Custodian REIT plc (CREI) Unaudited net asset value as at 30
September 2021 and increase in target dividend 04-Nov-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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4 November 2021
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 30 September 2021 and increase
in target dividend
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company focused on smaller lot-sizes, today reports its
unaudited net asset value ("NAV") as at 30 September 2021,
highlights for the period from 1 July 2021 to 30 September 2021
("the Period") and dividend update.
Financial highlights
-- Dividend per share approved for the Period of 1.25p (quarter
ended 30 June 2021: 1.25p)
-- Target quarterly dividend per share increased by 10% to
1.375p commencing from the quarter ending 31December 2021,
resulting in target dividends per share of no less than 5.25p for
the year ending 31 March 2022 and5.5p for the year ending 31 March
2023
-- EPRA earnings per share1 for the Period increased to 1.6p
(quarter ended 30 June 2021: 1.4p) due to aGBP0.2m decrease in the
doubtful debt provision during the Period (quarter ended 30 June
2021: GBP0.3m increase)
-- 94% of rent collected relating to the Period, adjusted for
contractual rent deferrals
-- NAV total return per share2 for the Period of 5.5%,
comprising 1.2% dividends paid and a 4.3% capitalincrease
-- NAV per share of 106.0p (30 June 2021: 101.7p)
-- NAV of GBP445.9m (30 June 2021: GBP427.7m)
-- Net gearing3 decreased to 19.6% loan-to-value (30 June 2021:
24.3%) due to the disposal of nineproperties during the Period
Portfolio highlights
-- Property portfolio value of GBP565.3m (30 June 2021:
GBP575.4m)
-- GBP12.8m aggregate valuation increase for the Period (2.5% of
property portfolio), comprising GBP0.9m fromsuccessful asset
management initiatives and GBP11.9m of general valuation
increases
-- GBP4.2m profit on disposal5 from the sale of nine properties
for aggregate consideration of GBP37.7m5comprising:
-- A portfolio of seven industrial assets for GBP32.6m, GBP5.1m
(19%) above the properties' 31 March 2021valuation, when terms of
the sale were agreed, and GBP2.9m (10%) above the 30 June 2021
valuation;
-- A retail warehouse in Galashiels to a special purchaser for
GBP4.5m, GBP1.8m (67%) ahead of the 30 June 2021valuation; and
-- A children's day nursery in Basingstoke for GBP0.6m, GBP0.1m
ahead of valuation
-- GBP8.15m4 invested in two property acquisitions
-- Since the Period end, an aggregate GBP46.5m invested in a
portfolio 10 office, retail and industrial assetsthrough the
corporate acquisition of DRUM Income Plus REIT plc, and separately,
an industrial unit in York
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 rent top-ups of GBP0.3m and acquisition costs of
GBP0.8m.
5 Net of rent top-ups of GBP0.2m and disposal costs of
GBP0.4m.
Net asset value
The unaudited NAV of the Company at 30 September 2021 was
GBP445.9m, reflecting approximately 106.0p per share, an increase
of 4.3p (4.2%) since 30 June 2021:
Pence per share GBPm
NAV at 30 June 2021 101.7 427.7
Valuation movements relating to:
- Asset management activity 0.2 0.9
- General valuation increases 3.0 11.9
- Profit on disposal 1.0 4.2
Net valuation movement 4.2 17.0
Acquisition costs (0.2) (0.8)
4.0 16.2
EPRA earnings for the Period 1.6 7.3
Interim dividend paid6 relating to the previous quarter (1.3) (5.3)
NAV at 30 September 2021 106.0 445.9
6 An interim dividend of 1.25p per share relating to the quarter
ended 30 June 2021 was paid on 31 August 2021.
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation as at 30 September
2021 and net income for the Period. The movement in NAV reflects
the payment of an interim dividend of 1.25p per share during the
Period, but does not include any provision for the approved
dividend of 1.25p per share for the Period to be paid on 30
November 2021.
Market commentary
Commenting on the market Richard Shepherd-Cross, Managing
Director of Custodian Capital Limited (the Company's discretionary
investment manager) said:
"The valuation movements by sector in the Custodian REIT
property portfolio during the Period tell a story that is repeated
across the market. Industrial and logistics assets continue to see
strong demand from investors and occupiers. Occupier demand is
driving rental growth, which is encouraging investors still further
in their pricing. This virtuous circle appears to have some way to
run, particularly amongst smaller regional properties, where
inflationary pressures on construction costs, limited development
and an ongoing excess of occupier demand over supply support
continued rental growth.
"Pricing in the retail warehouse sector is recovering strongly
as occupiers have proved resilient through the pandemic, with those
in DIY, discounting, homewares and food all trading well. Where
investors are confident that rental levels are sustainable, pricing
has moved noticeably during the Period.
"Taking advantage of the strength and depth of demand in the
industrial/logistics sector and the increasing demand for retail
warehousing, we were delighted to conclude some opportunistic sales
during the Period. We concluded the portfolio sale of seven
industrial units which we felt did not meet our medium-term
aspirations for rental growth or might require a level of capital
expenditure that we would not recover in the valuation. As part of
the sale, we agreed a delayed completion which enabled us to
part-invest the expected proceeds in advance of completion, which
has helped to reduce cash drag. We also sold, to a special
purchaser, a B&Q retail warehouse in Galashiels 67% ahead of
valuation. While this property would be considered a target
property for Custodian REIT, we did not feel we would be able to
achieve the upside delivered by the sale by holding the property,
even over the long-term.
"To capitalise on the marginal yield achievable when buying
smaller lot-size regional property, during the Period we acquired a
distribution unit in Dundee and an office building in central
Manchester and, since the Period end, a distribution unit in York
for a combined sum of GBP11.1m at an aggregate net initial yield of
c.6%. In all cases we believe there is strong rental growth
potential over the short term.
"While challenges still remain in collecting all contractual
rent I am hopeful that we will soon be able to cease reporting rent
collection statistics as they continue to return towards
pre-pandemic normality, with Custodian REIT collecting 94% of rent
for the Period. Tenants appear to be looking to the future now and
the number of conversations we are having with tenants regarding
non-payment of rent has reduced noticeably."
Rent collection
94% of rent relating to the Period, net of contractual rent
deferrals, has been collected as set out below:
GBPm
Rental income (IFRS basis) 9.9
Lease incentives (0.4)
Cash rental income expected, before contractual rent deferrals 9.5
Contractual rent deferred until subsequent periods -
Contractual rent deferred from prior periods falling due during the Period 0.2
Cash rental income expected, net of contractual deferrals 9.7 100%
Outstanding rental income (0.6) (6%)
Collected rental income 9.1 94%
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 earlier COVID-19
restrictions and from CVAs or Administrations.
Dividends
During the Period the Company paid an interim dividend of 1.25p
per share relating to the quarter ended 30 June 2021 which was
fully covered by net cash collections and EPRA earnings.
The Board has approved an interim dividend per share of 1.25p
for the Period which is fully covered by net cash receipts and 121%
covered by EPRA earnings 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 increase quarterly dividends per share to 1.375p from the
quarter ending 31 December 2021 to achieve a target dividend7 per
share for the year ending 31 March 2022 of at least 5.25p and for
the year ending 31 March 2023 of at least 5.5p.
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 30 November 2021 to shareholders on the register on
12 November 2021 and will be designated as a property income
distribution ("PID").
7 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.
Acquisitions
The Company invested GBP8.15m in two acquisitions during the
Period described below:
-- A 20k sq ft office building on Fountain Street, Manchester
for GBP6.25m. The property comprises basementparking and six floors
let to Leyton UK, Meridian Healthcomms, Venditan and Fourthline
with a weighted averageunexpired term to first break or expiry
("WAULT") of 1.2 years and an aggregate annual rent of GBP407k,
reflecting anet initial yield8 ("NIY") of 6.1%; and
-- A 30k sq ft industrial unit in Dundee for GBP1.9m occupied by
Menzies Distribution with a WAULT of 5.2years and an annual passing
rent of GBP118k, reflecting a NIY of 5.9%.
On 20 October 2021 the Company acquired a 29k sq ft industrial
unit in York for GBP2.962m occupied by Menzies Distribution with a
WAULT of 2.8 years and an annual passing rent of GBP186k,
reflecting a NIY of 5.9%.
On 3 November 2021 the Company acquired 100% of the ordinary
share capital of DRUM Income Plus REIT plc ("DRUM REIT").
Consideration for the acquisition of 20,247,040 new ordinary shares
in the Company was calculated on an 'adjusted NAV-for-NAV basis',
with each company's 30 June 2021 NAV being adjusted for respective
acquisition costs with DRUM REIT's property portfolio valuation
adjusted to the agreed purchase price of GBP43.5m. DRUM REIT's
property portfolio at 30 September 2021 is summarised below:
-- 10 regional properties comprising five offices, three retail
parks, one shopping centre and oneindustrial estate in aggregate
covering approximately 330k sq ft
-- 78 tenants, the largest of which is Skills Development
Scotland with annual rent of GBP0.5m (c.14% of DRUMREIT's rent
roll)
-- EPRA occupancy rate of 86.1%, providing some short-term asset
management opportunities
-- WAULT of 4.7 years
-- Contractual annual rent roll of GBP3.6m with an ERV of
GBP4.4m
-- Portfolio valuation of GBP49.3m
-- Reversionary yield9 ("RY") of 8.4%
-- All properties charged under a GBP25m RCF facility with The
Royal Bank of Scotland
Commenting on the acquisition Richard Shepherd-Cross said: "Drum
REIT represented an excellent fit with Custodian REIT's investment
policy, targeting smaller regional property with a strong income
focus. The purchase price reflected a sufficient discount to DRUM
REIT's NAV to be accretive to existing Custodian REIT shareholders
and to provide DRUM REIT shareholders with an increase in like for
like share price, as well as delivering them a growing dividend
from a much larger specialist in the smaller regional property
sector with much improved liquidity."
8 Passing rent divided by property valuation plus purchaser's
costs.
9 ERV of portfolio divided by property valuation plus
purchaser's costs.
Disposals
Owning the right properties at the right time is a key element
of effective property portfolio management, which necessarily
involves periodically selling properties to balance the property
portfolio. Custodian REIT is not a trading company but identifying
opportunities to dispose of assets ahead of valuation or that no
longer fit within the Company's investment strategy is
important.
The Company sold the following properties during the Period for
an aggregate consideration of GBP37.7m:
-- A portfolio of seven industrial properties located in
Gateshead, Stockton-on-Tees, Warrington, Stone,Christchurch,
Aberdeen and Bedford for GBP32.6m, GBP5.1m (19%) above the
properties' 31 March 2021 valuation, whenterms of the sale were
agreed, and GBP2.9m (10%) above the 30 June 2021 valuation. The
properties were acquiredeither in the seed portfolio at IPO or
within subsequent portfolio acquisitions and have an aggregate
currentpassing rent of GBP2.0m reflecting a NIY on sale price of
5.9%;
-- A 31k sq ft retail warehouse in Galashiels occupied by
B&Q for GBP4.5m to a special purchaser, GBP1.8m (67%)ahead of
the 30 June 2021 valuation; and
-- A vacant children's day nursery in Basingstoke for GBP0.6m,
GBP0.1m ahead of the last published valuation.
Asset management
The Investment Manager has remained focused on active asset
management during the Period, completing the following
initiatives:
-- A new five year lease without break to Galliford Try on a
vacant office suite in Leicester with an annualrent of GBP165k,
increasing valuation by GBP0.5m;
-- A new 10 year lease with a fifth year tenant break option
with Livingstone Brown on a vacant office suitein Glasgow with an
annual rent of GBP56k, increasing valuation by GBP0.2m;
-- A five year lease renewal with a third year break option with
DHL at an industrial unit in Aberdeen,maintaining passing rent at
GBP208k and increasing valuation by GBP0.1m;
-- A 10 year lease renewal with a fifth year break option with
MP Bio Science at an industrial unit inHilton, increasing passing
rent from GBP28k to GBP36k, resulting in an aggregate valuation
uplift of GBP0.1m;
-- A new five year lease without break to Realty Law on a vacant
office suite in Birmingham with an annualrent of GBP28k, with no
impact on valuation; and
-- A five year lease renewal with a third year break option to
Done Brothers (t/a Betfred) at a retail unitin Cheltenham with an
annual rent GBP25k, with no impact on valuation.
The positive impact of these asset management outcomes has been
partially offset by the Administration of JTF Wholesale during the
Period, which has resulted in the loss of GBP586k of annual rent
(c.1.6% of the Company's rent roll) and resulted in EPRA
occupancy10 decreasing from 92.4% at 30 June 2021 to 91.6%.
Commenting on JTF Wholesale's Administration, Richard
Shepherd-Cross said: "While the short-term impact of an
Administration is a hit to cash flow and valuation, the opportunity
created by taking back control of this building in a prime
distribution location, with the prospect of redeveloping the site
to create a BREEAM 'Excellent' rated, high bay distribution unit
should lead to a substantial net valuation uplift and also help
meet the ESG objectives of Custodian REIT."
In line with the Company's ESG objectives, during the Period we
completed a comprehensive refurbishment of an industrial unit in
West Bromwich which involved installing six electric vehicle
charging points, solar photovoltaic coverage to over 700 sq m of
the roof area, air source heat pumps to provide heating and hot
water, new energy efficient radiators and LED lights with passive
infrared sensors. The refurbishment is expected to increase the EPC
rating from C (69) to a high B, with the ERV of the property
increasing from GBP280k pa (GBP4.80 per sq ft) to GBP345k pa
(c.GBP6.00 per sq ft). Once re-let we expect the uplift in property
valuation will be well in excess of the capital outlay for
refurbishment.
We expect to commence the redevelopment of an industrial asset
in Redditch to BREEAM 'Excellent' standard, once it becomes vacant
in January 2022, with further initiatives planned as we continue to
invest in our property portfolio to minimise its environmental
impact and maximise shareholder value.
The portfolio's weighted average unexpired lease term to first
break or expiry has been maintained at 5.0 years since 30 June 2021
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.
10 Estimated rental value ("ERV") of let property divided by
total portfolio ERV.
Borrowings
The Company operates the following loan facilities:
-- A GBP40m revolving credit facility ("RCF") with Lloyds Bank
plc ("Lloyds") expiring on 17 September 2024with interest of
between 1.5% and 1.8% above three-month LIBOR, determined by
reference to the prevailing LTV ratioof 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 at3.935%;
-- 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 theCompany's property
portfolio of a maximum 35% LTV; and
-- Historical interest cover, requiring net rental receipts from
each discrete security pool, over thepreceding three months, to
exceed 250% of the facility's quarterly interest liability.
The Company complied with all loan covenants during the
Period.
The Company is in the process of charging GBP30.3m of property
to replace charged assets sold during the Period which, once
complete, will mean GBP153.4m (27% of the property portfolio at 30
September 2021) of unencumbered assets will be available to be
charged to the security pools to enhance the LTV on individual
loans if required.
Through the corporate acquisition of DRUM REIT since the Period
end, the Custodian REIT group now also operates a GBP25m RCF
facility with the Royal Bank of Scotland expiring on 30 September
2022 with interest of 1.75% above three-month LIBOR. The facility's
key financial covenants comprise a maximum LTV of DRUM REIT's
property portfolio of 50% and minimum historical interest cover of
250%.
Portfolio analysis
At 30 September 2021 the Company's property portfolio comprised
152 assets with a NIY of 6.2% (30 June 2021: 6.4%). The portfolio
is split between the main commercial property sectors, in line with
the Company's objective to maintain a suitably balanced investment
portfolio. Sector weightings are shown below:
Valuation
Period valuation
30 Sep movement Weighting by Weighting by
2021 Weighting by value 30 Period valuation income11 income11
Sep 2021 GBPm movement 30 Sep 2021 30 Jun 2021
GBPm
Sector
Industrial 275.9 49% 8.0 3.0% 40% 42%
Retail 105.3 19% 4.5 4.5% 21% 21%
warehouse
Other12 85.2 15% 2.0 2.4% 16% 16%
Office 61.8 11% 0.1 0.1% 13% 12%
High street 37.1 6% (1.2) (3.3%) 10% 9%
retail
Total 565.3 100% 13.4 2.5% 100% 100%
11 Current passing rent plus ERV of vacant properties.
12 Comprises drive-through restaurants, car showrooms, trade
counters, gymnasiums, restaurants and leisure 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 30 September 2021 was as
follows:
Weighting Weighting
Period valuation by income by income
Valuation Weighting by value 30 Jun movement 11 11
2021 30 Sep 30 Jun
30 Sep GBPm Period valuation 2021 2021
2021 movement
Location
GBPm
West Midlands 119.1 21% 4.4 3.9% 20% 20%
North-West 102.2 18% 0.5 0.5% 19% 17%
South-East 80.9 14% 1.8 2.3% 14% 14%
East Midlands 73.7 13% 2.0 2.8% 14% 14%
South-West 59.6 11% 1.1 1.9% 10% 10%
Scotland 49.0 9% 1.7 3.8% 8% 9%
North-East 48.0 8% 0.6 1.2% 9% 10%
Eastern 26.9 5% 1.1 4.0% 5% 5%
Wales 5.9 1% 0.1 2.0% 1% 1%
Total 565.3 100% 13.4 2.5% 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 principally 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: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 2.2. Inside information
Sequence No.: 125960
EQS News ID: 1246044
End of Announcement EQS News Service
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