Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited net asset value as at 31 December 2020 and dividend update
02-Feb-2021 / 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.
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2 February 2021
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 31 December 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 31 December 2020, highlights for the period from 1 October 2020 to 31 December 2020 ("the Period")
and dividends payable.
Dividends
? Dividend per share for the Period increased by 19% to 1.25p (quarter ended 30 September 2020: 1.05p), fully covered
by net cash receipts with 96% of rent collected relating to the Period, adjusted for contractual rent deferrals
? Target dividend per share of 1.25p for the quarter ending 31 March 2021 ("FY21 Q4"), expected to be fully covered
by net cash receipts with rent collected to date relating to FY21 Q4, adjusted for contractual rent deferrals, in
line with the Period's collection profile
? Target dividend per share of not less than 5.0p for the year ending 31 March 2022, based on rent collection levels
remaining in line with expectations
Financial highlights
? EPRA earnings per share1 for the Period increased to 1.5p (30 September 2020: 1.2p)
? NAV total return per share2 for the Period of 2.4%, comprising 1.1% dividends paid and a 1.3% capital increase
? NAV per share of 96.4p (30 September 2020: 95.2p)
? NAV of GBP405.0m (30 September 2020: GBP399.8m)
? Net gearing3 of 24.0% loan-to-value (30 September 2020: 23.4%)
Portfolio highlights
? Property portfolio value of GBP546.8m (30 September 2020: GBP532.3m):
? GBP4.1m aggregate valuation increase for the Period (0.8% of property portfolio) from successful asset management
initiatives, with general valuation increases in the industrial sector of GBP6.6m being offset by similar aggregate
decreases in the retail, office and other sectors
? Acquisition of an industrial unit in Hilton, Derby and offices in Oxford for an aggregate consideration of GBP9.8m4
? Disposal of three high street retail units at valuation for an aggregate consideration of GBP1.3m. Since the Period
end, the disposal of a further high street retail unit at valuation for GBP0.3m
? EPRA occupancy5 92.3% (30 September 2020: 92.9%)
1 Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in
issue.
2 NAV per share movement including dividends paid during the Period.
3 Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation.
4 Before acquisition costs of GBP0.6m
5 Estimated rental value ("ERV") of let property divided by total portfolio ERV.
Net asset value
The unaudited NAV of the Company at 31 December 2020 was GBP405.0m, reflecting approximately 96.4p per share, an increase
of 1.2p (1.3%) since 30 September 2020:
Pence per share GBPm
NAV at 30 September 2020 95.2 399.8
Valuation movements relating to:
- Asset management activity 1.0 4.1
- General valuation increases in the industrial sector 1.6 6.6
- General valuation decreases in the retail, office and other sectors (1.6) (6.6)
- Loss on disposal - (0.1)
Net valuation movement 1.0 4.0
Acquisition costs (0.2) (0.6)
0.8 3.4
Income earned for the Period 2.2 9.6
Expenses and net finance costs for the Period5 (0.8) (3.4)
Dividends paid6 relating to the previous quarter (1.0) (4.4)
NAV at 31 December 2020 96.4 405.0
6 Dividends of 1.05p per share relating to the quarter ended 30
September 2020 were paid on 30 November 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 31 December
2020 and net income for the Period. The movement in NAV reflects
the payment of a 1.05p per share dividend relating to the quarter
ended 30 September 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 1.25p per
share for the Period to be paid on 26 February 2021.
Market commentary
Commenting on the market, Richard Shepherd-Cross, Managing
Director of Custodian Capital Limited (the Company's discretionary
investment manager) said:
"While the COVID-19 pandemic dominates the headlines, recent
levels of commercial property investment activity demonstrate that
investors are looking beyond the pandemic. The focus on reporting
rent collection statistics over the past nine months highlights the
importance of real estate's strongest investment attribute - the
right to receive rent and its consequent distribution as dividends.
Direct investors seek to secure properties to provide long-term
cash flows and indirect investors are primarily pricing investment
company stocks off their capacity to pay cash covered dividends
rather than off NAV.
"The property market has shown itself to be remarkably resilient
in a year when the enforcement of rent obligations was suspended,
occupiers deserted their offices and shoppers were forced online.
Landlords have been able to work closely with most tenants to reach
agreement on the payment of rent and, across the board, rent
collection rates of 90% plus have not been unusual.
"While property investment company dividends were set at
cautious levels early in the pandemic, rent collection has been
better than many feared and dividends appear to be reacting to a
more optimistic outlook for real estate.
"Savills recorded investment of GBP4.7bn in the industrial and
logistics market in 2020, a 25% increase on 2019 figures and
GBP500m higher than the previous record of GBP4.2bn set in 2014.
The undoubted popularity of this sector has supported further price
increases through the quarter as a limited supply is pursued by
excess demand. Custodian REIT has benefited from this trend with a
3.8% increase in the valuation of its industrial and logistics
portfolio during the Period.
"The final quarter of 2020 saw GBP4.9bn of investment into
central London, well above the average quarterly investment of
GBP3.4bn, according to Knight Frank. Much of the activity was
driven by overseas investors who identified value relative to other
leading European cities. Many commentators are optimistic for the
future of offices but have identified flexibility and accessibility
as keen determinants of successful office investments. These
determinants could be positive for regional office locations and
were key factors in Custodian REIT's recent acquisition of offices
at Willow Court, Oxford.
"Activity in the out of town, retail warehouse market has also
increased as investors are attracted by income yields more than 50%
higher than achievable in prime logistics. Added to the attractive
initial yield are large site areas, strategic locations close to
town centres and high alternate use values which provide good
downside valuation protection.
"The high street retail, shopping centre and hospitality sectors
still feel high risk. However, redevelopment and re-purposing of
retail and shopping centres is starting to deliver solutions to
investors, albeit this still has some way to go. Hospitality
occupiers that can survive the pandemic may prosper but it is
likely to take some time before we see growth in this sector.
"Perhaps the surprising feature of real estate performance, in
the midst of yet another national lockdown, is that many occupiers
are also looking beyond the pandemic enabling continuing positive
asset management outcomes, which have driven this quarter's
positive NAV performance, and are detailed below."
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,
facilitating better outcomes for the Company.
The Period
96% 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 deferrals 9.0
Contractual rent deferrals relating to the Period 0.0
Contractual rent deferred from prior periods falling due during the Period 0.4
Cash rental income expected, net of contractual deferrals 9.4 100%
Outstanding rental income (0.4) (4%)
Collected rental income 9.0 96%
89% of the GBP0.4m contractual rent deferred from prior periods
falling due during the Period has been collected, indicating that
the support offered to tenants during the initial national lockdown
is returning a positive result on overall rent collections.
Outstanding rental income remains the subject of discussion with
various tenants, and some arrears are potentially at risk of
non-recovery due to disruption caused by the current national
lockdown and from CVAs or Administrations.
FY21 Q4
To date 76% of rent relating to FY21 Q4 has been collected, net
of contractual deferrals7, which is in line with the same point in
the Period.
All contractual deferrals offered to date are due to be
recovered through payment plans over the next 12-18 months.
7 The proportion of rent collected relating to FY21 Q4 invoiced
rents now due, adjusted for the agreed deferral of 1% of FY21 Q4
invoiced rents and the rents now due having been deferred from
previous periods.
Dividends
An interim dividend of 1.05p per share for the quarter ended 30
September 2020 was paid on 30 November 2020.
The Board is pleased to approve an interim dividend per share of
1.25p for the Period, an increase of 19.0% on the previous quarter.
This higher dividend reflects the continuing levels of rent
collection seen since the onset of the COVID-19 pandemic. This
dividend is fully covered by net cash receipts, 119% covered by
EPRA earnings and is in line with the Board's current policy of
paying dividends at a level broadly linked to net rental
receipts.
In the absence of unforeseen circumstances and assuming rent
collection levels remain in line with forecast, the Board intends
to pay a fourth quarterly dividend per share of 1.25p, resulting in
a target dividend8 per share for the year ending 31 March 2021 of
4.5p.
The Board has also set a target dividend8 per share of not less
than 5.0p for the year ending 31 March 2022. The Board's objective
is to grow the dividend on a sustainable basis, at a rate which is
fully covered by projected net rental income and does not inhibit
the flexibility of the Company's investment strategy.
The quarterly interim dividend for the Period of 1.25p per share
is payable on 26 February 2021 to shareholders on the register on
12 February 2021 and will be designated as a property income
distribution ("PID").
8 This is a target only and not a profit forecast. There can be
no assurance that the target can or will be met and it should not
be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
Asset management
Despite the ongoing economic uncertainty caused by the COVID-19
pandemic, the Investment Manager has remained focused on active
asset management during the Period, undertaking the following
initiatives: ? Completing a 10 year lease with Life Technologies at
an industrial unit in Warrington at an annual rent of GBP378k,
with a tenant only break option and open market rent review in
year five, increasing valuation by GBP1.6m; ? Completing a lease
extension without break with DX Networks at a logistics unit in
Nuneaton, with lease expiry
moving from March 2022 to March 2032. The March 2022 rent review
is expected to result in an increase in the
annual GBP267k passing rent. This lease extension increased
valuation by GBP1.4m; ? Completing a new lease to Nuffield Health
at Stoke for a term of 20 years without break, at an annual rent of
GBP300k
subject to five yearly CPI-linked rent reviews, increasing
valuation by GBP0.9m; ? Exchanging an agreement for lease with
Nationwide Building Society on a high street retail unit in
Shrewsbury for a
term of 10 years without break, at an annual rental of GBP100k,
increasing valuation by GBP0.1m; ? Completing a five year lease
extension with Homebase at Leighton Buzzard, maintaining annual
passing rent of GBP341k
and moving lease expiry from December 2023 to 2028, increasing
valuation by GBP0.1m; ? Commencing the letting of a newly developed
drive-through coffee restaurant in Burton upon Trent let to 1 Oak
(t/a
Starbucks) on a 20 year lease subject to a tenant break option
in year 10, at an annual rent of GBP55k with
five-yearly RPI-linked rent reviews; ? Exchanging an agreement
for lease with Tim Hortons Fast Food Restaurants on a drive-through
restaurant in Perth
(formerly a Frankie & Benny's) at an annual rent of GBP90k
for a term of 15 years, with a tenant only break option in
year 10, with no impact on valuation; ? Completing a five year
lease renewal with Reiss on a high street retail unit in Guildford
at an annual rent of
GBP170k, which reduced Reiss' footprint to allow access to the
unused upper floors for potential residential
conversion, with no impact on valuation; ? Completing a five
year lease to Oak Furniture Land Group in Carlisle with annual
tenant break options and landlord
break options in years two and four, at an annual rent of
GBP100k, with no impact on valuation.
The positive impact of these asset management outcomes has been
partially offset by the Administration of OyezStraker Group (t/a as
Office Team) which resulted in the tenant exiting an industrial
unit in West Bromwich, reducing passing rent by GBP280k (c.0.7% of
the Company's rent roll). Edinburgh Woollen Mill's Administration
has put a further GBP93k (c.0.2% of the Company's rent roll) rent
at risk.
The portfolio's weighted average unexpired lease term to first
break or expiry was maintained at 5.1 years at 31 December 2020
with the impact of lease re-gears, new lettings and disposals
offsetting the natural elapse of a quarter of a year due to the
passage of time.
Borrowings
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. The RCF facility limit can be increased
to a maximum of GBP50m with Lloyds' approval; ? 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 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.
During the Period the Company charged five additional properties
valued at GBP21.1m to alleviate short-term LTV covenant compliance
pressure on certain security pools. The Company has GBP154.6m (28%
of the property portfolio) of remaining unencumbered assets which
could be charged to the security pools to enhance the LTV on
individual loans. The Company complied with all loan covenants
during the Period.
Portfolio analysis
At 31 December 2020 the Company's property portfolio comprised
160 assets with a net initial yield9 of 6.7% (30 September 2020:
6.9%). 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 Weighting by
31 Dec Weighting by value 31 Period valuation Period valuation Weighting by income^10
2020 Dec 2020 movement movement income^10 30 Sep
Sector GBPm GBPm 31 Dec 2020 2020
Industrial 262.6 48% 9.6 3.8% 41% 41%
Retail warehouse 100.8 19% (2.5) (2.4%) 21% 21%
Other^11 82.8 15% 0.7 0.8% 16% 17%
Office 55.9 10% (1.6) (3.3%) 12% 10%
High street retail 44.7 8% (2.1) (4.5%) 10% 11%
Total 546.8 100% 4.1 0.8% 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.
The Company operates a geographically diversified property
portfolio across the UK, seeking to ensure that no one region
represents more than 50% of portfolio income. The geographic
analysis of the Company's portfolio at 31 December 2020 was as
follows:
Valuation Period valuation Weighting Weighting
Weighting by value 31 Dec movement by income8 by income
31 Dec 2020 31 Dec 8
2020 GBPm Period valuation 2020 30 Sep
movement 2020
GBPm
Location
West Midlands 116.4 21% 1.2 1.1% 20% 20%
North-West 91.3 17% 2.9 3.2% 17% 17%
East Midlands 69.0 13% 1.2 1.7% 13% 13%
South-East 71.8 13% (1.5) (2.3%) 14% 13%
South-West 60.9 11% (1.2) (1.9%) 10% 11%
North-East 52.3 9% 0.7 1.4% 10% 10%
Scotland 48.1 9% 1.0 2.0% 8% 8%
Eastern 31.5 6% (0.2) (0.6%) 6% 6%
Wales 5.5 1% - 1.2% 2% 2%
Total 546.8 100% 4.1 0.8% 100% 100%
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio.
- Ends -
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 / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
www.custodiancapital.com
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 and
www.custodiancapital.com.
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ISIN: GB00BJFLFT45
Category Code: MSCU
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 3.1. Additional regulated information required to be disclosed under the laws of a Member State
Sequence No.: 92677
EQS News ID: 1164971
End of Announcement EQS News Service
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