Custodian REIT plc : Unaudited net asset value as at 30 June 2020 and dividend update (1105601)
July 30 2020 - 2:00AM
UK Regulatory
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited net asset value as at 30 June 2020 and
dividend update
30-Jul-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.
30 July 2020
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 30 June 2020 and dividend update
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 30 June
2020, highlights for the period from 1 April 2020 to 30 June 2020 ("the
Period") and the dividend payable for the Period.
Financial highlights
· Continued impact of the COVID-19 pandemic resulting in:
· A GBP24.2m (4.2% of property portfolio) valuation decrease during the
Period;
· 92% of rent collected relating to the Period, adjusted for contractual
rent deferrals; and
· To date, 80% of rent due collected relating to the quarter ending 30
September 2020 ("FY21 Q2"), adjusted for contractual rent deferrals
· NAV total return per share1 for the Period of -4.9%, comprising 0.9%
dividends less a 5.8% capital decrease
· Dividend per share approved for the Period of 0.95p, 27% ahead of the
0.75p minimum dividend for the Period announced in April 2020, facilitated
by robust rent collection levels
· NAV per share of 95.7p (31 March 2020: 101.6p)
· NAV of GBP402.1m (31 March 2020: GBP426.7m)
· Net gearing2 of 23.5% loan-to-value (31 March 2020: 22.4%)
Portfolio highlights
· Property portfolio value of GBP533.7m (31 March 2020: GBP559.8m), subject to
a 'material uncertainty' clause for all properties (excluding industrial
and logistics) in line with prevailing RICS guidance:
· GBP24.2m aggregate valuation decrease for the Period due primarily to the
impact of COVID-19 on all investment market and property sectors
· Disposal of an industrial property in Westerham for consideration of
GBP2.8m, 23% ahead of 31 March 2020 valuation
· EPRA occupancy3 93.8% (31 March 2020: 95.6%)
· Since the Period end GBP0.9m invested in the acquisition of land for the
development of a Starbucks drive-through restaurant in Nottingham
1 NAV per share movement including dividends approved for the Period.
2 Gross borrowings less cash (excluding rent deposits) divided by portfolio
valuation.
3 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 30 June 2020 was GBP402.1m, reflecting
approximately 95.7p per share, a decrease of 5.9p (5.8%) since 31 March
2020:
Pence per share GBPm
NAV at 31 March 2020 101.6 426.7
Profit on disposal of investment 0.1 0.5
properties (net of disposal costs)
Valuation movements (5.7) (24.2)
Income earned for the Period 2.3 9.8
Expenses, receivable provisioning and net (0.9) (3.7)
finance costs for the Period
Dividends paid4 relating to the previous (1.7) (7.0)
quarter
NAV at 30 June 2020 95.7 402.1
4 Dividends of 1.6625p per share relating to the quarter ended 31 March 2020
were paid on 29 May 2020.
The NAV attributable to the ordinary shares of the Company is calculated
under International Financial Reporting Standards and incorporates the
independent portfolio valuation as at 30 June 2020, which is subject to a
'material uncertainty' clause for certain sectors in line with RICS
guidance, and income for the Period. The movement in NAV reflects the
payment of a 1.6625p per share dividend relating to the quarter ended 31
March 2020 during the Period, which was fully covered by cash collections
and earnings in that quarter, but does not include any provision for the
approved dividend of 0.95p per share for the Period to be paid on 28 August
2020.
Market commentary
Commenting on the market, Richard Shepherd-Cross, Managing Director of
Custodian Capital Limited (the Company's discretionary investment manager)
said:
"A full quarter of lockdown has seen occupational and investment activity in
marked contrast to the buoyant market at the start of 2020. Investment
volumes during the Period were only 20% of the previous quarter's levels and
many office and retail occupiers deserted their premises in late March.
While we are starting to see occupiers returning to offices and
non-essential shops have been open for a few weeks, we have yet to fully
recover from the occupational void caused by lockdown. The principal impact
of this void has been the challenge of rent collection, discussed below.
"While greater clarity is emerging on the medium-term picture for rent
collection, there has been limited transactional evidence in the market,
creating a difficult environment in which to provide valuations. The RICS
continues to recommend the imposition of a 'material uncertainty' caveat
against the valuation of all but industrial and logistics properties to
reflect the limited evidence available. With limited transactional evidence,
the valuation profession is trying to reflect market sentiment in valuations
by applying a risk factor to the collection of deferred rent or rents due
from tenants which may be disproportionately affected by the COVID-19
pandemic. The consequential decline in NAV is perhaps inevitable but not, we
believe, an irrecoverable structural shift. As improvements in the
prevention of COVID-19 (and care for those who catch it) continue we expect
that demand from occupiers for commercial real estate will improve from
occupiers and the risk factor applied to rents within valuations will
dissipate.
"As we see increasing confidence in the collection of contractual rent and
landlords recover their ability to formally pursue non-payers is re-instated
by Government, positive sentiment towards commercial real estate investment
is likely to return. The low return environment, where dividends are under
pressure across all investment markets, should put the relatively high
dividends from real estate, even if at subdued levels compared to previous
years, in focus for income-driven investors.
"Income (and therefore earnings per share) is a more important metric than
NAV per share in delivering long-term and sustainable returns. As a result,
our focus has understandably been centred on rent collection. For many years
Custodian REIT has enjoyed a near 100% rent collection record and despite
the headwinds of lockdown and legislation rendering this target
unattainable, much progress has been made on collecting contractual rents
due."
Rent collection
As Investment Manager Custodian Capital invoices and collects rent directly,
thereby allowing it to hold direct conversations promptly with most tenants
regarding the payment of rent. This direct contact has proved invaluable
through the early and current stages of the COVID-19 pandemic, enabling
better outcomes for the Company. Some of these conversations have led to
positive asset management outcomes, including the extension of leases in
return for rent concessions, providing short-term cash flow relief for
occupiers and longer-term income security for the Company.
The process of collecting rent arrears continues and to date 92% of rent
relating for the quarter, net of contractual rent deferrals5, has been
collected. The balance of rent arrears for the Period remains the subject of
discussion with various tenants, although a proportion of arrears are
potentially at risk of non-recovery from Company Voluntary Arrangements
("CVAs") or Pre-pack Administrations.
To date 80% of rent expected for FY21 Q2 has been collected, net of amounts
contractually deferred6 to be recovered through payment plans over the next
12-18 months.
5 The proportion of rent collected relating to the Period (adjusted for the
agreed deferral of 11% of invoiced rents).
6 The proportion of rent collected relating to FY21 Q2 invoiced rents now
due (adjusted for the agreed deferral of 5% of FY21 Q2 invoiced rents) and
the rents now due having been deferred from the Period.
Dividends
An interim dividend of 1.6625p per share for the quarter ended 31 March 2020
was paid on 29 May 2020, reflecting the 100% rent collection for that
period.
In April, before the full impact of lockdown could be ascertained, but
acknowledging the importance of income to shareholders, the Company
announced its intention to pay each of the subsequent two quarterly
dividends at a minimum of 0.75p per share regardless of the level of rent
collection, with the support of previous year's undistributed reserves if
required. Furthermore, the Company undertook to pay a more generous dividend
if rent collection rates allowed.
While still short of the Company's long-term dividend target the Board has
approved an interim dividend relating to the Period of 0.95p per share, 27%
ahead of the minimum 0.75p previously indicated. This improved level of
dividend is fully covered by net cash receipts for the Period and 140%
covered by earnings meaning that no historical reserves have been utilised
for this dividend.
This first quarterly dividend of the financial year of 0.95p per share is
payable on 28 August 2020 to shareholders on the register on 7 August 2020
and will be designated as a property income distribution ("PID").
Asset management
Despite the ongoing economic uncertainty caused by COVID-19, the Investment
Manager has remained focused on active asset management during the Period,
completing the following initiatives on three high street retail units which
have tempered valuation decreases in that sector:
· A re-gear with The Works in Portsmouth which removed a tenant only break
option in October 2021, extending the term certain to October 2026;
· A lease renewal with The White Company in Nottingham for a five year
lease with 2.5 year tenant only break option at a reduced rent of GBP65k pa
(previously GBP140k), in line with current ERV; and
· A short-term turnover-based lease with mutual breaks to retain Game in
Portsmouth, following expiry of its existing lease, whilst we re-market
the premises.
Since the Period end the following initiatives have been completed, which
are expected to add GBP0.6m to the 30 September valuation:
· A five year lease extension with Erskine Murray for its offices in
Leicester, extending expiry from December 2020 to December 2025 at an
increased annual rental of GBP72.5k (previously GBP66.5k);
· A 10 year reversionary lease with MKM in Lincoln on a trade counter
unit, extending expiry from June 2022 to June 2032 without break,
maintaining annual passing rent at GBP192k; and
· A five year lease extension with DHL in Speke on an industrial unit,
subject to a tenant-only break in year three, maintaining annual passing
rent at GBP119k.
These positive asset management outcomes may be offset by an increase in
potential tenant default due to the following events, which could
potentially, in aggregate, impact circa 3.6% of the Company's rent roll:
Passing
rent
GBP000
Location Tenant Sector Event
Portishead Travelodge Hotel 222 CVA - rent
reduced to
25% of
passing
rent in
2020 and
70% in
2021
Perth The Restaurant Restaurant 100 CVA - rent
Group reduced to
0% for 12
months
before
closure.
Under
offer to
new tenant
Carlisle and JB Global (t/a Retail 390 Pre-pack
Oak Furniture Warehouse Administra
Land) tion - Oak
Furniture
Plymouth Land now
occupying
under
licence
whilst new
terms are
negotiated
Grantham and Poundstretcher Retail 221 CVA -
Evesham Warehouse tenant
remains in
occupation
rent free
whilst
units are
remarketed
Swindon Go Outdoors Retail 325 Pre-pack
Warehouse Administra
tion - new
tenant in
occupation
under
licence,
negotiatin
g revised
lease
terms
Torquay Las Iguanas Restaurant 110 In
Administra
tion -
tenant
remains in
occupation
under
licence,
negotiatin
g revised
lease
terms
Torquay Le Bistrot Restaurant 90 Pre-pack
Pierre Administra
tion - new
tenant in
occupation
under
licence,
negotiatin
g new
lease
terms
1,460
In nearly all these affected properties the businesses remain in occupation
and continue to trade, with negotiations for new lease terms either agreed
and in solicitors hands or under negotiation. Offers from new occupiers have
been secured on two of the properties demonstrating occupier demand remains
in the market for well-located assets.
The portfolio's weighted average unexpired lease term to first break or
expiry ("WAULT") decreased from 5.3 years at 31 March 2020 to 5.1 years at
the Period end, reflecting the natural elapse of time.
Financial resilience
The Company retains its strong financial position to address the
extraordinary circumstances imposed by COVID-19. At 30 June 2020 it had:
· A diverse and high-quality asset and tenant base comprising 160 assets
and over 200 typically 'institutional grade' tenants across all commercial
sectors, with an occupancy rate of 93.8%;
· GBP22m of cash-in-hand with gross borrowings of GBP150m resulting in low net
gearing, with no short-term refinancing risk and a weighted average debt
facility maturity of seven years; and
· Significant headroom on lender covenants at a portfolio level, with
Company net gearing of 23.5% compared to a maximum loan to value ("LTV")
covenant of 35%.
The Company operates the following loan facilities:
· A GBP35m revolving credit facility ("RCF") with Lloyds Bank plc ("Lloyds")
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 of
a discrete security pool;
· A GBP20m term loan with Scottish Widows plc ("SWIP") repayable on 13
August 2025 with interest fixed at 3.935%;
· A GBP45m term loan with SWIP repayable on 5 June 2028 with interest fixed
at 2.987%; and
· A GBP50m term loan with Aviva Investors Real Estate Finance ("Aviva")
comprising:
a) A GBP35m tranche repayable on 6 April 2032 with fixed annual interest
of 3.02%; and
b) A GBP15m tranche repayable on 3 November 2032 with fixed annual
interest of 3.26%.
Each facility has a discrete security pool, comprising a number of the
Company's individual properties, over which the relevant lender has security
and covenants:
· The maximum LTV of the discrete security pool is between 45% and 50%,
with an overarching covenant on the Company's property portfolio of a
maximum 35% LTV; and
· Historical interest cover, requiring net rental receipts from each
discrete security pool, over the preceding three months, to exceed 250% of
the facility's quarterly interest liability.
The Company has GBP173.5m (33% of the property portfolio) of unencumbered
assets which could be charged to the security pools to enhance the LTV on
the individual loans.
At a portfolio level, the aggregate interest cover on borrowings was more
than 500% for the Period. However, to mitigate the risk that interest cover
covenants on individual facilities come under some short-term pressure due
to curtailed rent receipts, during the Period the Company has put in place
pre-emptive interest cover covenant waivers until at least the end of
September 2020.
Portfolio analysis
At 30 June 2020 the Company's property portfolio comprised 160 assets with a
net initial yield7 ("NIY") of 7.0% (31 March 2020: 6.8%). The portfolio is
split between the main commercial property sectors, in line with the
Company's objective to maintain a suitably balanced investment portfolio.
Sector weightings are shown below:
Valuation Period Weighting Weighting
valuat by by
ion income8 income8
moveme 30 Jun 31 Mar
30 Jun Weighting nt Period 2020 2020
by value valuat
30 Jun ion
2020 moveme
2020 GBPm nt
Sector GBPm
Industrial 249.6 47% (5.5) (2.2%) 41% 40%
Retail 103.9 20% (5.9) (5.1%) 21% 22%
warehouse
Other9 81.1 15% (6.3) (6.8%) 17% 17%
High 48.6 9% (4.3) (7.5%) 11% 11%
street
retail
Office 50.5 9% (2.2) (4.1%) 10% 10%
Total 533.7 100% (24.2) (4.2%) 100% 100%
7 Passing rent divided by property valuation plus purchaser's costs.
8 Current passing rent plus ERV of vacant properties.
9 Includes car showrooms, petrol filling stations, children's day nurseries,
restaurants, gymnasiums, hotels and healthcare units.
During the Period all sectors have seen valuation decreases with industrial
and logistics valuations most robust, showing only a 2.2% decrease. The
decrease in retail values shows a greater percentage decline in high street
locations (7.5%) compared to out-of-town retail warehousing (5.1%). This
differential is perhaps a reflection of the stock selection in the Custodian
REIT portfolio where retail warehouse occupiers are predominantly value
retailers and homewares/DIY, many of whom have remained open for trading
during the lockdown. Furthermore, the average rent across the retail
warehouse portfolio is only GBP14.31 per square foot, which represents an
affordable rent for most occupiers.
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 portfolio at 30 June 2020
was as follows:
Weighting Period Weighting Weighting
by value valuat by by
30 Jun ion income8 income8
2020 moveme 30 Jun 31 Mar
nt 2020 2020
Valuation GBPm Period
valuat
ion
moveme
30 Jun nt
2020
Location
GBPm
West 115.2 22% (4.4) (3.5%) 20% 20%
Midlands
North-West 88.7 17% (3.9) (4.2%) 18% 17%
South-East 66.8 12% (3.8) (5.1%) 13% 13%
East 64.1 12% (3.1) (4.5%) 13% 13%
Midlands
South-West 62.4 12% (3.3) (4.9%) 11% 11%
North-East 51.9 10% (1.9) (3.5%) 10% 10%
Scotland 46.0 8% (1.7) (3.6%) 8% 8%
Eastern 32.3 6% (1.7) (4.8%) 6% 6%
Wales 6.3 1% (0.4) (6.0%) 1% 2%
Total 533.7 100% (24.2) (4.2%) 100% 100%
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio [1].
- 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 / Ed Moore / Tel: +44 (0)116 240 8740
Ian Mattioli MBE
www.custodiancapital.com [3]
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which listed on the
main market of the London Stock Exchange on 26 March 2014. Its portfolio
comprises properties predominantly let to institutional grade tenants on
long leases throughout the UK and is principally characterised by properties
with individual values of less than GBP10m at acquisition.
The Company offers investors the opportunity to access a diversified
portfolio of UK commercial real estate through a closed-ended fund. By
targeting sub GBP10m lot-size, regional properties, the Company seeks to
provide investors with an attractive level of income with the potential for
capital growth.
Custodian Capital Limited is the discretionary investment manager of the
Company.
For more information visit www.custodianreit.com [2] and
www.custodiancapital.com [3].
ISIN: GB00BJFLFT45
Category Code: MSCU
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 78853
EQS News ID: 1105601
End of Announcement EQS News Service
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