The retail valuation declines were tempered by
industrial asset valuations increasing by GBP4.7m due to latent rental growth
and continued investor demand.
The Company operates a geographically diversified property portfolio across
the UK seeking to ensure that no one region represents an overweight
position. The geographic analysis of the Company's property portfolio at 30
September 2019 was as follows:
Valuation Weighting Period Weighting Weighting
by value valuat by income12 by income12
30 Sep ion 30 Sep 30 Jun
2019 moveme 2019 2019
30 Sep nt
2019
GBPm
GBPm
Location
West Midlands 122.2 22% (1.4) 21% 21%
North-West 93.4 17% 1.2 18% 18%
South-East 71.3 13% (4.3) 13% 13%
East Midlands 69.4 13% (0.3) 14% 13%
South-West 68.9 13% (1.6) 11% 11%
North-East 51.7 9% - 10% 10%
Scotland 37.8 7% 0.4 7% 8%
Eastern 27.2 5% (0.2) 5% 5%
Wales 5.3 1% (0.8) 1% 1%
Total 547.2 100% (7.0) 100% 100%
12 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 to
fund the development of a drive-through coffee shop in Nottingham. We
believe a selective approach to acquisitions can still yield investment
opportunities in the current market and consider the Company well positioned
with long-term debt facilities and low net gearing to take advantage of
opportunities as they arise."
Financing
Equity
The Company issued 2.5m new ordinary shares of 1p each ("the New Shares")
during the Period raising proceeds of GBP2.9m. The New Shares were issued at
an average premium of 11.9% to the unaudited NAV per share at 30 June 2019,
adjusted to exclude the dividend paid on 30 August 2019.
Debt
On 17 September 2019 the Company and Lloyds Bank plc agreed to increase the
total funds available under the Company's RCF from GBP35m to GBP50m for a term
of three years, with an option to extend the term by a further two years
subject to Lloyds Bank plc's agreement, and a reduction in the rate of
annual interest to between 1.5% and 1.8% above three-month LIBOR, determined
by reference to the prevailing LTV ratio. The RCF includes an 'accordion'
option with the facility limit initially set at GBP46m, which can be increased
to GBP50m subject to Lloyds Bank plc's agreement.
At the Period end the Company had:
· A GBP50m RCF with Lloyds Bank plc with interest of between 1.5% and 1.8%
above three-month LIBOR, determined by reference to the prevailing LTV
ratio expiring on 17 September 2022;
· 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%.
Dividends
An interim dividend of 1.6625p per share for the quarter ended 30 June 2019
was paid on 30 August 2019. The Board has approved an interim dividend
relating to the Period of 1.6625p per share payable on 29 November 2019 to
shareholders on the register on 25 October 2019.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend13 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.
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.
Inside information
The Board is satisfied that any inside information which the Directors and
the Investment Manager may have has been notified to a regulatory
information service. The Company is therefore not prohibited from issuing
new securities during the closed period which ends on the date of the
announcement of the Interim Report for the period ended 30 September 2019.
- 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 property
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
property 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.: 25536
EQS News ID: 898873
End of Announcement EQS News Service
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=be531edfb7113375e33d32944df93de5&application_id=898873&site_id=vwd&application_name=news
2: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=898873&site_id=vwd&application_name=news
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