Custodian REIT plc : Unaudited net asset value as at 30 September 2020 and dividend update (1143764)
October 29 2020 - 3:00AM
UK Regulatory
Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited net asset value as at 30 September 2020 and
dividend update
29-Oct-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.
29 October 2020
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 30 September 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
September 2020, highlights for the period from 1 July 2020 to 30 September
2020 ("the Period") and the dividend payable for the Period.
Financial highlights
· Rent collection remains impacted by the COVID-19 pandemic:
· 88% of rent collected relating to the Period, adjusted for contractual
rent deferrals (quarter ended 30 June 2020: 90%); and
· To date, 74% of rent collected relating to the quarter ending 31
December 2020, adjusted for contractual rent deferrals
· NAV total return per share1 for the Period of 0.5%, comprising 1.0%
dividends paid less a 0.5% capital decrease
· Dividend per share approved for the Period of 1.05p (quarter ended 30
June 2020: 0.95p)
· Aggregate dividends per share of 2.0p for the first half of the year
ending 31 March 2021 (2020: 3.325p), 33% ahead of the 1.5p minimum
announced in April 2020
· EPRA earnings per share2 for the first half of the year ending 31 March
2021 of 2.6p (2020: 3.4p)
· NAV per share of 95.2p (30 June 2020: 95.7p)
· NAV of GBP399.8m (30 June 2020: GBP402.1m)
· Net gearing3 of 23.4% loan-to-value (30 June 2020: 23.5%)
Portfolio highlights
· Property portfolio value of GBP532.3m (30 June 2020: GBP533.7m):
· GBP3.1m aggregate valuation decrease for the Period (0.6% of property
portfolio) comprising a GBP2.8m valuation increase from successful asset
management initiatives and a GBP5.9m decrease due primarily to the impact of
COVID-19 on estimated rental values ("ERVs")
· GBP0.9m invested in the acquisition of land for a pre-let development of a
Starbucks drive-through restaurant in Nottingham
· EPRA occupancy4 92.9% (30 June 2020: 93.8%)
1 NAV per share movement including dividends paid during the Period.
2 Profit after tax excluding net gains or losses on investment property
divided by weighted average number of shares in issue.
3 Gross borrowings less cash (excluding rent deposits) divided by portfolio
valuation.
4 ERV of let property divided by total portfolio ERV.
Net asset value
The unaudited NAV of the Company at 30 September 2020 was GBP399.8m,
reflecting approximately 95.2p per share, a decrease of 0.5p (0.5%) since 30
June 2020:
Pence per share GBPm
NAV at 30 June 2020 95.7 402.1
Valuation movements relating to:
- Asset management activity 0.7 2.8
- Other valuation movements (1.4) (5.9)
Net valuation movement (0.7) (3.1)
Acquisition costs - (0.1)
(0.7) (3.2)
Income earned for the Period5 2.5 10.5
Expenses, receivable provisioning and net (1.3) (5.6)
finance costs for the Period5
Dividends paid6 relating to the previous (1.0) (4.0)
quarter
NAV at 30 September 2020 95.2 399.8
5 Including GBP0.9m of annual insurance premium recharged to tenants.
6 Dividends of 0.95p per share relating to the quarter ended 30 June 2020
were paid on 28 August 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 September 2020 and net income for
the Period. The movement in NAV reflects the payment of a 0.95p per share
dividend relating to the quarter ended 30 June 2020 during the Period, which
was fully covered by net cash collections and EPRA earnings in that quarter,
but does not include any provision for the approved dividend of 1.05p per
share for the Period to be paid on 30 November 2020.
Market commentary
Commenting on the market, Richard Shepherd-Cross, Managing Director of
Custodian Capital Limited (the Company's discretionary investment manager)
said:
"Investment activity is increasing and appears to be tracking the emerging
picture of forecast occupier demand. There is confidence in the industrial
and logistics market where record investment volumes have been matched by
record occupational demand for warehouse space. This occupational demand,
driven by the continued growth of e-commerce and onshoring of supply chains,
combined with low vacancy rates has led to the continuation of rental
growth. Much of the investment capital that might have been focused on the
office or retail sectors has been redirected to industrial and logistics. We
see continued opportunity in this sector as the UK has yet to build a
sufficient logistics network to support the continued growth in e-commerce.
"Despite widespread remote working and the resulting low utilisation of
offices across the country we expect recognition from occupiers of the
social and well-being impact of returning to offices in some meaningful way,
post the COVID-19 pandemic. Office owners must invest in their existing
buildings to create flexible working spaces which may result in greater
space requirements per head but perhaps for fewer workers. Offices allow
space for organisational productivity, rather than individual productivity
which may prove better when delivered working remotely either from home or
smaller satellite offices. The lettings market has already seen an increase
in enquiries in satellite office locations reflecting this trend which could
be positive for Custodian REIT's portfolio of small regional offices,
acknowledging that forecasting office demand is currently subject to
significant uncertainty.
"The retail market has borne the brunt of the impact of lockdown with a huge
reduction in footfall and consumers switching to online retailing instead.
The COVID-19 pandemic disruption has accelerated trends that were already
embedded in retailing when online retail already made up almost 20% of all
UK retail sales, namely an oversupply of shops, downward pressure on rents
and a rise in the number of retailers failing.
"ONS data indicates online retail sales reached 32.8% in May 2020 during the
national lockdown compared to 18.8% in May 2019. As lockdown was eased in
the summer, so people returned to the shops and online sales dipped, which
is a positive signal for physical retail. While online sales will remain an
important part of retailers' strategies, the physical shop is not yet dead.
This physical presence is particularly relevant for prime city centre
locations where retailers benefit from high footfall promoting brand
awareness and enabling 'showrooming'. We also believe the physical shop will
survive in convenience-led, out of town locations, especially for goods
which are less likely to be bought online: DIY, furniture, homewares, and
discount brands. We expect the Company's strategy of a low weighting to high
street retail and a greater focus on out-of-town retail, let at affordable
rents, will position the portfolio well to pick up as and when consumers can
return to the shops with confidence.
"Investment volumes have been sufficient for the Company's valuers to remove
the 'material uncertainty' caveat from the property portfolio valuation as
at 30 September 2020. However, in an attempt to reflect market sentiment in
the valuations a risk factor has still been applied to the collection of
deferred rent or rents arrears due from tenants adversely affected by the
COVID-19 pandemic. This rental risk continues to have an impact on NAV but
as deferred rents start to be recovered, as indeed they are, this risk
adjustment applied to rents within valuations will diminish.
"As we see increasing confidence in the collection of contractually deferred
rents and once landlords can formally pursue non-payers, positive sentiment
towards the income credentials of commercial real estate investment is
likely to return. In a low return environment, where dividends are under
pressure across all investment markets, we believe that property returns
will look attractive and the search for income and long-term capital
security will bring many investors back to real estate. However, if we see
an acceleration in tenant failures as Government support packages are
withdrawn and while Company Voluntary Arrangements ("CVAs") remain
legitimate practice, this could work against the prospects for real estate.
"Over the last eight months the market's focus has been on income (and
therefore EPRA earnings per share) rather than NAV and we expect this to
continue whilst disruption to contractual rent collections remains. We
believe that EPRA earnings per share is a more important metric than NAV per
share in demonstrating the Company's ability to deliver long-term
sustainable dividends. As a result our focus has understandably been, and
will remain, centred on rent collection."
Rent collection
As Investment Manager, Custodian Capital invoices and collects rent
directly, importantly allowing it to hold direct conversations promptly with
most tenants regarding the payment of rent. This direct contact has proved
invaluable through the Pandemic, enabling better outcomes for the Company.
Many of these conversations have led to positive asset management outcomes,
some of which are discussed below.
FY21 Q1
90% of rent relating to the quarter ended 30 June 2020 ("FY21 Q1"), net of
contractual rent deferrals, has been collected, an increase from the 80%
previously reported, demonstrating the dynamic picture of rent collection at
present.
FY21 Q2
88% of rent relating to the Period, net of contractual rent deferrals, has
been collected as set out below:
GBPm
Rental income (IFRS basis) 9.6
Lease incentives (0.6)
Cash rental income expected, before contractual rent 9.0
deferrals
Contractual rent deferrals relating to the Period (0.5)
Contractual rent deferred from prior periods falling 0.2
due during the Period
Cash rental income expected, net of contractual 8.7 100%
deferrals
Outstanding rental income (1.0) (12%)
Collected rental income 7.7 88%
87% of the GBP0.2m contractual rent deferred from prior periods falling due
during the Period has been collected, indicating that the support offered to
tenants during the national lockdown is now returning a more positive result
on overall rent collections.
Outstanding rental income remains the subject of discussion with various
tenants, although some arrears are potentially at risk of non-recovery from
CVAs or Pre-pack Administrations.
FY21 Q3
To date 74% of rent relating to the quarter ending 31 December 2020 ("FY21
Q3") has been collected, net of contractual deferrals7.
All contractual deferrals offered to date are to be recovered through
payment plans over the next 12-18 months.
7 The proportion of rent collected relating to the quarter ending 31
December 2020 ("FY21 Q3") invoiced rents now due, adjusted for the agreed
deferral of 1% of FY21 Q3 invoiced rents and the rents now due having been
deferred from FY21 Q1 and Q2.
Dividends
The Board is pleased to report dividends per share totalling 2.0p for the
six months ended 30 September 20208, 33% ahead of the minimum 1.5p announced
in April 2020, before the full impact of the national lockdown could be
ascertained.
This higher dividend reflects the levels of rent collection seen since the
onset of the COVID-19 pandemic disruption and is fully covered by net cash
receipts and 130% covered by EPRA earnings, in line with the Board's current
policy of paying dividends at a level broadly linked to net rental receipts.
The Board expects to continue to pay quarterly dividends fully covered by
net cash receipts for the remainder of the financial year.
The quarterly interim dividend for the Period of 1.05p per share is payable
on 30 November 2020 to shareholders on the register on 6 November 2020 and
will be designated as a property income distribution ("PID").
8 Comprising an interim dividend of 0.95p per share for the quarter ended 30
June 2020, which was paid on 28 August 2020, and an interim dividend
relating to the Period of 1.05p per share.
Asset management
Despite the ongoing economic uncertainty caused by COVID-19, the Investment
Manager has remained focused on active asset management during the Period,
undertaking the following initiatives:
· Completed a twenty-year lease extension with Bannatyne Fitness on a
leisure scheme in Perth, extending lease expiry to August 2046 and
incorporating five yearly RPI linked rent reviews, which increased
valuation by GBP1.5m;
· Unconditionally exchanged an agreement for lease with MCC Labels in
Daventry on a new ten-year lease without break commencing in Spring 2021
after the current tenant vacates in December 2020, at a rent of GBP295k pa,
which increased valuation by GBP0.8m;
· Completing a five-year lease extension with DHL on an industrial unit at
Speke, Liverpool, subject to a tenant-only break in year three,
maintaining annual passing rent at GBP119k which increased valuation by
GBP0.2m;
· Completing a five-year lease extension with Erskine Murray at an office
building in Leicester, extending the lease expiry from December 2020 to
December 2025 at an increased annual rental of GBP72.5k (previously GBP66.5k)
which increased valuation by GBP0.1m;
· Completing a deed of variation with Urban Outfitters in Southampton to
push the October 2021 tenant only break option back to April 2024,
increasing the term certain to 3.5 years, which increased valuation by
GBP0.1m;
· Settling an open market rent review with Synergy Health at an industrial
unit in Sheffield, increasing the annual rent from GBP142k to GBP158k which
increased valuation by GBP0.1m;
· Unconditionally exchanged an agreement for lease with MKM in Lincoln on
a new 10 year reversionary lease on a trade counter unit, extending expiry
from June 2022 to June 2032 without break and maintaining annual passing
rent at GBP192k with nine months' rent free, with no impact on valuation;
and
· Completing a five-year lease renewal with Sports Direct on a retail park
in Weymouth at a rebased rent of GBP90k (previously GBP118k), subject to a 5%
turnover top-up clause and featuring rolling mutual break options after 36
months with no impact on valuation.
Since the Period end the following initiatives have been completed:
· Exchanging an agreement for lease with Tim Hortons Fast Food Restaurants
on a drive-through restaurant in Perth (formerly a Frankie & Benny's) for
a term of 15 years, with a tenant only break option in year 10, at an
annual rent of GBP90k; and
· Completing a 10 year reversionary lease without break with DX Networks
at an industrial unit in Nuneaton, pushing the lease expiry out from March
2022 to March 2032 subject to a day one rent review where we expect to
secure an increase in the GBP267k pa passing rent.
These positive asset management outcomes have been partially offset by the
CVA of Pizza Hut which has impacted the Company's properties in Watford,
Leicester and Crewe, and Edinburgh Woollen Mill's intention to appoint
Administrators which may affect the Company's property in Shrewsbury. In
aggregate these business failures potentially impact GBP262k (0.7%) of the
Company's rent roll. The Company is already in discussion with potential
drive-through restaurant occupiers for the Pizza Hut units 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") was maintained at 5.1 years at 30 September 2020 with the
impact of lease re-gears and new lettings offsetting the natural elapse of a
quarter of a year due to the passage of time.
Financial resilience
The Company retains its strong financial position to address the
extraordinary circumstances imposed by the COVID-19 pandemic. At 30
September 2020 it had:
· A diverse and high-quality asset and tenant base comprising 161 assets
and over 200 typically 'institutional grade' tenants across all commercial
sectors, with an occupancy rate of 92.9%;
· GBP25.5m 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 net
gearing of 23.4% compared to a maximum loan to value ("LTV") covenant of
35%. Pre-emptive interest cover covenant waivers put in place in April
2020 to mitigate the risk that covenants on individual debt facilities
came under pressure due to curtailed rent receipts have not been required
due to the level of rent collected.
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 GBP172.7m (32% of the property portfolio) of unencumbered
assets which could be charged to the security pools to enhance the LTV on
the individual loans. The Company complied with all loan covenants during
the Period.
Portfolio analysis
At 30 September 2020 the Company's property portfolio comprised 161 assets
with a net initial yield9 ("NIY") of 6.9% (30 June 2020: 7.0%). 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 income10 income10
moveme 30 Sep 31 Jun
30 Sep Weighting nt Period 2020 2020
by value valuat
30 Sep ion
2020 moveme
2020 GBPm nt
Sector GBPm
Industrial 250.7 47% 1.0 0.4% 41% 41%
Retail 102.7 20% (1.4) (1.3%) 21% 21%
warehouse
Other11 81.6 15% (0.8) (1.0%) 17% 17%
High 47.6 9% (1.0) (2.1%) 11% 11%
street
retail
Office 49.7 9% (0.9) (1.8%) 10% 10%
Total 532.3 100% (3.1) (0.6%) 100% 100%
9 Passing rent divided by property valuation plus purchaser's costs.
10 Current passing rent plus ERV of vacant properties.
11 Includes car showrooms, petrol filling stations, children's day
nurseries, restaurants, gymnasiums, hotels and healthcare units.
A number of smaller assets in the high street retail sector are earmarked
for disposal which should limit possible future valuation decreases in that
sector.
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 September
2020 was as follows:
Weighting Period Weighting Weighting
by value valuat by by
30 Sep ion income8 income8
2020 moveme 30 Sep 30 Jun
Valuation nt 2020 2020
30 Sep GBPm Period
2020 valuat
ion
moveme
nt
GBPm
Location
West 114.3 21% (1.1) (1.0%) 20% 20%
Midlands
North-West 88.4 17% (0.5) (0.5%) 17% 18%
East 65.6 12% 0.4 0.6% 13% 13%
Midlands
South-East 65.2 12% (1.6) (2.4%) 13% 13%
South-West 62.0 12% (0.5) (0.8%) 11% 11%
North-East 51.9 10% (0.1) (0.2%) 10% 10%
Scotland 47.1 9% 1.1 2.4% 8% 8%
Eastern 31.6 6% (0.7) (2.1%) 6% 6%
Wales 6.2 1% (0.1) (1.4%) 2% 1%
Total 532.3 100% (3.1) (0.6%) 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: 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.: 86766
EQS News ID: 1143764
End of Announcement EQS News Service
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