Custodian REIT plc : Unaudited Net Asset Value as at 31 December 2019 (961613)
January 28 2020 - 2:00AM
UK Regulatory
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 31 December 2019
28-Jan-2020 / 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.
28 January 2020
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 December 2019
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31
December 2019 and highlights for the period from 1 October 2019 to 31
December 2019 ("the Period").
Financial highlights
· NAV total return per share1 for the Period of 1.7%
· Dividend per share approved for the Period of 1.6625p
· NAV per share of 104.4p (30 September 2019: 104.3p)
· NAV of GBP430.2m (30 September 2019: GBP428.5 m)
· Net gearing2 of 23.2% loan-to-value (30 September 2019: 20.5%)
· GBP1.6m of new equity raised during the Period at an average premium of
12.1% to dividend adjusted NAV per share
· Market capitalisation of GBP469.7m (30 September 2019: GBP483.0m)
Property highlights
· Property value of GBP571.2m (30 September 2019: GBP547.2m)
· Acquisition of a portfolio of eight industrial properties for aggregate
headline consideration of GBP24.65m3
· GBP2.4m valuation increase from successful asset management initiatives
· GBP0.6m aggregate valuation decrease (0.1% of property portfolio)
· EPRA occupancy4 95.6% (30 September 2019: 95.5%)
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 acquisition costs and completion balance sheet adjustments.
4 Estimated rental value ("ERV") of let property divided by total property
ERV.
Net asset value
The unaudited NAV of the Company at 31 December 2019 was GBP430.2m, reflecting
approximately 104.4p per share, an increase of 0.1p (0.1%) since 30
September 2019:
Pence per share GBPm
NAV at 30 September 2019 104.3 428.5
Issue of equity 0.0 1.5
Valuation movements relating to:
- Asset management activity 0.6 2.4
- Other valuation movements (0.7) (3.0)
(0.1) (0.6)
Acquisition costs (0.1) (0.3)
Net valuation movement (0.2) (0.9)
Income earned for the Period 2.5 10.3
Expenses and net finance costs for the (0.5) (2.4)
Period
Dividends paid5 (1.7) (6.8)
NAV at 31 December 2019 104.4 430.2
5 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 31 December 2019 of GBP571.2m (30
September 2019: GBP547.2m) 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 28 February 2020.
Acquisitions and disposals
On 1 October 2019 the Company acquired the share capital of John Menzies
Property 4 Limited to facilitate the purchase of a portfolio of
industrial/distribution units ("the Menzies Portfolio") for an agreed
headline 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
yield6 ("NIY") of 6.4%. The Menzies Portfolio's weighted average unexpired
lease term to first break or expiry ("WAULT") was 8.8 years.
6 Passing rent divided by property valuation plus purchaser's costs.
No disposals were made during the Period although but we will continue to
rebalance the portfolio to focus on strong locations while working on an
orderly disposal of those assets we believe are ex-growth.
Property market
Commenting on the regional commercial property market, Richard
Shepherd-Cross said:
"The final quarter of 2019 was dominated by concerns of uncertainty
surrounding Brexit and the General Election in December, causing market
activity to be reduced significantly. By the end of the year investment
activity over the whole year was 25-30% down on 2018, with many investors
reducing their exposure to real estate, following the theme of uncertainty
that had run through a large part of the year. By early December this
disinvestment saw most closed-ended property investment trusts trading at a
discount to NAV and led the M&G open-ended property fund to suspend
redemptions while it rebuilt its cash reserves. Custodian REIT's share price
maintained its premium to NAV during the Period, reflecting its high
dividend yield and the robustness of its closed-ended structure. Happily,
market confidence has picked up strongly following the General Election
result and the political stability that a majority government usually
promises. Closed-ended property investment trusts' share prices have quickly
re-rated reflecting increased investor confidence. However, the perennial
challenge of open-ended property funds has kept redemptions from the M&G
open-ended property fund suspended and, as yet, there is little to
demonstrate a turnaround in investor sentiment for the open-ended property
fund structure.
"The defensive quality of income has been shown to protect total returns in
the face of weak or falling capital values. While the acquisition costs of
the Menzies Portfolio have been largely offset by asset management
activities, Custodian REIT's strong income flows have been the principal
driver of return, despite continued falls in retail values.
"It is a telling statistic that Custodian REIT's occupancy level has
improved from 95.5% to 95.6% during the Period, demonstrating continued
occupier demand for the properties in our portfolio in the face of political
uncertainty generally and a difficult landscape for retailers. The market,
excluding retail, moves into 2020 with a strong tailwind of growing occupier
confidence and a backlog of delayed investment decisions and historical
under-investment.
"Diversification across the Custodian REIT property portfolio has protected
values in aggregate, with continued growth in the industrial and logistics
sector of the property portfolio countering further weakness in retail,
fuelled by downward pressure on rents. While we should expect some further
decline in retail rents we are not predicting a significant increase in the
vacancy rate of our property portfolio. In core locations in regional towns
and cities, representative of most of Custodian REIT's property portfolio,
many retailers still want a physical footprint albeit on revised rental
terms. Secondary retail locations are likely to experience greater long-term
vacancy levels as well as lower rents and capital values.
"In regional markets smaller lot size industrial and logistics and office
buildings remain undersupplied and with latent rental growth. Subject to
market pricing we still see value in potential acquisitions in these
sectors."
Asset management
A continued focus on active asset management including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their
contractual break clauses has broadly offset the negative valuation impact
of reductions in ERVs in the high street retail and retail warehouse
sectors. Initiatives completed during the Period were:
· Completing a new five year lease with Ascott Transport Limited in Burton
upon Trent with annual passing rent of GBP500k following the surrender of
the incumbent tenant's lease due to its administration, which increased
valuation by GBP1.1m;
· Re-gearing a lease with H&M in Winsford by moving the 2020 break option
to 2022 and increasing rent from GBP400k to GBP625k, which increased valuation
by GBP0.4m;
· Re-gearing a lease with JB Global (t/a Oak Furniture Land) in Plymouth,
extending the term by five years and increasing rent from GBP235k to GBP250k,
increasing valuation by GBP0.4m;
· Completing a lease renewal with H Samuel in Colchester where the tenant
has taken a five year lease, with annual passing rent falling from GBP77k to
GBP70k, increasing valuation by GBP0.3m;
· Completing a new lease with Brooks Taverner at Cirencester where the
tenant has taken a 10 year lease with an annual passing rent of GBP37k,
increasing valuation by GBP0.1m; and
· Completing a new lease with Mtor Limited (t/a Trugym) at Gateshead where
the tenant has taken a 10 year lease with annual passing rent of GBP125k,
increasing valuation by GBP0.1m.
Further asset management initiatives currently underway on other properties
in the portfolio are expected to complete during the coming months.
The positive asset management outcomes in the Period have been tempered by
the recent exercise of two tenant only break options which have together put
annual aggregate rent of GBP170k at risk. These lease events are reflected in
the property portfolio valuation and we are working to mitigate this
potential loss of income.
Property portfolio analysis
The property portfolio's WAULT increased to 5.4 years from 5.3 years in
September 2019, largely due to the acquisition of the Menzies Portfolio (8.8
years WAULT) and the completion of asset management initiatives more than
offsetting the natural decrease in WAULT due to the passage of time.
At 31 December 2019 the Company's property portfolio comprised 161 assets
(30 September 2019: 153 assets) with a NIY of 6.7% (30 September 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 will reflect
market pricing at any given time coupled with the desire to maintain an
opportunistic approach to acquisitions. Sector weightings are shown below:
Valuation Weighting Period Weighting Weighting
by value valuati by income7 by income7
31 Dec on 31 Dec 30 Sep
2019 movemen 2019 2019
31 Dec 2019 t
GBPm GBPm
Sector
Industrial 253.3 44% 2.4 40% 38%
Retail 115.6 20% (1.6) 21% 23%
warehouse
Other8 92.1 16% (0.5) 17% 17%
High street 57.4 11% (0.9) 12% 12%
retail
Office 52.8 9% - 10% 10%
Total 571.2 100% (0.6) 100% 100%
7 Current passing rent plus ERV of vacant properties.
8 Includes car showrooms, petrol filling stations, children's day nurseries,
restaurants, gymnasiums, hotels and healthcare units.
The valuation decrease of GBP0.6m was primarily driven by high street retail
and retail warehouse valuations falling by GBP0.9m and GBP1.6m respectively due
to a reduction in ERVs. The retail valuation declines were tempered by
industrial asset valuations increasing by GBP2.4m due to active asset
management, 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 31
December 2019 was as follows:
Valuation Weighting Period Weighting Weighting
by value valuati by income9 by income9
31 Dec on 31 Dec 30 Sep
2019 movemen 2019 2019
31 Dec t
2019
GBPm
GBPm
Location
West Midlands 122.8 22% 0.4 20% 21%
North-West 93.8 17% 0.4 17% 18%
South-East 75.1 13% (0.2) 13% 13%
East Midlands 69.2 12% (0.2) 14% 14%
South-West 67.9 12% (0.9) 10% 11%
North-East 53.3 9% (0.5) 10% 10%
Scotland 48.0 8% (0.7) 8% 7%
Eastern 33.9 6% 1.1 6% 5%
Wales 7.2 1% - 2% 1%
Total 571.2 100% (0.6) 100% 100%
9 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 with latent rental growth 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 1.35m new ordinary shares of 1p each ("the New Shares")
during the Period raising proceeds of GBP1.6m. The New Shares were issued at
an average premium of 12.1% to the unaudited NAV per share at 30 September
2019, adjusted to exclude the dividend paid on 29 November 2019.
Debt
At the Period end the Company had:
· A GBP50m revolving credit facility with Lloyds Bank plc expiring on 17
September 2022 with interest of between 1.5% and 1.8% above three-month
LIBOR, determined by reference to the prevailing LTV ratio;
· A GBP20m term loan with Scottish Widows plc repayable on 13 August 2025
with interest fixed at 3.935%;
· A GBP45m term loan with Scottish Widows plc repayable on 5 June 2028 with
interest fixed at 2.987%; 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 September
2019 was paid on 29 November 2019. The Board has approved an interim
dividend relating to the Period of 1.6625p per share payable on 28 February
2020 to shareholders on the register on 31 January 2020.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend10 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.
10 This is a target only and not a profit forecast. There can be no
assurance that the target can or will be met and it should not be taken as
an indication of the Company's expected or actual future results.
Accordingly, shareholders or potential investors in the Company should not
place any reliance on this target in deciding whether or not to invest in
the Company or assume that the Company will make any distributions at all
and should decide for themselves whether or not the target dividend yield is
reasonable or achievable.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's
website www.custodianreit.com [2] or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240 8740
Imlach / Ian Mattioli MBE
www.custodiancapital.com [3]
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which listed on the
main market of the London Stock Exchange on 26 March 2014. Its 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.: 42805
EQS News ID: 961613
End of Announcement EQS News Service
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