Custodian REIT plc (CREI)
Custodian REIT plc : Interim Results
01-Dec-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.
1 December 2020
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 2020
("the Period").
Financial highlights and performance summary
· The COVID-19 pandemic is continuing to impact the property market and our
tenants:
· A GBP27.4m (5.1% of property portfolio) valuation decrease during the Period;
and
· 88% of rent collected relating to the Period, adjusted for contractual rent
deferrals
· EPRA[1] earnings per share[2] for the Period decreased to 2.6p (2019: 3.4p)
due to the reduced level of rent collection
· Basic and diluted earnings per share[3] decreased to -3.8p (2019: 0.2p)
primarily due to property portfolio valuation decreases of GBP27.4m and a GBP2.9m
increase in the doubtful debt provision
· Aggregate dividends per share of 2.0p for the Period (2019: 3.325p), 33%
ahead of the 1.5p minimum announced in April 2020
· Property value of GBP532.3m (31 March 2020: GBP559.8m, 2019: GBP547.2m):
· GBP27.4m aggregate valuation decrease comprising a GBP2.8m property valuation
uplift from successful asset management initiatives and GBP30.2m of valuation
decreases, primarily due to decreases in the estimated rental value ("ERV") of
retail properties, negative investment market sentiment for retail assets and
the impact of the COVID-19 pandemic
· GBP0.9m[4] invested in the acquisition of land for a pre-let development of a
Starbucks drive-through restaurant in Nottingham
· Disposal of an industrial unit in Westerham for GBP2.8m, GBP0.5m (23%) ahead of
the 31 March 2020 valuation, representing a net initial yield of 4.50%
· NAV per share 95.2p (31 March 2020: 101.6p, 2019: 104.3p)
· NAV per share total return[5] of -3.7% (2019: 0.5%) comprising 2.6% income
(2019: 3.1%) and a -6.3% capital change (2019: -2.6 % capital change)
· Loss before tax of GBP16.1m (2019: profit of GBP0.7m)
Unaudited Unaudited Audited
6 months to 6 months to 12 months to
30 Sept 2020 30 Sept 2019 31 Mar 2020
Total return
NAV per share total (3.7%) 0.5% 1.1%
return
Share price total (7.7%) 8.7% (5.0%)
return[6]
Capital values
NAV (GBPm) 399.7 428.5 426.7
NAV per share (p) 95.2 104.3 101.6
Share price (p) 88.8 117.6 99.0
Property portfolio value 532.3 547.2 559.8
(GBPm)
Market capitalisation 373.0 483.0 415.9
(GBPm)
(Discount)/premium of (6.7%) 12.8% (2.6%)
share price to NAV per
share
Net gearing[7] 23.4% 20.5% 22.4%
EPRA vacancy rate[8] 7.1% 4.5% 4.1%
The Company presents NAV per share total return, dividend per share, share price
total return, NAV per share, share price, market capitalisation, discount 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 Note 18.
David Hunter, Chairman of Custodian REIT, said:
"I am very pleased to announce that despite the inevitable disruption to cash
collection caused by the COVID-19 pandemic, the Company's better than expected
cash collection rate has allowed dividends per share of 2.0p to be paid for the
Period, 33% ahead of the minimum level of 1.5p announced in April 2020 before the
full impact of the national lockdown could be ascertained.
"We expect further tenant failures as Government support packages are withdrawn,
the November 2020 English lockdown and subsequent restrictions bite and while
CVAs remain legal, if questionable, practice, but this is likely to be heavily
weighted towards the retail sector and should not diminish the overall appeal of
real estate. In a low return environment 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.
"The COVID-19 pandemic has reinforced Custodian REIT's strategy which has always
placed income and financial resilience at the heart of the Company's objectives.
When allied to the appropriate property strategy this focus underpins sustainable
dividends, which in turn support total return, and we 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 2020
Chairman's statement
The COVID-19 pandemic is continuing to impact the property market and our
tenants, leading to a GBP27.4m property valuation decrease during the Period and
88% of rent being collected, net of contractual deferrals. EPRA earnings per
share decreased to 2.6p (2019: 3.4p) due to a GBP2.9m increase in the doubtful debt
provision, reflecting our prudent assumptions regarding the recovery of overdue
and deferred rents, and a GBP1.9m (4.7%) decrease in the annual rent roll since 31
March 2020 due to tenants exiting at lease expiry (2.4%), cessation of rents
through Company Voluntary Arrangements ("CVAs") and Administrations (2.0%) and
the disposal of an industrial asset (0.3%). Helpfully, rental decreases seen in
the high street retail and other sectors were offset by increases in the
industrial sector.
The recent turmoil in markets has emphasised the importance of having a
well-diversified, income focused property portfolio. I was very pleased to be
able to announce that despite the inevitable disruption to cash collection caused
by the COVID-19 pandemic, the Company's better than expected cash collection rate
has allowed dividends per share of 2.0p to be paid for the Period, 33% ahead of
the minimum level of 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 and is fully covered by net cash receipts and 130%
covered by EPRA earnings. The Board acknowledges the importance of income for
shareholders, and its objective remains paying dividends at a level broadly
linked to net rental receipts that does not inhibit the flexibility of the
Company's investment strategy.
These have been testing times which have necessitated an exceptional effort from
the Investment Manager, both in the collection of rents and in operating remotely
as a team. I would like to acknowledge the results of their efforts. I also thank
my fellow Board members who have been flexible and supportive during a period
which has required numerous formal and informal additional Board meetings.
Financial and operational 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
200 typically 'institutional grade' tenants across all commercial sectors, with
an occupancy rate of 92.9%;
· GBP26.2m of cash 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;
· Significant headroom on lender covenants at a portfolio level, with net
gearing of 23.4% and a maximum loan to value ("LTV") covenant of 35%; and
· Put in place interest cover covenant[9] waivers on a pre-emptive basis to
mitigate the risk that covenants on individual debt facilities might come under
pressure due to curtailed rent receipts. These waivers have not been required
due to the level of rent collected.
No lender covenants have been breached during the Period. Since the Period end
the Company has charged, or is in the process of charging, five additional
properties valued at GBP21.1m to alleviate short-term LTV covenant compliance
pressure on individual security pools.
Net asset value
The NAV of the Company at 30 September 2020 was GBP399.7m, approximately 95.2p per
share, a decrease of 6.4p (6.3%) since 31 March 2020:
Pence per share GBPm
NAV at 31 March 2020 101.6 426.7
Valuation movements relating to:
- Asset management activity 0.7 2.8
- Other valuation movements (7.2) (30.2)
Valuation decrease before acquisition (6.5) (27.4)
costs
Impact of acquisition costs (0.0) (0.1)
Valuation decrease including (6.5) (27.5)
acquisition costs
Profit on disposal of investment 0.1 0.5
property
Net valuation movement (6.4) (27.0)
Revenue 4.8 20.3
Expenses and net finance costs (2.2) (9.3)
Dividends paid[10] during the Period (2.6) (11.0)
NAV at 30 September 2020 95.2 399.7
The valuation decrease before acquisition costs of GBP27.4m was experienced across
all sectors of the portfolio, further detailed in the Investment Manager's
report, due to:
· The impact of COVID-19, with the Company's valuers reflecting historical rent
arrears within valuations and applying an overall increase in yield to assets
let to tenants which have ceased or significantly curtailed trading, in line
with current RICS advice to valuers;
· A reduction in retail ERVs;
· A worsening of investment market sentiment towards commercial property,
especially retail; and
· The impact of Company Voluntary Arrangements ("CVAs") and company
Administrations detailed in the Investment Manager's report.
Borrowings and cash
The Company operates the following debt facilities:
· A GBP35m revolving credit facility ("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%.
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 each 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 complied with all loan covenants during the Period. The Company has
GBP174.1m (33% of the property portfolio) of unencumbered assets which could be
charged to the security pools to enhance the LTV on the individual loans and
since the Period end has charged, or is in the process of charging, five of these
unencumbered properties valued at GBP21.1m.
The weighted average cost of the Company's agreed debt facilities is 2.9% (2019:
3.0%) with a WAM of 7 years (2019: 8 years). 77% (2019: 75%) of the Company's
debt facilities are at a fixed rate of interest, significantly mitigating
interest rate risk.
Dividends
During the Period the Company paid the fourth quarterly interim dividend per
share for the financial year ended 31 March 2020 of 1.6625p, relating to the
quarter ended 31 March 2020, and the first quarterly dividend per share for the
financial year ending 31 March 2021 of 0.95p, relating to the quarter ended 30
June 2020.
In line with the Company's dividend policy the Board approved a quarterly interim
dividend of 1.05p per share for the quarter ended 30 September 2020 which was
paid on 30 November 2020 to shareholders on the register on 6 November 2020.
Investment Manager
Custodian Capital Limited ("the Investment Manager") is appointed under an
investment management agreement ("IMA") to provide asset management, investment
management and administrative services to the Company. The IMA fee structure was
amended in June 2020 as detailed in Note 16.
Board succession and remuneration
Three of the Company's four independent Directors were appointed in 2014. The
Company's succession policy allows for a tenure of longer than nine years, in
line with the 2019 AIC Corporate Governance Code for Investment Companies ("AIC
Code"), but the Board acknowledges the benefits of ongoing Board refreshment. For
this reason expected Director retirement dates are staggered within a nine year
tenure period. Where possible, the Board's policy is to recruit successors well
ahead of the retirement of Directors.
The gender diversity recommendations of the Hampton-Alexander Review are for at
least 33% female representation on FTSE350 company boards. With the appointment
of Hazel Adam during the past year, the female representation on the Board is
20%. The Company is a constituent of the FTSESmallCap Index where no female
representation recommendations apply, but the Board recognises the value and
importance of diversity in the boardroom.
In June 2020 the Remuneration Committee postponed its decision regarding
Directors' annual fees for the year ending 31 March 2021 due to the uncertainty
caused by the COVID-19 pandemic in anticipation of a clearer fiscal outlook later
in the year. In November 2020 the Remuneration Committee determined that there
would be no increase in level of Directors' annual fees for the time being and
subsequent reviews would be undertaken on a quarterly basis whilst uncertainty
caused by the COVID-19 pandemic remained.
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.
During the Period the Company agreed environmental KPIs for the property
portfolio and completed its inaugural submission for the Global Real Estate
Sustainability Benchmark ("GRESB"). The Company's Annual Report for the year
ended 31 March 2020 received a 'most improved' award for its first year complying
with EPRA Sustainability Best Practice Recommendation reporting.
Brexit
The Board is continuing to monitor the potential risks associated with Brexit but
believes the Company is well placed to weather any short-term impact because of
its diverse property portfolio by sector and location with an institutional grade
tenant base and low gearing.
Outlook
The absolute focus on rent collection, financial resilience and maintaining fully
covered dividend payments has occupied the Board's attention throughout the
Period. Indeed, the COVID-19 pandemic has reinforced Custodian REIT's strategy
which, over and above decisions in relation to investment approach, has always
placed income and financial resilience at the heart of the Company's objectives.
When allied to the appropriate property strategy this focus underpins sustainable
dividends, which in turn support long-term total return.
Notwithstanding some ongoing challenges the post-pandemic outlook for real estate
in a low interest, low return environment looks promising. It has been reported
that global institutional investors plan to increase their allocation to real
assets over the next 12 months which should encourage wealth managers and private
clients to re-weight to real estate for its income credentials.
David Hunter
Chairman
30 November 2020
Investment Manager's report
Property market
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, which represents 47% of the Company's property portfolio value, 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 the 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 office workers. Offices allow space for organisational
productivity, rather than individual productivity which may prove better when
delivered working remotely either from home or from smaller satellite offices.
The lettings market has already seen an increase in enquiries for 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 first
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 facilitating 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, namely 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 continue to be recovered, this risk adjustment applied to rents within
valuations will diminish.
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 COVID-19 pandemic disruption, enabling better outcomes for the Company. Many
of these conversations have led to positive asset management outcomes, some of
which are discussed below.
88% of rent relating to the Period net of contractual rent deferrals has been
collected, or 82% before contractual deferrals, as set out below:
Net of Before contractual
contractual rent rent deferrals
deferrals
GBPm
Rental income from 19.4
investment property
(IFRS basis)
Lease incentives (0.9)
Cash rental income 18.5 100%
expected, before
contractual rent
deferrals
Contractual rent (1.5) (8%)
deferrals relating to
the Period
Contractual rent 0.2 1%
deferred falling due
during the Period
Cash rental income 17.2 100%
expected, net of
contractual rent
deferrals
Outstanding rental (2.1) (12%) (11%)
income
Rental income 15.1 88% 82%
collected
88% of the GBP0.2m contractual rent deferred falling due during the Period has been
collected, indicating that the support offered to tenants during the first
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. We expect the rent recovery rate for the Period to
exceed 90% once tenant discussions are concluded.
To date 92% of rent relating to the quarter ending 31 December 2020 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.
The Company's doubtful debt provision has increased by GBP2.9m during the Period to
reflect the risk over collecting outstanding and deferred rent.
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 previously deferred from FY21 Q1
and Q2.
Property portfolio performance
At 30 September 2020 the Company's property portfolio comprised 161 assets (31
March 2020: 161 assets), 200 tenants and 265 tenancies with an aggregate net
initial yield[11] ("NIY") of 6.9% (31 March 2020: 6.8%) and weighted average
unexpired lease term to first break or expiry ("WAULT") was 5.1 years (31 March
2020: 5.3 years).
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 Weighting
by by income
income[12 31 March
] 2020
30 Sept
2020 Valuation
movement
30 Sept before
acquisiti
GBPm on costs
GBPm
2020
Sector Valuation
Weighting Weighting
by value by value
30 Sept 31 March
31 March 2020 2020
2020
GBPm
Industrial 250.7 41% 257.3 40% (4.5) 47% 46%
Retail 102.7 21% 109.7 22% (7.4) 19% 20%
warehouse
Other[13] 81.6 17% 87.4 17% (7.1) 15% 16%
High 47.6 11% 52.8 11% (5.3) 9% 9%
street
retail
Office 49.7 10% 52.6 10% (3.1) 10% 9%
Total 532.3 100% 559.8 100% (27.4) 100% 100%
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 31 March 2020 valuation was reported on the basis of 'material valuation
uncertainty' in accordance with RICS valuation standards. This basis did not
invalidate the valuation but, in the circumstances, implied that less certainty
could be attached to the valuation than otherwise would be the case. However, for
30 September 2020 valuations, no 'material valuation uncertainty' clause was
applied for all asset classes in the Company's property portfolio.
Industrial and logistics property remains a very good fit with the Company's
strategy. The demand for smaller lot-sized units is very broad, from
manufacturing, urban logistics, online traders and owner occupiers. This demand,
combined with a restricted supply resulting from limited new development,
supports high residual values (where the vacant possession value is closer to the
investment value than in other sectors) and drives rental growth. Despite a long
period of growth in this sector, we still see opportunity.
Amongst its far-reaching impacts, the COVID-19 pandemic has deepened the
challenges facing the retail sector causing further declines in retail values
across the portfolio, although with a greater percentage decline in high street
locations (-10.1%) than in out-of-town locations (-6.7%). We believe that
out-of-town retail/retail warehousing remains an important asset class for the
Company. We expect that well-located retail warehouse units, let off low rents,
located on retail parks which are considered dominant in their area will continue
to be in demand from retailers. The importance of convenience, free parking, the
capacity to support click and collect and the relatively low cost compared to the
high street should continue to support occupational demand for the Company's
retail warehouse assets.
Regional offices will remain a sector of interest for the Company and we expect
there to be activity post-pandemic in regional office markets. The rise in
working remotely may not be restricted to working from home with a potential
increase in working from regional satellite offices. Locations that offer an
attractive environment to both live and work in and that offer buildings with
high environmental standards and accessibility to a skilled workforce, will be
most desirable. There is latent rental growth in many regional office markets
where supply has been much diminished through redevelopment to alternative uses.
For details of all properties in the portfolio please see
custodianreit.com/property/portfolio [2].
Acquisition
In July 2020 the Company acquired 0.6 acres of land in Nottingham for GBP0.9m to be
developed into a 2,163 sq ft drive-through coffee shop with 34 parking spaces.
Construction, costing GBP0.825m, is being phased over an expected six month build
period. The unit has been pre-let to KBeverage Limited (trading as Starbucks
Coffee) on a 20 year lease with no breaks and five yearly upward only market rent
reviews. On completion of the development passing rent will be GBP115k pa,
reflecting a NIY of 6.67%.
Investment objective
The Company's key objective is to provide shareholders with an attractive
relative level of income by paying dividends fully covered by net rental receipts
with a conservative level of net gearing.
The Board remains committed to a strategy principally focused on regional
properties with individual values of less than GBP10m at acquisition with a
weighting towards regional industrial and logistics. Diversification of property
type, tenant, location and lease expiry profile continues to be at the centre of
the strategy together with maximising cash flow by taking a flexible approach to
tenants' requirements and retaining tenants wherever possible.
Property portfolio risk
The property portfolio's security of income is enhanced by 19.1% of income
benefitting from either fixed or indexed rent reviews.
Short-term contractual income at risk is a relatively low proportion of the
property portfolio's total income, with 31% (2019: 35%) expiring in the next
three years and 8% within one year (2019: 15%).
The Company's Annual Report for the year ended 31 March 2020 set out the
principal risks and uncertainties facing the Company at that time. We do not
anticipate any changes to those risk and uncertainties over the remainder of the
financial year, but highlight the following risks:
COVID-19 pandemic
The impact of the COVID-19 pandemic has been pervasive across the globe, and we
believe it will continue to have a significant impact on rental receipts, tenant
stability, property valuations, government legislation and availability of
finance and compliance with financial covenants for at least the remainder of the
financial year ending 31 March 2021. We believe it is still too early to fully
comprehend the short-term impact and longer-term ramifications of the COVID-19
pandemic. The Board has met frequently via video-conference during the Period to
ensure the Company reacts promptly to a dynamic situation, including guiding and
challenging our response and approving decisions quickly when required.
Brexit
The Board is continuing to monitor the potential risks associated with Brexit.
Discussions are ongoing and the final outcome regarding the UK's future trading
relationship with the EU remains unclear, making it too early to understand fully
the impact Brexit will have on the Company's business. The main potential
negative impact of Brexit is a deterioration of the macro-economic environment,
potentially leading to further political uncertainty and volatility in interest
rates, but it could also impact the investment and occupier markets, our ability
to execute the Company's investment strategy and its income sustainability in the
long-term. However, we believe the Company is well placed to weather any
short-term impact of Brexit because of its diverse portfolio by sector and
location with an institutional grade tenant base and low gearing.
Environmental
The Board is aware of the increasing focus from external stakeholders on the
Company's environmental credentials and the increasing level of disclosure
requirements regarding the Company's environmental impact. We continue to work
with specialist environmental consultants to ensure compliance with new
requirements and identify cost-effective opportunities to improve the Company's
environmental performance. The Board recently approved a suite of environmental
KPIs on which the Investment Manager will report to ensure the Company's ongoing
environmental impact is considered in the decision making process.
Asset management
Our continued focus on asset management including rent reviews, new lettings,
lease extensions and the retention of tenants beyond their contractual break
clauses resulted in a GBP2.8m valuation increase in the Period. Key asset
management initiatives completed during the Period include:
· Completing 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 exchanging 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 exchanging 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 12 months' rent free, with no impact on valuation;
· Re-gearing with The Works in Portsmouth which removed a tenant only break
option in October 2021, extending the term certain to October 2026, with no
impact on valuation;
· Completing 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, with no impact on valuation;
· Completing 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, with no impact on valuation; and
· Completing a five-year lease renewal with Sports Direct on a retail park in
Weymouth at a rebased annual 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 tempered by the impact of the
following business failures, which have resulted in GBP801k (2.0% of rent roll) of
lost annual rent with a further GBP1,008k (2.5% of rent roll) at risk:
Lost contractual annual rent since 31 March 2020
Annual rent
GBP000
Location Tenant Sector Event
Colchester Laura Ashley Retail 229 In
and Grantham warehouse Administ
ration,
tenant
exited
both
units
during
the
Period
Perth* The Restaurant Restaurant 100 CVA -
Group rent
reduced
to 0%
for 12
months
before
closure.
Grantham and Poundstretcher Retail 221 CVA -
Evesham warehouse tenant
remains
in
occupati
on rent
free
whilst
units
are
remarket
ed
Portishead Travelodge Hotel 83 CVA -
rent
reduced
to 25%
of
passing
rent in
2020 and
70% in
2021
Leicester, Pizza Hut Restaurant 168 CVA -
Watford and base
Crewe rent
reduced
by an
average
of 66%
of
passing
rent
plus an
8% of
turnover
top-up
801
*An agreement for a 15 year lease has been exchanged on the Perth asset with Tim
Hortons Fast Food Restaurants with rent of GBP90k per annum.
Contractual annual rent at risk at 30 September 2020
Swindon Go Outdoors Retail 325 Pre-pack
warehouse Administration -
new tenant in
occupation under
licence,
negotiating
revised lease
terms
Carlisle and JB Global Retail 390 Pre-pack
(t/a Oak warehouse Administration -
Furniture Oak Furniture Land
Land) now occupying
Plymouth under licence
whilst new terms
are negotiated
Torquay Las Iguanas Restaurant 110 In Administration
- tenant remains
in occupation
under licence,
negotiating
revised lease
terms
Shrewsbury Edinburgh High street 93 Administration
Woollen Mill retail
Torquay Le Bistrot Restaurant 90 Pre-pack
Pierre Administration -
new tenant in
occupation under
licence,
negotiating new
lease terms
1,00
8
All tenants in properties with rent at risk remain in occupation and continue to
trade, with negotiations for new lease terms either agreed and in solicitors
hands or under negotiation, demonstrating occupier demand remains in the market
for well-located assets.
Outlook
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. We expect further tenant failures as Government support packages are
withdrawn, the November 2020 English lockdown and subsequent restrictions bite
and while CVAs remain legal, if questionable, practice, but this is likely to be
heavily weighted towards the retail sector and should not diminish the overall
appeal of 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 focus 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.
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 long-term returns demanded by our shareholders.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
30 November 2020
Property portfolio
Location Tenant % Portfolio
Income[14]
Industrial
Winsford H&M 1.5%
Warrington JTF Wholesale 1.4%
Ashby Teleperformance 1.3%
Burton ATL Transport 1.2%
Salford Restore 1.1%
Bedford Elma Electronics and 1.0%
Vertiv Infrastructure
Hilton Daher Aerospace 0.9%
Stone Revlon International 0.9%
Eurocentral Next 0.9%
Tamworth ICT Express 0.8%
Doncaster Silgan Closures 0.8%
Kettering Multi-let 0.8%
Normanton Yesss Electrical 0.8%
Biggleswade Turpin Distribution 0.8%
Warrington Procurri Europe and 0.7%
Synertec
Daventry Cummins 0.7%
Gateshead Multi-let 0.7%
Edinburgh Menzies Distribution 0.7%
Cannock HellermannTyton 0.7%
Milton Keynes Massmould 0.7%
Plymouth Sherwin-Williams 0.7%
West Bromwich OT Group Limited 0.7%
Gateshead - Team Worthington Armstrong 0.7%
Valley
Bellshill Yodel Delivery Network 0.6%
Nuneaton DX Network Service 0.6%
Milton Keynes Saint-Gobain Building 0.6%
Distribution
Avonmouth Superdrug 0.6%
Bedford Heywood Williams 0.6%
Components
Bristol BSS Group 0.6%
Glasgow Menzies Distribution 0.6%
Weybridge Menzies Distribution 0.6%
Coventry Royal Mail 0.5%
Aberdeen Menzies Distribution 0.5%
Hamilton Ichor Systems 0.5%
Stevenage Morrison Utility Services 0.5%
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%
Norwich Menzies Distribution 0.4%
Leeds Sovereign Air Movement 0.4%
and Tricel Composites
Coalville MTS Logistics 0.4%
Erdington West Midlands Ambulance 0.4%
Service NHS Trust
Langley Mill Warburton 0.4%
Ipswich Menzies Distribution 0.4%
Irlam Northern Commercials 0.4%
Sheffield Parkway Synergy Health 0.4%
Castleford Bunzl 0.4%
Liverpool, Speke Powder Systems 0.3%
Swansea Menzies Distribution 0.3%
Stockton on Tees Menzies Distribution 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, Speke DHL International 0.3%
Huntingdon PHS 0.3%
Glasgow DHL Global Forwarding 0.3%
Normanton Acorn Web Offset 0.2%
Kilmarnock Royal Mail Group 0.2%
Vacant 2.8%
40.9%
Location Tenant % Portfolio
Income
Retail Warehouse
Evesham Multi-let 2.1%
Carlisle Multi-let 2.0%
Weymouth B&Q, Halfords and 1.8%
Sports Direct
Winnersh Pets at Home and Wickes 1.3%
Burton CDS (t/a The Range) and 1.3%
Wickes
Swindon B&M and Go Outdoors and 1.2%
InstaVolt
Leicester Matalan 1.2%
Plymouth A Share & Sons (t/a 1.1%
SCS) and JB Global (t/a
Oak Furniture Land)
Banbury B&Q 1.1%
Ashton-under-Lyne B&M 1.0%
Plymouth - Transit Way B&M, Magnet and 0.9%
InstaVolt
Gloucester Magnet, Smyths Toys and 0.9%
InstaVolt
Sheldon Multi-let 0.9%
Leighton Buzzard Homebase 0.8%
Galashiels B&Q 0.6%
Leicester Magnet 0.6%
Torpoint Sainsburys 0.5%
Portishead Majestic Wine, TJ 0.5%
Morris (t/a
HomeBargains) and
InstaVolt
Grantham Carpetright, 0.4%
Poundstretcher and
InstaVolt
Vacant 1.1%
21.3%
Location Tenant % Portfolio Income
Other
Stockport Benham (Specialist Cars) (t/a 1.7%
Williams BMW and Mini)
Liverpool Liverpool Community Health NHS 1.0%
Trust
Perth Bannatyne Fitness, Scotco 1.0%
Eastern (t/a KFC) and The
Restaurant Group (t/a Frankie &
Benny's)
Lincoln Total Fitness 0.9%
Stoke Nuffield Health 0.8%
Derby VW Group 0.8%
Crewe Multi-let 0.8%
Stafford VW Group 0.7%
Torquay Multi-let 0.7%
Gillingham Co-Operative 0.6%
York Pendragon 0.6%
Portishead Travelodge 0.5%
Salisbury Parkwood Health & Fitness 0.5%
Shrewsbury VW Group 0.5%
Lincoln MKM Buildings Supplies 0.5%
Gateshead MTOR and Raven Valley 0.4%
Crewe Multi-let 0.4%
Loughborough Listers Group 0.4%
Redhill Honda Motor Europe 0.3%
Bath Chokdee (t/a Giggling Squid) 0.3%
Shrewsbury Azzurri Restaurants (t/a ASK) 0.3%
and Sam's Club (t/a House of the
Rising Sun)
Castleford MKM Buildings Supplies 0.3%
High Wycombe Stonegate Pub Co 0.3%
Maypole Starbucks 0.3%
Shrewsbury TJ Vickers & Sons 0.3%
Carlisle The Gym Group 0.3%
Leicester Pizza Hut 0.2%
Watford Pizza Hut 0.2%
Plymouth McDonald's 0.2%
Portishead JD Wetherspoon 0.2%
King's Lynn Loungers 0.1%
Stratford Universal Church of the Kingdom 0.1%
of God
Chesham Bright Horizons 0.1%
Knutsford Knutsford Day Nursery 0.1%
Vacant 0.6%
17.0%
Location Tenant % Portfolio Income
High street retail
Shrewsbury Multi-let 1.0%
Worcester Superdrug 0.9%
Cardiff Multi-let 0.9%
Portsmouth Multi-let 0.7%
Southampton URBN 0.5%
Guildford Reiss 0.5%
Colchester H Samuel, Leeds Building 0.4%
Society and Lush
Llandudno WH Smith 0.4%
Birmingham Multi-let 0.3%
Chester Felldale Retail (t/a 0.3%
Lakeland) and Signet (t/a
Ernest Jones)
Norwich Specsavers 0.3%
Weston-super-Mare Superdrug 0.3%
Edinburgh Phase Eight 0.3%
Chester Aslan Jewellery (t/a 0.3%
Gasia) & Der Touristik
Portsmouth The Works 0.2%
Southsea Portsmouth City Council 0.2%
Stratford Foxtons 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 Brook Taverner & The 0.2%
Danish Wardrobe Co (t/a
Noa Noa)
Nottingham The White Company 0.2%
Southsea Superdrug 0.1%
Bury St Edmunds Savers 0.1%
Scarborough Waterstones 0.1%
Chester Ciel (Concessions) (t/a 0.1%
Chesca)
Cheltenham Done Brothers (Cash 0.1%
Betting) (t/a Betfred)
Bedford Waterstones 0.1%
Vacant 1.0%
10.5%
Location Tenant % Portfolio Income
Office
West Malling Regus (Maidstone West 1.5%
Malling)
Sheffield Secretary of State for 0.9%
Communities and Local
Government
Birmingham Multi-let 0.8%
Castle Donnington National Grid 0.8%
Leeds First Title (t/a Enact 0.8%
Conveyancing)
Cheadle Wienerberger 0.8%
Leeds First Title (t/a Enact 0.7%
Conveyancing)
Leicester Countryside Properties and 0.6%
Erskine Murray
Derby Edwards Geldards 0.6%
Solihull Lyons Davidson 0.5%
Leicester Regus 0.4%
Glasgow Multi-let 0.3%
Vacant 1.6%
10.3%
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2020
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 Mar
2020 2019
2020
Note GBP000 GBP000 GBP000
Revenue 4 20,286 20,495 40,903
Investment (1,653) (1,762) (3,517)
management fee
Operating expenses
of rental property (881)
(892) (838)
· rechargeable to
tenants
10 (3,781) (928) (1,883)
· directly
incurred
Professional fees (195) (191) (445)
Directors' fees (115) (94) (200)
Administrative (310) (317) (619)
expenses
Expenses (6,946) (4,130) (7,545)
Operating profit
before financing
and revaluation of
investment property
13,340 16,365 33,358
Unrealised losses
on revaluation of
investment
property:
- relating to gross
property
revaluations
9 (27,388) (12,919) (25,850)
9 (69) (222) (599)
· relating to
acquisition costs
Net valuation (27,457) (13,141) (26,449)
decrease
Profit/(loss) on 485 (79) (101)
disposal of
investment property
Net losses on (26,972) (13,220) (26,550)
investment property
Operating (13,632) 3,145 6,808
(loss)/profit
before financing
Finance income 5 27 10 36
Finance costs 6 (2,471) (2,428) (4,721)
Net finance costs (2,444) (2,418) (4,685)
(Loss)/profit (16,076) 727 2,123
before tax
Income tax 7 - - -
(Loss)/profit and
total comprehensive
(expense)/income
for the Period, net
of tax (16,076) 727 2,123
Attributable to:
Owners of the (16,076) 727 2,123
Company
Earnings per
ordinary share:
Basic and diluted 3 (3.8) 0.2 0.5
(p)
EPRA (p) 3 2.6 3.4 7.0
The loss for the Period arises from the Company's continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2020
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2020 2019 2020
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 9 532,250 547,179 559,817
Total non-current assets 532,250 547,179 559,817
Current assets
Trade and other receivables 10 7,754 4,940 5,297
Cash and cash equivalents 12 26,205 41,659 25,399
Total current assets 33,959 46,599 30,696
Total assets 566,209 593,778 590,513
Equity
Issued capital 14 4,201 4,107 4,201
Share premium 250,469 240,023 250,469
Retained earnings 145,032 184,381 172,082
Total equity attributable to
equity holders of the Company
399,702 428,511 426,752
Non-current liabilities
Borrowings 13 148,493 150,696 148,323
Other payables 575 576 576
Total non-current liabilities 149,068 151,272 148,899
Current liabilities
Trade and other payables 11 10,653 7,009 7,794
Deferred income 6,786 6,986 7,068
Total current liabilities 17,439 13,995 14,862
Total liabilities 166,507 165,267 163,761
Total equity and liabilities 566,209 593,778 590,513
These interim financial statements of Custodian REIT plc were approved and
authorised for issue by the Board of Directors on 30 November 2020 and are signed
on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2020
Unaudited Unaudited Audited
6 months 6 months 12 months
to 30 Sept to 30 Sept to 31 Mar
2020 2019
2020
Note GBP000 GBP000 GBP000
Operating activities
(Loss)/profit for the (16,076) 727 2,123
Period
Net finance costs 5,6 2,444 2,418 4,685
Net revaluation loss 9 27,457 13,141 26,449
(Profit)/loss on (485) 79 101
disposal of investment
property
Impact of lease 9 (877) (749) (1,402)
incentives
Amortisation 4 4 7
Income tax 7 - - -
Cash flows from 12,467 15,620
operating activities
before changes in
working capital and
provisions 31,963
Increase in trade and (2,457) (1,266) (1,623)
other receivables
Increase/(decrease) in 2,576 (165)
trade and other 702
payables
Cash generated from 12,586 14,189 31,042
operations
Interest and other 6 (2,301) (2,280) (4,435)
finance charges
10,285 11,909
Net cash flows from
operating activities 26,607
Investing activities
Purchase of investment (900) - (24,048)
property
Capital expenditure (348) (1,933) (2,804)
and development
Acquisition costs (69) (222) (599)
Proceeds from the 2,800 15,383 15,383
disposal of investment
property
Costs of disposal of (15) (137) (159)
investment property
Interest received and 5 27 10 36
similar income
Net cash flows 1,495 13,101 (12,191)
from/(used in)
investing activities
Financing activities
Proceeds from the - 14,655 25,300
issue of share capital
Costs of the issue of - (187) (292)
share capital
New borrowings 13 - 13,500 11,000
New borrowings 13 - (484) (495)
origination costs
Dividends paid 8 (10,974) (13,307) (27,002)
Net cash flows (used (10,974) 14,177 8,511
in)/from financing
activities
806 39,187
Net increase in cash
and cash equivalents 22,927
Cash and cash 25,399 2,472
equivalents at start 2,472
of the Period
Cash and cash 26,205 41,659
equivalents at end of 25,399
the Period
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2020
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2020 4,201 250,469 172,082 426,752
(audited)
Loss and total
comprehensive expense for
Period
- - (16,076) (16,076)
Transactions with owners
of the Company,
recognised directly in
equity
Dividends 8 - - (10,974) (10,974)
As at 30 September 2020
(unaudited)
4,201 250,469 145,032 399,702
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
Notes to the interim financial statements for the period ended 30 September 2020
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 30 November 2020.
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 2021 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 2020 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.
3) Key sources of judgements and estimation uncertainty
Preparation of the interim financial statements requires the Company to make
judgements and estimates and apply assumptions that affect the reported amount of
revenues, expenses, assets and liabilities.
The areas where a higher degree of judgement or complexity arises are discussed
below:
Valuation of investment property - Investment property is valued at the reporting
date at fair value. In making its judgement over the valuation of properties, the
Company considers valuations performed by the independent valuers in determining
the fair value of its investment properties. The valuers make reference to market
evidence of transaction prices for similar properties. The valuations are based
upon assumptions including future rental income, anticipated maintenance costs
and appropriate discount rates. In response to the COVID-19 pandemic, 31 March
2020 valuations were subject to a 'material uncertainty' clause in line with
prevailing RICS guidance, which has not been applied to 30 September 2020
valuations. In response to the COVID-19 pandemic, the Company's valuers used
historical rent arrears to indicate the potential for further short-term
disruptions in tenants' trading and rental payments as well as reflecting changes
to market rents and yields. This approach means for certain assets occupied by
tenants currently not trading or with trade significantly curtailed, the
Company's valuers assumed a prospective three-six-month rental void and applied a
yield increase of 25-75bps to valuations.
The areas where a higher degree of estimation uncertainty arises significant to
the interim financial statements are discussed below:
Impairment of trade receivables - As a result of the COVID-19 pandemic the
Company's assessment of expected credit losses is inherently subjective due to
the forward-looking nature of the assumptions made, most notably around the
assessment over the likelihood of tenants having the ability to pay rent as
demanded, as well as the likelihood of rent deferrals and lease incentives being
offered to tenants as a result of the pandemic. The expected credit loss which
has been recognised is therefore subject to a degree of uncertainty which may not
prove to be accurate given the uncertainty caused by COVID-19. Details of the
changes made to the assessment of expected credit losses are set out in Note 10.
4) Going concern
Under Provision 30 of the UK Corporate Governance Code 2018 ("the Code"), the
Board needs to report whether the business is a going concern and identify any
material uncertainties to the Company's ability to continue to do so. The levels
of rent collection since the onset of the COVID-19 pandemic have been ahead of
base case forecasts made in June 2020 to support the going concern assessment for
the year ended 31 March 2020. However, in considering the Code's requirements,
the Investment Manager has continued to forecast prudently in particular
regarding cash flows and borrowing facilities. This twelve month forecast
indicates that:
· The Company has surplus cash to continue in operation and meet its
liabilities as they fall due;
· Interest cover covenants on borrowings are complied with;
· LTV covenants are not breached; and
· REIT tests are complied with.
This assessment was subject to sensitivity analysis, which involved flexing a
number of key assumptions and judgements included in the financial projections to
understand what circumstances would result in potential breaches of financial
covenants or the Company not being able to meet its liabilities as they fall due:
· The anticipated level of rents deferred due to the impact of the COVID-19
pandemic;
· Tenant default;
· Length of potential void period following lease break or expiry;
· Acquisition NIY, disposals, anticipated capital expenditure and the timing of
deployment of cash;
· Interest rate changes; and
· Property portfolio valuation movements.
Sensitivity analysis considered the following areas:
Covenant compliance
The Company operates four loan facilities which are summarised in Note 13. At 30
September 2020 the Company has:
· Significant headroom on lender covenants at a portfolio level, with Company
net gearing of 23.4% and a maximum LTV covenant of 35% and GBP174.1m (32% of the
property portfolio) unencumbered by the Company's borrowings; and
· Covenant waivers with certain of its lenders for the December quarter-end and
expects further covenant waivers to be made available if needed based on
discussions with each lender.
Since the Period end the Company has charged, or is in the process of charging,
five additional properties valued at GBP21.1m to alleviate short-term LTV covenant
compliance pressure on individual security pools. On charging these additional
assets each security pool will have at least 17% headroom on valuations before
LTV covenants are breached, leaving GBP153.0m of unencumbered properties available
to charge if required.
Reverse stress testing has been undertaken to understand what circumstances would
result in potential breaches of financial covenants. While the assumptions
applied in these scenarios are possible, they do not represent the Board's view
of the likely outturn, but the results help inform the Directors' going concern
assessment. The testing indicated that at a portfolio level:
· Following expiry of interest cover covenant waivers, the rate of loss or
deferral of contractual rent would need to deteriorate by a further 44% from
the levels included in the Company's forecasts to breach interest cover
covenants; and
· Property valuations would have to decrease by 29% from the 30 September 2020
position to risk breaching the overall 35% LTV covenant.
The Board notes that the September 2020 IPF Forecasts for UK Commercial Property
Investment survey suggests an average 5.0% reduction in rents during 2020 and a
1.9% decrease in 2021, with capital value decreases forecast of between 4.0% and
16.0% in 2020 and a 1.8% decrease in 2021. The Board believes that the valuation
of the Company's property portfolio will prove resilient due to its higher
weighting to industrial assets and overall diverse and high-quality asset and
tenant base comprising 161 assets and circa 200 typically 'institutional grade'
tenants across all commercial sectors.
Liquidity
At 30 September 2020 the Company has:
· GBP26.2m of cash 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;
· An annual contractual rent roll of GBP39.2m, with interest costs on drawn loan
facilities of only c. GBP4.4m per annum; and
· Received 92% of rents due relating to the October - December 2020 quarter.
The Company has sufficient cash to settle its expense and interest liabilities
for a period of at least 12 months, even assuming no further rent is collected.
Liquidity is therefore not considered a key area of sensitivity for the going
concern assessment.
The Board has considered the scenario used in covenant compliance reverse stress
testing, where the rate of loss or deferral of contractual rent deteriorates by a
further 44% from the levels included in the Company's prudent forecast, with
dividends paid at the minimum required by the REIT regime. In this scenario all
financial covenants and the REIT tests are complied with and the Company has
surplus cash to settle its liabilities.
As detailed in Note 13, the Company's GBP35m RCF expires in September 2022 but can
be extended by a further two years at the lender's discretion. The Board
anticipates lender support in agreeing to the available extensions, and would
seek to refinance the RCF with another lender or dispose of sufficient properties
to repay it in September 2022 in the unlikely event of lender support being
withdrawn.
The Company's financial resilience is described in the Chairman's statement.
Having due regard to these matters and after making appropriate enquiries, the
Directors have reasonable expectation that the Company has adequate resources to
continue in operational existence for a period of at least 12 months from the
date of signing of these condensed consolidated financial statements and,
therefore, the Board continues to adopt the going concern basis in their
preparation.
5) 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.
6) 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:
· COVID-19 pandemic response;
· Loss of revenue;
· Decrease in property portfolio valuations;
· Reduced availability or increased costs of debt and complying with loan
covenants;
· Inadequate performance, controls or systems operated by the Investment
Manager;
· Regulatory or legal changes; and
· Business interruption from cyber or terrorist attack.
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 2020. The Company's principal
risks and uncertainties have not changed materially since the date of that report
but the following emerging risks are discussed in more detail in the Investment
Manager's report which may change materially during 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 2021:
· COVID-19 pandemic;
· Brexit; and
· Environmental.
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 2020 to 30 Sept 2019 12 months
to 31 Mar
2020
Net (16,076) 727
(loss)/profit
and diluted net
(loss)/profit
attributable to
equity holders 2,123
of the Company
(GBP000)
Net losses on 26,972 13,220 26,550
investment
property (GBP000)
EPRA net profit 10,896 13,947
attributable to
equity holders
of the Company
(GBP000) 28,673
Weighted average
number of
ordinary shares:
Issued ordinary 420,053 398,203
shares at start
of the Period
(thousands)
398,203
- 6,978
Effect of shares
issued during 11,508
the Period
(thousands)
Basic and
diluted weighted
average number
of shares
(thousands) 420,053 405,181 409,711
Basic and (3.8) 0.2 0.5
diluted EPS (p)
2.6 3.4
EPRA EPS (p) 7.0
4) Revenue
Unaudited 6 months Unaudited Audited
to 30 Sept 6 months 12 months
2020
to 30 Sept 2019 to 31 Mar
GBP000
GBP000 2020
GBP000
Rental income 19,394 19,657 40,022
from investment
property
Income from 892 838 881
recharges to
tenants
20,286 20,495 40,903
5) Finance income
Unaudited 6 months Unaudited 6 months Audited
to 30 Sept 2020 to 30 Sept 2019 12 months
GBP000 GBP000 to 31 Mar
2020
GBP000
Bank interest 27 10 36
27 10 36
6) Finance costs
Unaudited 6 Unaudited 6 Audited
months months
12 months
to 30 Sept 2020 to 30 Sept 2019
to 31 Mar
GBP000 GBP000
2020
GBP000
Amortisation of 170 148 286
arrangement fees on
debt facilities
Other finance costs 96 147 200
Bank interest 2,205 2,133 4,235
2,471 2,428 4,721
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 Unaudited Audited
months 6 months
12
to 30 Sept 2020 to 30 Sept 2019 months
GBP000 GBP000 to 31
Mar
2020
GBP000
(Loss)/profit before (16,076) 727 2,123
income tax
Tax (benefit)/charge
on profit at a
standard rate of
19.0% (30 September
2019: 19.0%, 31 March (3,054) 138 403
2020: 19.0%)
Effects of:
REIT tax exempt 3,054 (138) (403)
rental
losses/(profits)
Income tax expense - - -
for the Period
Effective income tax 0.0% 0.0% 0.0%
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 2019 12 months
to 30 Sept GBP000 to 31 Mar
2020 2020
GBP000 GBP000
Interim equity dividends
paid on ordinary shares
relating to the quarters
ended:
31 March 2019: 1.6375p - 6,521 6,521
30 June 2019: 1.6625p - 6,786 6,786
30 September 2019: - - 6,828
1.6625p
31 December 2019: - - 6,867
1.6625p
31 March 2020: 1.6625p 6,983 - -
30 June 2020: 0.95p 3,991 - -
10,974 13,307 27,002
All dividends paid are classified as property income distributions.
The Directors approved an interim dividend relating to the quarter ended 30
September 2020 of 1.05p per ordinary share in October 2020 which has not been
included as a liability in these interim financial statements. This interim
dividend was paid on 30 November 2020 to shareholders on the register at the
close of business on 6 November 2020.
9) Investment property
GBP000
At 31 March 2020 559,817
Impact of lease incentives 877
Additions 969
Capital expenditure 348
Disposals (2,300)
Amortisation of right-of-use asset (4)
Valuation decrease before acquisition costs (27,388)
Acquisition costs (69)
Valuation decrease including acquisition costs (27,457)
As at 30 September 2020 532,250
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
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
2020 fair value. Lambert Smith Hampton Group Limited ("LSH") and Knight Frank LLP
("KF"), professionally qualified independent valuers, valued the properties as at
30 September 2020 in accordance with the Appraisal and Valuation Standards
published by the Royal Institution of Chartered Surveyors. LSH and KF have recent
experience in the relevant location and category of the properties being valued.
The 31 March 2020 valuations for all properties were subject to a 'material
uncertainty' clause in line with prevailing RICS guidance. This clause has not
been applied to 30 September 2020 valuations.
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 4.7% to
12.0%. 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. In response to the COVID-19 pandemic, the
Company's valuers used historical rent arrears to indicate the potential for
further short-term disruptions in tenants' trading and rental payments as well as
reflecting changes to market rents and yields. This approach means for certain
assets occupied by tenants currently not trading or with trade significantly
curtailed, the Company's valuers assumed a prospective three to six-month rental
void and applied a yield increase of 25-75bps to valuations.
10) Trade and other receivables
Unaudited as at Unaudited as at Audited
30 Sept 2020 30 Sept 2019 as at 31 Mar
2020
GBP000 GBP000
GBP000
Trade receivables
before expected
credit loss
provision
10,220 2,475 4,700
Expected credit (3,246) (159) (341)
loss provision
Trade receivables 6,974 2,316 4,359
Other receivables 218 2,017 217
Prepayments and 562 607 721
accrued income
7,754 4,940 5,297
The Company has provided fully for those receivable balances that it does not
expect to recover based on a specific assessment of the reason for non-payment
and the creditworthiness of the counterparty.
For remaining balances the Company has applied an updated expected credit loss
("ECL") matrix based on its experience of collecting rent arrears and deferred
rents since the onset of COVID-19 disruption. The ECL matrix fully provides for
receivable balances more than 90 days past due, partially provides against
receivable balances between one and 90 days past due and partially provides
against receivable balances subject to contractual deferral.
The movement in the expected credit loss provision is recognised within directly
incurred operating expenses of rental property of GBP3,781k in the income
statement.
11) Trade and other payables
Unaudited as at Unaudited as at Audited
30 Sept 2020 30 Sept 2019 as at 31 Mar
2020
GBP000 GBP000
GBP000
Falling due in
less than one
year:
Trade and other 2,956 2,056 2,091
payables
Social security 4,302 1,173 2,462
and other taxes
Accruals 2,717 2,699 2,563
Rental deposits 678 1,081 678
and retentions
10,653 7,009 7,794
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.
Included within social security and other taxes is GBP3.5m of VAT relating to the
period March - June 2020 due on 31 March 2021 due to the COVID-19 VAT payments
deferral scheme.
12) Cash and cash equivalents
Unaudited as at Unaudited as at Audited
30 Sept 2020 30 Sept 2019 as at 31 Mar
2020
GBP000 GBP000
GBP000
Cash and 26,205 41,659 25,399
cash
equivalents
Cash and cash equivalents at 30 September 2020 include GBP3.5m (2019: GBP16.5m, 31
March 2020: GBP0.9m) of restricted cash comprising: GBP2.6m (2019: GBPnil, 31 March
2020: GBPnil) interest 'prepayments' in connection with arranging interest cover
covenant waivers, GBP0.7m (2019: GBP1.1m, 31 March 2020: GBP0.7m) rental deposits held
on behalf of tenants, GBP0.2m (2019: GBP0.2m, 31 March 2020: GBP0.2m) retentions held
in respect of development fundings and GBPnil (2019: GBP15.2m, 31 March 2020: GBPnil)
disposal proceeds.
13) Borrowings
Costs incurred
in the
arrangement of
bank borrowings
GBP000
Bank borrowings
GBP000 Total
GBP000
At 31 March 2020 150,000 (1,677) 148,323
New borrowings - - -
Costs incurred in the - - -
arrangement of bank
borrowings
Amortisation - 170 170
At 30 September 2020 150,000 (1,507) 148,493
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 - 148 148
At 30 September 2019 152,500 (1,804) 150,696
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 2020 is set out in the Annual Report
for the year ended 31 March 2020.
14) Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
At 31 March 2020 420,053,344 4,201
Issue of share capital - -
At 30 September 2020 420,053,344 4,201
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
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 independent firms 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 2020, the fair value
of investment property was GBP532.3m and during the Period the valuation decrease
was GBP27.5m.
Interest bearing loans and borrowings - level 3
As at 30 September 2020, 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
Directors and officers
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, Ed Moore, is also a director of the Investment Manager.
Investment Management Agreement
The Investment Manager is engaged as AIFM under an IMA with responsibility for
the management of the Company's assets, subject to the overall supervision of the
Directors. 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. The Investment Manager also provides day-to-day administration of
the Company and acts as secretary to the Company, including maintenance of
accounting records and preparing the annual and interim financial statements of
the Company.
During the period from 1 April 2020 to 22 June 2020 asset management and
investment management fees payable to the Investment Manager under the IMA were
calculated 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.
During the period from 1 April 2020 to 22 June 2020 administrative fees payable
to the Investment Manager under the IMA were calculated 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.
On 22 June 2020 the terms of the IMA were amended to extend the appointment of
the Investment Manager for a further three years and to introduce further fee
hurdles such that since 22 June 2020 asset management and investment management
fees payable to the Investment Manager under the IMA were:
· 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;
· 0.65% of the NAV of the Company as at the relevant quarter day which is in
excess of GBP500m but below GBP750m divided by 4; plus
· 0.55% of the NAV of the Company as at the relevant quarter day which is in
excess of GBP500m divided by 4.
Administrative fees payable to the Investment Manager under the IMA since 22 June
2020 were:
· 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;
· 0.05% of the NAV of the Company as at the relevant quarter day which is in
excess of GBP500m but below GBP750m divided by 4; plus
· 0.03% of the NAV of the Company as at the relevant quarter day which is in
excess of GBP750m divided by 4.
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 IMA may also be terminated on the occurrence of an
insolvency event in relation to either party, if the Investment Manager is
fraudulent, grossly negligent or commits a material breach which, if capable of
remedy, is not remedied within three months, or on a force majeure event
continuing for more than 90 days.
The Investment Manager receives a marketing fee of 0.25% (2019: 0.25%) of the
aggregate gross proceeds from any issue of new shares in consideration of the
marketing services it provides to the Company.
During the Period the Investment Manager charged the Company GBP1.63m (2019:
GBP1.76m) in respect of asset management and investment management fees, GBP0.21m
(2019: GBP0.22m) in respect of administrative fees and GBPnil (2019: GBP0.03m) in
respect of marketing fees.
17) Events after the reporting date
Property acquisitions
In November 2020 the Company acquired four industrial units covering an aggregate
23,250 sq ft on Hilton Business Park, Derby for GBP1.975m. The units are occupied
by M P Bio Science, Shakespeare Pharma and Jangala Softplay with an aggregate
passing rent of GBP134k per annum, reflecting a NIY of 6.39%.
18) 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 2020 12 months
to 30 Sept 2019
to 31 Mar
2020
Net assets (GBP000) 399,702 428,511 426,752
Shares in issue at 420,053 410,703 420,053
the period end
(thousands)
NAV per share at 101.6 107.1 107.1
the start of the
Period (p)
Dividends per share 2.6125 3.325 6.625
paid during the
Period (p)
NAV per share at 95.2 104.3 101.6
the end of the
Period (p)
NAV per share total (3.7%) 0.4% 1.1%
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 2020 12 months
to 30 Sept 2019
to 31 Mar
2020
Share price at the 99.0 111.2 111.2
start of the Period
(p)
Dividends per share 2.6125 3.325 6.625
for the Period (p)
Share price at the 88.8 117.6 99.0
end of the Period
(p)
Share price total (7.7%) 8.7% (5.0%)
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 Unaudited Audited
months 6 months
12 months
to 30 Sept to 30 Sept 2019
2020
to 31 Mar
2020
NAV per share (p) 95.2 104.3 101.6
Share price at the end 88.8 117.6 99.0
of the year (p)
(Discount)/premium (6.7%) 12.8% (2.6%)
Net gearing
Gross borrowings less unrestricted cash, divided by property portfolio value.
Unaudited as at Unaudited as at Audited
30 Sept 2020 30 Sept 2019 as at 31 Mar
2020
GBP000 GBP000
GBP000
Gross borrowings 150,000 152,500 150,000
Cash (26,205) (41,659) (25,399)
Tenant rental 908 1,328 911
deposits and
retentions
Net borrowings 124,703 112,169 125,512
Investment 532,250 547,179 559,817
property
Net gearing 23.4% 20.5% 22.4%
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 Unaudited Audited
months 6 months
12
to 30 Sept 2020 to 30 Sept 2019 months
GBP000 GBP000 to 31
Mar
2020
GBP000
(Loss)/profit for the (16,076) 727 2,123
Period after taxation
Net losses on 26,972 13,220 26,550
investment property
EPRA earnings 10,896 13,947 28,673
Weighted average
number of shares in
issue (thousands)
420,053 405,181 409,711
EPRA EPS (p) 2.6 3.4 7.0
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 2020 30 Sept 2019 as at 31 Mar
2020
GBP000 GBP000
GBP000
Annualised
potential rental
value of vacant
premises
3,024 1,862 1,745
Annualised
potential rental
value for the
property
portfolio 42,516 40,946 42,600
EPRA vacancy rate 7.1% 4.5% 4.1%
Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of the Company for
the period from 1 April 2020 to 30 September 2020.
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
30 November 2020
Independent review report to Custodian REIT plc
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2020, 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 related notes 1 to 18. 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.
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 Company 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 2020 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.
Use of our report
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.
Deloitte LLP
Statutory Auditor
Crawley, United Kingdom
30 November 2020
- Ends -
=--------------------------------------------------------------------------------
[1] The European Public Real Estate Association.
[2] Profit after tax excluding net loss on investment property divided by
weighted average number of shares in issue.
[3] Profit after tax divided by weighted average number of shares in issue.
[4] Before acquisition costs of GBP0.1m.
[5] Net Asset Value ("NAV") movement including dividends paid during the period
on shares in issue at 31 March 2020.
[6] Share price movement including dividends paid during the six-month period.
[7] Gross borrowings less cash (excluding tenant rental deposits and retentions)
divided by property portfolio value.
[8] ERV of vacant space as a percentage of the ERV of the whole property
portfolio.
[9] Historical rental income received and projected contractual rental income
receivable less certain property expenses divided by interest and fees payable to
its lenders.
[10] Dividends of 2.6125p per share were paid during the Period on shares in
issue throughout the Period.
[11] Passing rent divided by property valuation plus purchaser's costs.
[12] Current passing rent plus ERV of vacant properties.
[13] Includes car showrooms, petrol filling stations, children's day nurseries,
restaurants, health and fitness units, hotels and healthcare centres.
[14] % of property portfolio passing rent plus ERV of vacant units.
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.: 88800
EQS News ID: 1151705
End of Announcement EQS News Service
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