Custodian REIT plc (CREI)
Custodian REIT plc : Interim Results
12-Dec-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.
12 December 2019
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 2019 ("the Period").
Financial highlights
· NAV per share total return[1] of 0.5% (2018: 4.3%) comprising 3.1% income (2018: 3.1%)
and a 2.6% capital decrease (2018: 1.2% capital increase)
· Profit before tax decreased to GBP0.7m (2018: GBP16.6m), primarily due to property valuation
decreases largely offsetting a steady trading result with EPRA[2] earnings per share[3] of
3.4p (2018: 3.5p)
· Basic and diluted earnings per share[4] 0.2p (2018: 4.3p)
· GBP14.7m[5] of new equity raised at an average premium of 11.4% to dividend adjusted NAV
· 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%
· Dividends per share of 3.325p (2018: 3.275p) paid and approved for the six-month period
Property highlights
· Property portfolio value of GBP547.2m (31 March 2019: GBP572.7m, 2018: GBP547.0m)
· Disposal of two properties at valuation[6] for aggregate headline consideration of
GBP15.7m[7]
· GBP12.9m valuation decrease[8] (2.3% of property portfolio value), primarily due to
decreases in the estimated rental value ("ERV") of high street retail properties and
negative market sentiment for retail assets
· EPRA occupancy[9] 95.5% (2018: 96.9%)
· Continued focus on active asset management
· Since the period end GBP24.65m[10] invested in the acquisition of eight distribution units
Financial performance
Unaudited Unaudited Audited
6 months to 6 months to 12 months to 31
30 Sept 2019 30 Sept 2018 Mar 2019
Total return
NAV per share total 0.5% 4.3% 5.9%
return
Share price total 8.7% 10.3% 4.2%
return[11]
Capital values
NAV (GBPm) 428.5 427.5 426.6
NAV per share (p) 104.3 108.6 107.1
Share price (p) 117.6 121.4 111.2
Property portfolio 547.2 547.0 572.7
value (GBPm)
Market 483.0 478.1 442.8
capitalisation (GBPm)
Premium of share 12.8% 11.8% 3.8%
price to NAV per
share
Net gearing[12] 20.5% 20.5% 24.1%
The Company presents NAV per share total return, new equity raised, dividend per share,
share price total return, NAV per share, share price, market capitalisation, premium of
share price to NAV per share, net gearing, and certain EPRA Best Practice Recommendations as
alternative performance measures ("APMs") to assist stakeholders in assessing performance
alongside the Company's results on a statutory basis.
APMs are among the key performance indicators used by the Board to assess the Company's
performance and are used by research analysts covering the Company. Certain other APMs may
not be directly comparable with other companies' adjusted measures, and APMs are not
intended to be a substitute for, or superior to, any IFRS measures of performance.
Supporting calculations for APMs and reconciliations between APMs and their IFRS equivalents
are set out in the Additional disclosures section of the Interim Report.
David Hunter, Chairman of Custodian REIT, said:
"I am pleased to report that the Company delivered a further positive total return for the
Period despite a struggling retail sector and continued UK political uncertainty. We
continue to target sustainable growth to realise the potential economies of scale offered by
the Company's relatively fixed administrative cost base.
"The challenges to physical retail compared to online retail have yet to reach a conclusion,
but, across other sectors of the commercial property market, there remain supply and demand
imbalances that should continue relatively low vacancy rates and further rental growth.
These conditions are positive for the income focused strategy of Custodian REIT. It seems we
are almost certainly destined for an extended period of low interest rates and in a low
return environment the income returns offered by property look very attractive.
"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 6.65p 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
Custodian REIT plc interim results for the six months ended 30 September 2019
Chairman's statement
I am pleased to report that the Company delivered a further positive total return for the
Period despite a struggling retail sector, which contributed to the GBP12.9m property
valuation decrease during the Period, and continued UK political uncertainty. EPRA earnings
per share remained relatively flat at 3.4p (2018: 3.5p). During the Period GBP14.7m was raised
from the issue of new shares and GBP15.7m was raised from disposals. These sums funded the
GBP24.65m acquisition of a portfolio of eight distribution units ("the Menzies Portfolio")
through a sale and leaseback to Menzies Distribution Limited.
The purchase of the Menzies Portfolio was facilitated by a corporate acquisition which
reduced purchase costs such that the agreed price of GBP24.65m reflected a net initial
yield[13] ("NIY") of 6.4%, supporting our objective to deliver strong income returns from a
property portfolio principally of sub GBP10m lots in strong, regional markets. Further details
on the Company's most recent transactions are set out in the Investment Manager's report.
We continue to target sustainable 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 property portfolio, we have continued to pay fully covered
dividends in line with target and minimised 'cash drag' on the issue of new shares by taking
advantage of the flexibility offered by the Company's RCF. During the Period the Company
increased the RCF to GBP50m, agreeing a new three year term and a reduction in margin above
three month LIBOR from 2.45% to between 1.5% and 1.8%. The revised facility will reduce net
finance costs, providing additional capacity to exploit new acquisition opportunities whilst
maintaining the flexibility to minimise cash drag from equity issuance.
Investor demand has seen the Company's shares continue to trade at a premium to NAV allowing
the Board to issue GBP14.7m of equity at an average premium of 11.4% above dividend adjusted
NAV, more than covering the costs of issue and deployment.
Market
The investment market has been notably quiet over the last quarter with transaction volumes
down nearly 20% from 2018 according to Lambert Smith Hampton research. Although overseas
investors still make up a significant proportion of buyers, domestic investors have
increased activity to account for 53% of the market, demonstrating confidence in the
underlying case for property investment.
While these reduced transaction volumes partly reflect low investor demand, it is also the
case that opportunities that meet the investment criteria of Custodian REIT have been in
very short supply. This Period has been our first half-year since IPO in 2014 where the
Company made no property acquisitions. We believe that abstaining from acquisitions when
prevailing pricing is considered expensive is a key advantage of the closed-ended structure.
Net asset value
The Company delivered NAV per share total return of 0.5% for the Period:
Pence per share GBPm
NAV at 31 March 2019 107.1 426.6
Issue of equity (net of costs) 0.3 14.5
107.4 441.1
Gross valuation decrease (3.2) (12.9)
Impact of acquisition costs relating to
post Period-end acquisitions
(0.1) (0.2)
Net valuation decrease (3.3) (13.1)
Loss on disposal of investment property (0.0) (0.1)
Net loss on investment property (3.3) (13.2)
Income 5.0 20.6
Expenses and net finance costs (1.6) (6.7)
Dividends paid[14] (3.2) (13.3)
NAV at 30 September 2019 104.3 428.5
The valuation decrease of GBP12.9m was primarily driven by high street retail and retail
warehouse valuations falling by GBP8.8m and GBP7.7m respectively, further detailed in the
Investment Manager's report, due to a reduction in high street retail ERVs, a worsening of
investment market sentiment towards retail and two company voluntary arrangements ("CVAs")
impacting the valuation of assets in Shrewsbury.
I am pleased to report that the retail valuation declines were partially offset by
industrial asset valuations increasing due to latent rental growth and continued investor
demand, demonstrating the benefit of a diversified property portfolio. 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 Period, with valuation gains of
GBP6.8m (3.15%) in this sector pointing to both underlying rental growth and continued
investment demand. We expect the Menzies Portfolio will prove to be an excellent addition to
this sector of the Company's property portfolio.
Share price
Share price total return for the first half of the financial year was 8.7%, with a closing
price of 117.6p per share on 30 September 2019 representing a 12.8% premium to NAV. During
the Period the Company's shares traded at a premium to NAV with low share price volatility
compared to its peers offering shareholders relatively stable returns. I believe the
Company's record of maintaining a share price premium to NAV has been a function of the
attractive level of income offered by the Company's dividend policy, strong demand for
closed-ended property funds, the daily liquidity of the Company's shares, our regional
property investment strategy and the Investment Manager's focused asset management.
Issue of new ordinary shares
The Company issued 12.5m new shares during the Period at an average premium to the
prevailing dividend adjusted NAV of 11.4% which was accretive to NAV. The positive and
steady investor demand for the Company's shares has been a testament to the successful
implementation of our strategy to date. The Board has actively restricted share issuance
during the Period to ensure new monies are only raised where there is sufficient pipeline
visibility to facilitate prompt deployment on earnings accretive acquisitions.
Borrowings and cash
As at 30 September 2019 net gearing equated to 20.5% loan-to-value ("LTV"). The Board's
strategy is to:
· Increase debt facilities in line with property portfolio growth targeting net gearing of
25% LTV;
· Facilitate expansion of the property 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.
During the Period the Company increased total funds available under the RCF from GBP35m to
GBP50m for a term of three years, with an option to extend the term by a further two years.
The Company operates the following debt facilities:
· 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 and 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 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 3.0% (2018: 3.1%) with
a WAM of 8 years (2018: 9 years). 70% (2018: 77%) of the Company's debt facilities are at a
fixed rate of interest, significantly mitigating interest rate risk.
Cash and cash equivalents at the Period-end of GBP41.7m (2018: GBP8.2m) include GBP23.6m held in
the Company's solicitor's client account relating to the acquisition of the Menzies
Portfolio and GBP15.2m disposal proceeds held in a charged account pending the securitisation
of replacement assets.
Investment Manager
Custodian Capital Limited ("the Investment Manager") is appointed under an investment
management agreement ("IMA") to provide property management and administrative services to
the Company. During the Period the Investment Manager charged the Company GBP2.0m (2018:
GBP1.9m) in respect of annual management charges and administration fees. Further details of
fees payable to the Investment Manager are set out in Note 16.
The Board is pleased with the performance of the Investment Manager, particularly the prompt
deployment of the proceeds from property disposals and new equity which took place shortly
after the Period-end on eight high quality industrial assets. The Board is also pleased to
record the Investment Manager's continuing successful asset management which has secured the
earnings required to fully cover the target dividend.
Dividends
Income is a major component of total return. The Company paid aggregate dividends of 3.30p
per share during the six-month Period, all classified as property income distributions,
comprising interim dividends of 1.6375p per share and 1.6625p per share relating to the
quarters ended 31 March 2019 and 30 June 2019 respectively.
The Board approved an interim dividend of 1.6625p per share for the quarter ended 30
September 2019 which was paid on 29 November 2019. In the absence of unforeseen
circumstances the Board believes the Company is well placed to meet its target[15] of paying
further quarterly dividends, fully covered by income, to achieve an annual dividend 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.
Board composition
Reflecting the growth of the Company since inception, we are in the process of recruiting an
additional Non-Executive Director. The Directors believe the new appointee's skills and
experience complement the existing Directors and her appointment will add value to the
Company.
Environmental policy
The majority of the Company's investment properties are let on full repairing and insuring
leases, meaning its day-to-day environmental responsibilities are limited because properties
are controlled by their tenants. However, the Board adopts sustainable principles where
possible and the key elements of the Company's current environmental policy are:
· We want our properties to minimise their impact on the environment and the Investment
Committee of the Investment Manager carefully considers the historical and current usage
and environmental performance of assets before acquisition;
· An ongoing examination of existing and new tenants' business activities allows
assessment of the risk of pollution occurring, and tenants with high-risk activities are
avoided;
· Sites are visited periodically and any observable environmental issues are reported to
the Investment Committee of the Investment Manager; and
· All leases prepared after the adoption of the policy commit occupiers to observe any
environmental regulations.
The Company has recently engaged Carbon Credentials, specialist environmental consultants,
to review the Company's environmental policy, identify and prioritise opportunities for
improvements and recommend how best risks might be managed.
Outlook
The challenges to physical retail compared to online retail have yet to reach a conclusion,
but, across other sectors of the commercial property market, there remain supply and demand
imbalances that should continue relatively low vacancy rates and further rental growth.
These conditions are positive for the income focused strategy of Custodian REIT.
The outlook for the UK economy has been uncertain for some time, with the political backdrop
increasingly dominating decision making. It is not unreasonable to presume, if we have more
settled times ahead, that UK commercial property will again come into focus for investors
seeking income. It seems we are almost certainly destined for an extended period of low
interest rates and in a low return environment the income returns offered by property look
very attractive.
David Hunter
Chairman
11 December 2019
Investment Manager's report
Property market
Custodian REIT benefits from a balanced and diverse 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 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
values, Custodian REIT has continued to focus on maintaining occupancy and securing cash
flow. We have worked with tenants to retain them in occupation following CVAs and at lease
expiry or break, resulting in 96.0% 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. We believe
this forecast remains robust, although the read-across from the impact on high street
retailers and investors generally turning away from the retail sector has had some 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 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 had minimal impact on the
regional markets in which we operate.
Custodian REIT derives 17% of its income from 'other' assets, which are broadly showing
occupational resilience 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.
Across the property portfolio we agreed 21 rent reviews (excluding electric charging
points), new lettings or lease renegotiations during the Period. In the industrial portfolio
this led to an annual rental increase of GBP268k. This increase has countered a decline of
GBP169k across the retail portfolio over and above the impact of CVAs which are discussed
below. The net increase in rent demonstrates the continuing opportunities to enhance
earnings across Custodian REIT's diverse regional property portfolio.
Property portfolio performance
At 30 September 2019 the Company's property portfolio comprised 153 assets, 210 tenants and
262 tenancies with an aggregate net initial yield of 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 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:
Valuation Weighting Valuation Weighting Valuation
by by income movement
income[16 31 March before
] 2019 acquisiti
30 Sept 31 March on costs Valuation
2019 movement
including
30 Sept acquisiti
2019 GBPm on costs
GBPm GBPm
2019
Sector GBPm Weighting Weighting
by value by value
30 Sept 31 March
2019 2019
Industrial 226.6 38% 224.3 38% 6.8 6.6 41% 39%
Retail 117.2 23% 123.4 22% (7.7) (7.7) 21% 21%
warehouse
Other[17] 92.5 17% 95.7 17% (2.7) (2.7) 17% 17%
High 58.3 12% 68.6 12% (8.8) (8.8) 11% 12%
street
retail
Office 52.6 10% 60.7 11% (0.5) (0.5) 10% 11%
Total 547.2 100% 572.7 100% (12.9) (13.1) 100% 100%
Acquisitions
On 1 October 2019 we acquired the Menzies Portfolio for GBP24.65m via a sale and leaseback
transaction with Menzies Distribution Limited ("MDL"). MDL is one of the UK's leading print
media logistics companies, servicing 1,700 routes per day from over 50 sites across the UK
and Ireland. The Menzies Portfolio comprises eight logistics/distribution units spread
across the UK with a current passing rent of GBP1.61m reflecting a NIY of 6.4%.
The Company acquired the Menzies Portfolio by purchasing the entire issued share capital of
John Menzies Property 4 Limited which owns the Menzies Portfolio. All eight properties are
let on new 10 year leases with one unit having a second-year break option. The leases
provide for a 13.1% fixed rental uplift at year five.
The Menzies Portfolio is strongly aligned to Custodian REIT's investment strategy and
complementary to the Company's existing property portfolio. The pricing benefits of pursuing
a smaller lot-size, regional strategy is evident when compared with pricing in the highly
competitive market for logistics assets. The acquisition of the Menzies Portfolio enhances
the Company's property portfolio's weighted average unexpired lease term to first break or
expiry ("WAULT"), supplements regional diversification and additionally provides secure cash
flow with the benefit of fixed rental uplifts in 2024.
Following this transaction, MDL became Custodian REIT's largest tenant, but MDL still
represents only 3.9% of the rent roll. No one property accounts for more than 0.7% of the
rent roll, supporting the continued drive to mitigate risk through diversification and stock
selection. We are very pleased to enter into a long-term relationship with MDL, which offers
a strong covenant.
The corporate transaction offered compelling economic benefits to both the Company and the
vendor, compared to acquiring the properties directly.
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio [2].
Disposals
After focused pre-sale asset management, the following two properties were sold at valuation
during the Period for a headline consideration of GBP15.7m:
· In Wolverhampton a 119,600 sq ft industrial unit was sold for GBP6.6m, in line with the 30
June 2019 valuation. The property was purchased in June 2016 for GBP4.5m as part of a
three-property portfolio; and
· In Edinburgh a 39,279 sq ft city centre office and retail unit in Edinburgh sold for
GBP9.1m, in line with the 30 June 2019 valuation, having been acquired as part of a
portfolio in January 2016 for GBP9.0m.
Investment objective
The Company's key objective is to provide shareholders with an attractive level of income by
maintaining a 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. We 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.
We remain committed to a strategy principally focused on sub GBP10m lot-size regional
property, diversified across sector, geography and with a broad tenant mix which should
stand the property portfolio in good stead against market shocks.
Property portfolio risk
The property portfolio's security of income is enhanced by 15.2% of income benefitting from
either fixed or indexed rent reviews.
Short-term income at risk is a relatively low proportion of the property portfolio's total
income, with 35% (2018: 33%) expiring in the next three years and 15% within one year (2018:
8%).
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 2019 over
the remainder of the financial year.
The Board considers it is too early to understand the full impact of 'Brexit' on revenues
and the property 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 pages 62-63 of the 2019 Annual
Report. If appropriate, the Board will review strategy following the General Election, but
the Company's focus on diversified and income producing assets is intended to be resilient
to political change.
Asset management
Owning the right properties at the right time is one key element of effective portfolio
management, which necessarily involves some periodic selling to balance the portfolio. While
Custodian REIT is not a trader, identifying opportunities to dispose of assets to take a
profit or that no longer fit within the Company's investment strategy is necessary.
Importantly, we promptly reinvested the proceeds from the two 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:
· Agreeing a five year extension to a lease with Turpin Distribution at an industrial unit
in Biggleswade, increasing annual rent by 10% to GBP330k;
· 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 at GBP126k, against an ERV of GBP125k;
· 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.
Growth in rents and positive asset management outcomes have been tempered by CVAs in the
retail portfolio with both Cotswold Outdoor and Paperchase entering CVAs with an aggregate
reduction of GBP228k in rent. In addition two tenants, Thomas Cook in Shrewsbury and Kings
Road Tyres in Burton upon Trent, recently went into administration. We expect Hays Travel to
take on the former Thomas Cook unit, albeit at a lower rent, and the Burton upon Trent
property has already been re-let at GBP500k pa, a rent reduction of just GBP10k.
The recent exercise of a tenant only break option effective from August 2020 in Weymouth and
three tenants confirming their intention to vacate premises at lease expiry in 2020 in
Redditch, Portsmouth and Cirencester will put annual aggregate rent of GBP687k at risk. We
consider re-letting vacant properties and re-gearing leases part of the day-to-day
management of a diversified property portfolio. We do not expect these negotiations to lead
to a significant increase in the Company's void rate, based on our anticipated discussions
with tenants to remain in situ and knowledge of the asset-specific local letting market.
The property portfolio's WAULT decreased from 5.6 years at 31 March 2019 to 5.3 years
principally due to the natural half a year's decline due to the passage of time over the
Period, partially offset by disposing of two assets with an aggregate WAULT of 4.4 years and
completion of the asset management initiatives above. The acquisition of the Menzies
Portfolio on 1 October 2019 increased the Company's property portfolio's WAULT to 5.5 years.
Outlook
We do not expect to see a meaningful change in investor demand for UK real estate over the
next few months. We anticipate the impact of the General Election and the conundrum of
Brexit will continue to occupy investors' thoughts and we anticipate a period of continued
relative inaction while investors wait to see what happens next. However, we believe a clear
outcome from the General Election could produce an upsurge in confidence and activity and we
remain ready with available undrawn debt facilities to exploit any opportunities which may
arise. Meanwhile, the occupational market in the regions remains short of supply which
continues to support rental growth in office and industrial markets.
While Custodian REIT is not immune from falling values, as witnessed in the NAV decrease
during the period, this is a cloud with a silver lining. Market conditions through late 2018
and 2019 have made it very difficult to source investment property with the appropriate risk
profile. Properties that are modern, fit for purpose; capable of delivering long-term secure
income; not in need of significant capital expenditure and likely to show limited voids have
been scarce. A downward adjustment in market values could create the sort of opportunities
that will allow Custodian REIT's strategy to continue to thrive.
We remain confident that the Company's strategy of targeting income with conservative net
gearing in a well-diversified regional property 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
11 December 2019
Property portfolio
Location Tenant % Portfolio
Income[18]
Industrial
Ashby-de-la-Zouch Teleperformance 1.3%
Burton Kings Road Tyres 1.2%
Gateshead Multi-let 1.2%
Warrington JTF Wholesale 1.2%
Salford Restore 1.1%
Bedford Elma Electronics and 1.1%
Vertiv Infrastructure
Hilton, Derby Daher Aerospace 1.0%
Winsford H&M 1.0%
Eurocentral Next 0.9%
Tamworth ICT Express 0.9%
Doncaster Silgan Closures 0.9%
Redditch Amco Services 0.8%
Normanton YESSS Electrical 0.8%
Biggleswade Turpin Distribution 0.8%
Stone Revlon International 0.8%
Kettering Multi-let 0.8%
Warrington Procurri Europe and 0.8%
Synertec
Daventry Cummins 0.8%
Redditch Hydro Extrusions 0.7%
Cannock HellermannTyton 0.7%
Milton Keynes Massmould 0.7%
West Bromwich OyezStraker 0.7%
Team Valley, Gateshead Worthington Armstrong 0.7%
Bellshill, Glasgow Yodel Delivery Network 0.7%
Nuneaton DX Network Services 0.6%
Milton Keynes Saint-Gobain Building 0.6%
Distribution
Plymouth Sherwin-Williams 0.6%
Avonmouth Superdrug 0.6%
Bedford Heywood Williams 0.6%
Components
Bristol BSS 0.6%
Coventry Royal Mail 0.6%
Hamilton Ichor Systems 0.6%
Stevenage Morrison Utility Services 0.6%
Livingston A Share & Sons (t/a SCS) 0.5%
Manchester Unilin Distribution 0.5%
Oldbury Sytner 0.5%
Aberdeen DHL Supply Chain 0.5%
Christchurch Interserve Project 0.5%
Services
Cambuslang Brenntag 0.5%
Warrington Dinex Exhausts 0.4%
Warwick Semcon 0.4%
Leeds Sovereign Air Movement 0.4%
and Tricel Components
Coalville MTS Logistics 0.4%
Erdington West Midlands Ambulance 0.4%
Service NHS Trust
Langley Mill Warburtons 0.4%
Irlam Northern Commercials 0.4%
Castleford Bunzl 0.4%
Sheffield Synergy Health 0.3%
Liverpool Powder Systems 0.3%
Westerham Aqualisa Products 0.3%
Sheffield Arkote 0.3%
Sheffield ITM Power and River 0.3%
Island
Kettering Sealed Air 0.3%
Atherstone North Warwickshire 0.3%
Borough Council
Liverpool DHL International 0.3%
Huntingdon PHS 0.3%
Normanton Acorn Web Offset 0.3%
Kilmarnock Royal Mail 0.2%
Glasgow DHL Global Forwarding 0.2%
Vacant units 1.3%
37.9%
Location Tenant % Portfolio
Income
Retail Warehouse
Evesham Multi-let 2.3%
Weymouth Multi-let 2.0%
Carlisle Multi-let 1.9%
Winnersh Pets at Home and Wickes 1.4%
Burton CDS (t/a The Range) and 1.4%
Wickes
Swindon B&M and Go Outdoors 1.3%
Leicester Matalan 1.3%
Banbury B&Q 1.2%
Plymouth - Coypool A Share & Sons (t/a 1.2%
SCS) and JB Global (t/a
Oak Furniture Land)
Ashton-under-Lyne B&M 1.1%
Plymouth - Transit Way Multi-let 1.0%
Gloucester Multi-let 0.9%
Sheldon Multi-let 0.9%
Leighton Buzzard Homebase 0.9%
Grantham Multi-let 0.8%
Galashiels B&Q 0.7%
Leicester Magnet 0.6%
Torpoint Sainsbury's 0.6%
Portishead Multi-let 0.5%
Vacant units 0.9%
22.9%
Location Tenant % Portfolio Income
Other
Stockport Benham Specialist Cars 1.8%
(t/a Williams BMW and
Mini)
Liverpool Multi-let 1.1%
Perth Multi-let 1.0%
Lincoln Total Fitness 0.9%
Stoke Nuffield Health 0.9%
Derby VW Group 0.8%
Crewe Multi-let 0.8%
Stafford VW Group 0.7%
Torquay Multi-let 0.7%
Gillingham Co-operative 0.7%
York Pendragon 0.6%
Portishead Travelodge 0.5%
Salisbury Parkwood Health & Fitness 0.5%
Shrewsbury VW Group 0.5%
Lincoln MKM Building Supplies 0.5%
Loughborough Listers Group 0.4%
Crewe Multi-let 0.4%
Redhill Honda Motor Europe 0.3%
Bath Chokdee (t/a Giggling 0.3%
Squid)
Shrewsbury Azzurri Restaurants (t/a 0.3%
ASK) and Sam's Club (t/a
House of the Rising Sun)
Castleford MKM Building Supplies 0.3%
High Wycombe Stonegate Pub Co 0.3%
Maypole, Birmingham Starbucks 0.3%
Shrewsbury TJ Vickers & Sons 0.3%
Carlisle The Gym Group 0.3%
Leicester Pizza Hut 0.3%
Watford Pizza Hut 0.2%
Plymouth McDonald's 0.2%
Basingstoke Bright Horizons 0.2%
Portishead JD Wetherspoon 0.2%
Stratford The Universal Church of 0.1%
the Kingdom of God
Kings Lynn Loungers 0.1%
Chesham Bright Horizons 0.1%
Knutsford Knutsford Day Nursery 0.1%
Vacant units 0.5%
17.2%
Location Tenant % Portfolio Income
High street retail
Portsmouth Multi-let 1.2%
Shrewsbury Multi-let 1.1%
Worcester Superdrug 0.9%
Colchester Multi-let 0.7%
Cardiff Specsavers and Card 0.6%
Factory
Southampton URBN 0.5%
Guildford Reiss 0.5%
Southsea Portsmouth City Council 0.4%
Llandudno WH Smith 0.4%
Cardiff Sportswift (t/a Card 0.4%
Factory)
Birmingham Multi-let 0.3%
Nottingham The White Company 0.3%
Chester Felldale Retail (t/a 0.3%
Lakeland) and Signet
Trading (t/a Ernest Jones)
Chester Ciel Concessions (t/a 0.3%
Chesca) and TSB
Norwich Specsavers 0.3%
Weston-Super-Mare Superdrug 0.3%
Edinburgh Phase Eight 0.3%
Chester Aslan Jewellery (t/a 0.3%
Gasia) and Der Touristik
Portsmouth The Works 0.3%
Stratford Foxtons 0.2%
Scarborough Waterstones 0.2%
Taunton Wilko Retail 0.2%
Bury St Edmunds The Works 0.2%
Colchester Kruidvat Real Estate (t/a 0.2%
Savers)
St Albans Crepeaffaire 0.2%
Cirencester Framemakers Galleries and 0.2%
The Danish Wardrobe (t/a
Noa Noa)
Bury St Edmunds Savers 0.1%
Cheltenham Done Brothers (t/a 0.1%
Betfred)
Bedford Waterstones 0.1%
Shrewsbury Cotswold Outdoor 0.0%
Vacant Units 0.5%
11.6%
Location Tenant % Portfolio Income
Office
West Malling Regus (Maidstone West 1.6%
Malling)
Birmingham Multi-let 1.1%
Sheffield Secretary of State for 0.9%
Communities and Local
Government
Castle Donington National Grid 0.8%
Leeds First Title (t/a Enact 0.8%
Conveyancing)
Cheadle Wienerberger 0.7%
Leeds First Title (t/a Enact 0.7%
Conveyancing)
Leicester Countryside Properties and 0.7%
Erskine Murray
Derby Edwards Geldards 0.6%
Solihull Lyons Davidson 0.5%
Leicester Regus (Leicester Grove Park) 0.4%
Glasgow Multi-let 0.3%
Vacant units 1.3%
10.4%
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2019
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 Mar
2019 2018
2019
Note GBP000 GBP000 GBP000
Revenue 4 20,495 19,634 39,974
Investment (1,762) (1,733) (3,486)
management fee
Operating expenses
of rental property (866)
(838) (787)
· rechargeable to
tenants
(928) (707) (1,530)
· directly
incurred
Professional fees (191) (244) (624)
Directors' fees (94) (92) (183)
Administrative (317) (313) (626)
expenses
Expenses (4,130) (3,876) (7,315)
Operating profit
before financing
and revaluation of
investment property
16,365 15,758 32,659
Unrealised
(losses)/gains on
revaluation of
investment
property:
- relating to gross
property
revaluations
9 (12,919) 246 (5,499)
9 (222) (1,635) (3,391)
· relating to
acquisition costs
Net valuation (13,141) (1,389) (8,890)
decrease
(Loss)/profit on (79) 4,250 4,250
disposal of
investment property
Net (losses)/gains (13,220) 2,861 (4,640)
on investment
property
Operating profit 3,145 18,619 28,019
before financing
Finance income 5 10 41 27
Finance costs 6 (2,428) (2,054) (4,400)
Net finance costs (2,418) (2,013) (4,373)
Profit before tax 727 16,606 23,646
Income tax 7 - - -
Profit and total
comprehensive
income for the
Period, net of tax
727 16,606 23,646
Attributable to:
Owners of the 727 16,606 23,646
Company
Earnings per
ordinary share:
Basic and diluted 3 0.2 4.3 6.0
(p)
EPRA (p) 3 3.4 3.5 7.3
The profit for the Period arises from the Company's continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2019
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2019 2018 2019
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 9 547,179 546,963 572,745
Total non-current assets 547,179 546,963 572,745
Current assets
Trade and other receivables 10 4,940 4,597 3,674
Cash and cash equivalents 12 41,659 8,186 2,472
Total current assets 46,599 12,783 6,146
Total assets 593,778 559,746 578,891
Equity
Issued capital 14 4,107 3,939 3,982
Share premium 240,023 220,764 225,680
Retained earnings 184,381 202,832 196,961
Total equity attributable to
equity holders of the Company
428,511 427,535 426,623
Non-current liabilities
Borrowings 13 150,696 117,464 137,532
Other payables 576 571 576
Total non-current liabilities 151,272 118,035 138,108
Current liabilities
Trade and other payables 11 7,009 7,081 6,851
Deferred income 6,986 7,095 7,309
Total current liabilities 13,995 14,176 14,160
Total liabilities 165,267 132,211 152,268
Total equity and liabilities 593,778 559,746 578,891
These interim financial statements of Custodian REIT plc were approved and authorised for
issue by the Board of Directors on 11 December 2019 and are signed on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2019
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 Mar
2019 2018
2019
Note GBP000 GBP000 GBP000
Operating activities
Profit for the Period 727 16,606 23,646
Net finance costs 5,6 2,418 2,013 4,373
Net revaluation loss 9 13,141 1,389 8,890
Profit on disposal of 79 (4,250) (4,250)
investment property
Impact of lease 9 (749) (1,112) (2,237)
incentives
Amortisation 4 - -
Income tax 7 - - -
Cash flows from
operating activities
before changes in
working capital and
provisions 15,620 14,646 30,422
(Increase)/decrease in (1,266) 3,286 4,209
trade and other
receivables
(Decrease)/increase in (165) 1,354 1,404
trade and other
payables
Cash generated from 14,189 19,286 36,035
operations
Interest and other 6 (2,280) (1,947) (4,225)
finance charges
11,909 17,339
Net cash flows from 31,810
operating activities
Investing activities
Purchase of investment - (26,215) (55,523)
property
Capital expenditure (1,933) (1,442) (2,530)
and development
Acquisition costs (222) (1,635) (3,391)
Disposal of investment 15,383 15,375 15,375
property
Costs of disposal of (137) (130) (130)
investment property
Interest received and 5 10 108 27
similar income
Net cash flows 13,101 (13,939) (46,172)
from/(used in)
investing activities
Financing activities
Proceeds from the 14,655 8,410 13,420
issue of share capital
Costs of the issue of (187) (110) (161)
share capital
New borrowings 13 13,500 4,000 24,000
New borrowings 13 (484) - -
origination costs
Dividends paid 8 (13,307) (12,573) (25,484)
Net cash flows 14,177 (273) 11,775
from/(used in)
financing activities
39,187 3,127
Net
increase/(decrease) in
cash and cash
equivalents
(2,587)
Cash and cash 2,472 5,059 5,059
equivalents at start
of the Period
41,659 8,186
Cash and cash 2,472
equivalents at end of
the Period
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2019
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2019 3,982 225,680 196,961 426,623
(audited)
Profit and total
comprehensive income for
Period
- - 727 727
Transactions with owners
of the Company,
recognised directly in
equity
Dividends 8 - - (13,307) (13,307)
Issue of share capital 14 125 14,343 - 14,468
As at 30 September 2019
(unaudited)
4,107 240,023 184,381 428,511
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
Notes to the interim financial statements for the period ended 30 September 2019
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 11 December 2019.
2) Basis of preparation and accounting policies
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 2020 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 2019 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) 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 standard in issue
and effective from 1 April 2019:
· IFRS 16 'Leases' - disclosing operating lease obligations is replaced with the
recognition of 'right-of-use' assets and associated financial liabilities, with rent
expense under IAS 17 replaced with depreciation and finance costs. IFRS 16 requires
additional disclosure requirements include presenting depreciation expense, carrying value
of right-of-use assets, additions to right-of-use assets, interest expense on lease
liabilities and total cash outflow for leases. During the Period there has been a GBP38k
impact on income statement categorisation of headlease costs and a GBP4k reduction in profit
after tax, with no impact on bank covenants.
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.
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.
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. Principal risks
faced by the Company are:
· Loss of contractual revenue;
· Decrease in property valuations;
· Reduced availability or increased costs of debt;
· Inadequate performance , controls or systems operated by the Investment Manager;
· Regulatory or legal changes;
· Business interruption from cyber or terrorist attack; and
· Unidentified liabilities from corporate acquisitions.
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 2019. 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 and will be detailed within the Company's Annual Report for the
year ending 31 March 2020.
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 2019 to 30 Sept 2018 12 months
to 31 Mar
2019
Net profit and 727 16,606
diluted net
profit
attributable to
equity holders 23,646
of the Company
(GBP000)
Net losses 13,220 (2,861) 4,640
/(gains) on
investment
property (GBP000)
One-off costs - - 170
(GBP000)
EPRA net profit 13,947 13,745
attributable to
equity holders
of the Company
(GBP000) 28,456
Weighted average
number of
ordinary shares:
Issued ordinary 398,203 386,853
shares at start
of the Period
(thousands)
386,853
6,978 1,563
Effect of shares 5,015
issued during
the Period
(thousands)
Basic and
diluted weighted
average number
of shares
(thousands) 405,181 388,416 391,868
Basic and 0.2 4.3 6.0
diluted EPS (p)
3.4 3.5
EPRA EPS (p) 7.3
4) Revenue
Unaudited 6 months Unaudited Audited
to 30 Sept 6 months 12 months
2019
to 30 Sept 2018 to 31 Mar
GBP000
GBP000 2019
GBP000
Gross rental 19,657 18,847 39,108
income from
investment
property
Income from 838 787 866
recharges to
tenants
20,495 19,634 39,974
5) Finance income
Unaudited 6 months Unaudited 6 months Audited
to 30 Sept 2019 to 30 Sept 2018 12 months
GBP000 GBP000 to 31 Mar
2019
GBP000
Bank interest 10 41 27
10 41 27
6) Finance costs
Unaudited 6 Unaudited 6 Audited
months months
12 months
to 30 Sept 2019 to 30 Sept 2018
to 31 Mar
GBP000 GBP000
2019
GBP000
Amortisation of 148 107 175
arrangement fees on
debt facilities
Other finance costs 147 25 141
Bank interest 2,133 1,922 4,084
2,428 2,054 4,400
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 2019 12 months
to 30 Sept 2018
GBP000 to 31 Mar
GBP000
2019
GBP000
Profit before 727 16,606 23,646
income tax
Tax charge on
profit at a
standard rate of
19.0% (30 September
2018: 19.0%, 31 138 3,155 4,493
March 2019: 19.0%)
Effects of:
REIT tax exempt (138) (3,155) (4,493)
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 2018 12 months
to 30 Sept GBP000 to 31 Mar
2019 2019
GBP000 GBP000
Interim equity dividends
paid on ordinary shares
relating to the quarters
ended:
31 March 2018: 1.6125p - 6,238 6,238
30 June 2018: 1.6375p - 6,335 6,335
30 September 2018: - - 6,449
1.6375p
31 December 2018: - - 6,462
1.6375p
31 March 2019: 1.6375p 6,521 - -
30 June 2019: 1.6625p 6,786 - -
13,307 12,573 25,484
All dividends paid are classified as property income distributions.
The Directors approved an interim dividend relating to the quarter ended 30 September 2019
of 1.6625p per ordinary share in October 2019 which has not been included as a liability in
these interim financial statements. This interim dividend was paid on 29 November 2019 to
shareholders on the register at the close of business on 25 October 2019. In the absence of
unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve an
annual dividend of 6.65p per share for the financial year ending 31 March 2020[19].
9) Investment property
GBP000
At 31 March 2019 572,745
Impact of lease incentives 749
Capitalised costs relating to post Period-end 222
acquisitions
Capital expenditure 1,933
Disposals (15,325)
Amortisation of right-of-use asset (4)
Valuation decrease before acquisition costs (12,919)
Acquisition costs (222)
Valuation decrease including acquisition costs (13,141)
As at 30 September 2019 547,179
GBP000
At 31 March 2018 528,943
Impact of lease incentives 1,112
Additions 27,850
Capital expenditure and development 1,442
Disposals (10,995)
Valuation decrease before acquisition costs 246
Acquisition costs (1,635)
Valuation decrease including acquisition costs (1,389)
As at 30 September 2018 546,963
Included in investment property is GBP610k relating to right-of-use long-leasehold assets.
The investment property is stated at the Directors' estimate of its 30 September 2019 fair
values. Lambert Smith Hampton Group Limited ("LSH") and Knight Frank LLP ("KF"),
professionally qualified independent valuers, valued the properties as at 30 September 2019
in accordance with the Appraisal and Valuation Standards published by the Royal Institution
of Chartered Surveyors. KF was appointed during the Period to value approximately half of
the Company's property portfolio, with the property portfolio divided by both sector and
geography between valuers, to provide the Board with a more objective view of valuations.
LSH and KF have 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 4.4% to 10.0%. 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 valuers e.g. ERVs and
yields. These assumptions are based on market observation and the valuers 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 2019 30 Sept 2018 as at 31 Mar
2019
GBP000 GBP000
GBP000
Trade receivables 2,316 3,460 2,447
Other receivables 2,017 736 708
Prepayments and 607 401 519
accrued income
4,940 4,597 3,674
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 2019 30 Sept 2018 as at 31 Mar
2019
GBP000 GBP000
GBP000
Falling due in
less than one
year:
Trade and other 2,056 1,001 1,231
payables
Social security 1,173 2,449 1,464
and other taxes
Accruals 2,699 2,414 2,911
Rental deposits 1,081 1,217 1,245
and retentions
7,009 7,081 6,851
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 2019 30 Sept 2018 as at 31 Mar
2019
GBP000 GBP000
GBP000
Cash and 41,659 8,186 2,472
cash
equivalents
Cash and cash equivalents include GBP23.6m held in the Company's solicitor's client account
relating to the acquisition of the Menzies Portfolio and GBP16.5m (2018: GBP1.3m) of restricted
cash comprising GBP15.2m disposal proceeds, GBP1.1m rental deposits held on behalf of tenants
and GBP0.2m retentions held in respect of development fundings.
13) Borrowings
Costs incurred
in the
arrangement of
bank borrowings
GBP000
Bank borrowings
GBP000 Total
GBP000
At 31 March 2019 139,000 (1,468) 137,532
New borrowings 13,500 - 13,500
Costs incurred in the - (484) (484)
arrangement of bank
borrowings
Amortisation of - 148 148
arrangement fees
At 30 September 2019 152,500 (1,804) 150,696
Costs incurred
in the
arrangement of
bank borrowings
GBP000
Bank borrowings
GBP000 Total
GBP000
At 31 March 2018 115,000 (1,643) 113,357
New borrowings 4,000 - 4,000
Amortisation of - 107 107
arrangement fees
At 30 September 2018 119,000 (1,536) 117,464
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 2019 is set out in the Annual Report for the
year ended 31 March 2019.
On 17 September 2019 the Company and Lloyds agreed to increase the total funds available
under the RCF from GBP35m to GBP50m for a term of three years, with an option to extend the term
by a further two years, 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' agreement.
14) Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
At 31 March 2019 398,203,344 3,982
Issue of share capital 12,500,000 125
At 30 September 2019 410,703,344 4,107
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
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 2019, the fair value of investment property was GBP547.2m and during the Period
the net valuation decrease was GBP13.1m.
Interest bearing loans and borrowings - level 3
As at 30 September 2019, 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 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 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 Investment Manager receives a fee of 0.25% (2018: 0.25%) of the aggregate gross proceeds
from any issue of new shares in consideration of the marketing services it provides to the
Company.
The NAV of the Company at 30 September 2019 was GBP428.5m (2018: GBP427.5m). During the Period
the Investment Manager charged the Company GBP1.76m (2018: GBP1.73m, 2019: GBP3.49m) in respect of
the AMC, GBP0.22m (2018: GBP0.21m, 2019: GBP0.43m) in respect of administrative fees and GBP0.03m
(2018: GBP0.02m, 2019: GBP0.03m) in respect of marketing fees.
Properties
The Company owns 1, Penman Way, Leicester (formerly MW House) and Gateway House located at
Grove Park, Leicester, which were partially let to Mattioli Woods for part of the prior
period. On 31 October 2018 Mattioli Woods surrendered one lease and terminated its other
lease over parts of Gateway House, paying the remaining 13 months' rent in full, and on 26
November 2018 Mattioli Woods assigned its lease over MW House for the remainder of its term.
Mattioli Woods paid the Company rentals of GBPnil (2018: GBP0.18m, 2019: GBP0.26m) and GBPnil (2018:
GBPnil, 2019: GBP0.56m) in dilapidation settlements during the Period.
17) Events after the reporting date
Property acquisitions
On 1 October 2019 the Company acquired the Menzies Portfolio for GBP24.65m.
Share issuance
Since the reporting date the Company raised GBP1.6m (before costs and expenses) through the
issue of 1,350,000 new ordinary shares of 1p each in the capital of the Company.
Independent review report to Custodian REIT plc
We have been engaged by the Company to review the condensed set of financial statement in
the half-yearly financial report for the six months ended 30 September 2019, 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 to 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 Group 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 2019 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
11 December 2019
Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of the Company for the period
from 1 April 2019 to 30 September 2019.
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 include 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 include 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
11 December 2019
Additional disclosures
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 2019 12 months
to 30 Sept 2018
to 31 Mar
2019
Net assets (GBP000) 428,511 427,535 426,623
Shares in issue at 410,703 393,853 398,203
the period end
(thousands)
NAV per share at 107.1 107.3 107.3
the start of the
Period (p)
Dividends per share 3.325 3.275 6.55
for the Period (p)
NAV per share at 104.3 108.6 107.1
the end of the
Period (p)
NAV per share total 0.5% 4.3% 5.9%
return
Share price total return
A measure of performance taking into account both share price returns and dividends by
assuming dividends [3] declared are reinvested at the ex-dividend share price, shown as a
percentage change from the start of the period.
Unaudited 6 months Unaudited Audited
6 months
to 30 Sept 2019 12 months
to 30 Sept 2018
to 31 Mar
2019
Share price at the 111.2 113.0 113.0
start of the Period
(p)
Dividends per share 3.325 3.275 6.55
for the Period (p)
Share price at the 117.6 121.4 111.2
end of the Period
(p)
Share price total 8.7% 10.3% 4.2%
return
Premium of share price to NAV per share
The difference between the Company's share price and NAV, shown as a percentage at the end
of the period.
Unaudited 6 months Unaudited Audited
6 months
to 30 Sept 2019 12 months
to 30 Sept 2018
to 31 Mar
2019
NAV per share (p) 104.3 108.6 107.1
Share price at the 117.6 121.4 111.2
end of the year (p)
Premium 12.8% 11.8% 3.8%
Net gearing
Gross borrowings less unrestricted cash, divided by property portfolio value.
Unaudited as at Unaudited as at Audited
30 Sept 2019 30 Sept 2018 as at 31 Mar
2019
GBP000 GBP000
GBP000
Gross borrowings 152,500 119,000 139,000
Cash (41,659) (8,186) (2,472)
Tenant rental 1,328 1,305 1,369
deposits and
retentions
Net borrowings 112,169 112,119 137,897
Investment 547,179 546,963 572,745
property
Net gearing 20.5% 20.5% 24.1%
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 2019 12 months
to 30 Sept 2018
GBP000 to 31 Mar
GBP000
2019
GBP000
Profit for the 727 16,606 23,646
Period after
taxation
Net losses/(gains) 13,220 (2,861) 4,640
on investment
property
One-off abortive - - 170
acquisition costs
EPRA earnings 13,947 13,745 28,456
Weighted average
number of shares in
issue (thousands)
405,181 388,416 391,868
EPRA EPS (p) 3.4 3.5 7.3
EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of the whole
property portfolio.
Unaudited as at Unaudited as at Audited
30 Sept 2019 30 Sept 2018 as at 31 Mar
2019
GBP000 GBP000
GBP000
Annualised
potential rental
value of vacant
premises
1,862 1,237 1,782
Annualised
potential rental
value for the
property
portfolio 40,946 40,002 42,012
EPRA vacancy rate 4.5% 3.1% 4.1%
- Ends -
=-------------------------------------------------------------------------------------------
[1] Net Asset Value ("NAV") movement including dividends paid and approved relating to the
period on shares in issue at 31 March 2019.
[2] The European Public Real Estate Association.
[3] Profit after tax excluding net loss on investment property divided by weighted average
number of shares in issue.
[4] Profit after tax divided by weighted average number of shares in issue.
[5] Before costs and expenses of GBP0.2m.
[6] Before disposal costs of GBP0.1m.
[7] Before rental top-ups and cost guarantees of c. GBP0.3m.
[8] Before acquisition costs relating to post Period-end acquisitions of GBP0.2m.
[9] ERV of let property divided by total property ERV.
[10] Before acquisition costs and completion balance sheet adjustments.
[11] Share price movement including dividends paid and approved for the six-month period.
[12] Gross borrowings less cash (excluding tenant rental deposits and retentions) divided by
property valuation.
[13] Passing rent divided by property valuation plus purchaser's costs.
[14] Dividends of 3.3p 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.
[15] 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.
[16] Current passing rent plus ERV of vacant properties.
[17] Includes car showrooms, petrol filling stations, children's day nurseries, restaurants,
health and fitness units, hotels and healthcare centres.
[18] % of property 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: 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.: 34925
EQS News ID: 934141
End of Announcement EQS News Service
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