Custodian REIT plc (CREI) Custodian REIT plc : Interim Results
30-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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6
30 November 2021
Custodian REIT plc
("Custodian REIT" or "the Company")
Interim Results
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company focused on smaller lot-sizes, today reports its
interim results for the six months ended 30 September 2021 ("the
Period").
Property highlights
-- Property portfolio value of GBP565.3m (31 March 2021:
GBP551.9m, 2020[1]: GBP532.3m)
-- GBP32.3m aggregate valuation increase comprising a GBP2.3m
property valuation uplift from asset managementinitiatives and
GBP30.0m of general valuation increases, primarily due to hardening
yields in the industrial andlogistics sector
-- GBP12.5m[2] invested in three property acquisitions
-- GBP4.2m profit on disposal[3] from the disposal of 10
properties for aggregate consideration of GBP38.5mcomprising:? 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, representing anet initial yield ("NIY") on sale price of
5.9%; ? A retail warehouse in Galashiels to a special purchaser for
GBP4.5m, GBP1.8m (67%) ahead of the 30 June2021 valuation,
representing a NIY on sale price of 5.73%; and ? Two smaller assets
in the retail and other sectors GBP0.1m above valuation for
aggregate considerationof GBP1.4m
-- Since the Period end:? An aggregate GBP46.5m invested in a
portfolio of 10 office, retail and industrial assets through
thecorporate acquisition of DRUM Income Plus REIT plc ("DRUM
REIT"), and separately, an industrial unit in York;and ? Three
properties sold for consideration of GBP14.1m
Financial highlights and performance summary
-- 95% of rent collected relating to the six-month period,
adjusted for contractual rent deferrals (year to31 March 2021: 91%,
2020: 88%)
-- EPRA[4] earnings per share[5] for the six-month period
increased to 3.0p (2020: 2.6p) due to the movementin the doubtful
debt provision during the six-month period changing from a GBP2.9m
increase in 2020 to a GBP0.1mdecrease during the Period
-- Basic and diluted earnings per share[6] increased to 11.4p
(2020: -3.8p) primarily due to propertyportfolio valuation
increases of GBP32.3m (2020: GBP27.4m decrease)
-- Profit before tax of GBP48.1m (2020: loss of GBP16.1m)
-- Aggregate dividends per share of 2.5p declared for the Period
(2020: 2.0p)
-- 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, based on rent collection levels remaining in line with
expectations
-- NAV per share 106.0p (31 March 2021: 97.6p, 2020: 95.2p)
-- NAV per share total return[7] of 11.7% (2020: -3.7%)
comprising 3.1% income (2020: 2.6%) and a 8.6%capital change (2020:
-6.3% capital change)
-- GBP0.6m of new equity[8] raised at a premium of 5.9% to
dividend adjusted NAV
Unaudited Unaudited Audited
6 months to 6 months to 12 months to 31 Mar 2021
30 Sept 2021 30 Sept 2020
Total return
Share price total return[9] 4.7% (7.7%) 2.3%
Capital values
NAV and EPRA NTA[10] (GBPm) 445.9 399.7 409.9
NAV per share and EPRA NTA per share (p) 106.0 95.2 97.6
Share price (p) 93.1 88.8 91.8
Net gearing[11] 19.6% 23.4% 24.9%
EPRA vacancy rate[12] 8.4% 7.1% 8.4%
Weighted average energy performance certificate ("EPC") rating[13] C (62) C (66) C (63)
The Company presents 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:
"The UK property market has shown significant resilience since
the outbreak of the COVID-19 pandemic. The subsequent recovery, in
certain sectors, since the successful vaccination roll-out has been
marked with the Company's rent collections improving to 95%, net of
contractual deferrals, and EPRA earnings per share increasing to
3.0p (2020: 2.6p) reflecting this improvement and the stabilisation
of the Company's rent roll.
"As a result of this recovery I was very pleased to be able to
declare dividends per share of 2.5p (2020: 2.0p) for the Period
and, from the quarter ending 31 December 2021, the Board intends to
increase quarterly dividends per share to 1.375p to achieve an
annualised target dividend per share of no less than 5.5p, based on
rent collection levels remaining at least in line with
expectations.
"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."
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.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 2021
Chairman's statement
The UK property market has shown significant resilience since
the outbreak of the COVID-19 pandemic. The subsequent recovery, in
certain sectors, since the successful vaccination roll-out has been
marked with the Company enjoying a GBP32.3m valuation increase
during the six months ended 30 September 2021. EPRA earnings per
share increased to 3.0p (2020: 2.6p) reflecting the stabilisation
of the Company's rent roll and the Company's rent collections
improving to 95%, net of contractual deferrals, which provided 120%
cover for dividends relating to the Period.
The recent volatility 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,
dividends per share of 2.5p (2020: 2.0p) have been declared
relating to the Period. From the quarter ending 31 December 2021
the Board intends to increase quarterly dividends per share to
1.375p to achieve a target dividend per share for the year ending
31 March 2022 of no less than 5.25p and for the year ending 31
March 2023 of no less than 5.5p, based on rent collection levels
remaining at least in line with expectations.
While it is clear that a renewed spread of the pandemic,
possibly through further variants, will lead to a reintroduction of
some restrictions, the UK Government has made it clear that they
are committed to avoiding a return to lockdown, if at all possible.
We will approach any such event in the same manner as previous
restrictions, optimising rent collection through close liaison with
our tenants. The Company's strategy of direct rent collection
ensures a close understanding of tenant needs and an ability to
react appropriately to these, to mutual benefit.
The Board acknowledges the importance of income for shareholders
and its 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.
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. Net asset value
The NAV of the Company at 30 September 2021 was GBP445.9m,
approximately 106.0p per share, an increase of 8.4p (8.6%) since 31
March 2021:
Pence per share GBPm
NAV at 31 March 2021 97.6 409.9
Issue of equity - 0.5
Valuation movements relating to:
- Asset management activity 0.5 2.3
- Other valuation movements 7.2 30.0
Valuation increase before acquisition costs 7.7 32.3
Impact of acquisition costs (0.3) (1.1)
Valuation increase including acquisition costs 7.4 31.2
Profit on disposal of investment property 1.0 4.2
Net valuation movement 8.4 35.4
Revenue 4.8 20.2
Expenses and net finance costs (1.8) (7.5)
Dividends paid[14] during the Period (3.0) (12.6)
NAV at 30 September 2021 106.0 445.9
Borrowings and cash
The Company operates the following debt facilities:
-- A GBP35m revolving credit facility ("RCF") with Lloyds Bank
plc ("Lloyds") 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 September2024. The RCF facility limit can
be increased to GBP50m with Lloyds' consent;
-- A GBP20m term loan with Scottish Widows plc with interest
fixed at 3.935% and repayable on 13 August 2025;
-- A GBP45m term loan with Scottish Widows plc with interest
fixed at 2.987% and repayable on 5 June 2028; and
-- A GBP50m term loan with Aviva Real Estate Investors ("Aviva")
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 the following financial covenants:
-- The maximum LTV of each discrete security pool is between 45%
and 50%, with an overarching covenant onthe Company'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 Aviva facility also contains a projected interest cover
covenant requiring net contractual rents from the security pool
over the next 12 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%.
The weighted average cost of the Company's agreed debt
facilities is 2.9% (2020: 2.9%) with a weighted average maturity of
6.9 years (2020: 7.3 years). 78% (2020: 77%) of the Company's
agreed debt facilities are at a fixed rate of interest,
significantly mitigating interest rate risk.
Dividends
During the Period the Company paid fourth and fifth interim
dividends per share for the financial year ended 31 March 2021 of
1.25p and 0.5p respectively, and the first quarterly dividend per
share for the financial year ending 31 March 2022 of 1.25p,
relating to the quarter ended 30 June 2021.
In line with the Company's dividend policy the Board approved an
interim dividend of 1.25p per share for the quarter ended 30
September 2021 which will be paid on 30 November 2021 to
shareholders on the register on 12 November 2021.
Business model and strategy
Custodian REIT offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. The Company seeks to provide investors with an
attractive level of income and the potential for capital growth,
becoming the REIT of choice for private and institutional investors
seeking high and stable dividends from well-diversified UK real
estate.
The Company's investment policy[15] is summarised below:
-- To invest in a diverse portfolio of UK commercial real
estate, principally characterised by individualproperty values of
less than GBP10m at acquisition.
-- The property portfolio should be diversified by sector,
location, tenant and lease term, with a maximumweighting to any one
property sector or geographic region of 50%.
-- To focus on areas with high residual values, strong local
economies where demand for property exceedssupply, acquiring modern
buildings or those considered fit for purpose by occupiers.
-- No one tenant or property should account for more than 10% of
the rent roll at the time of purchase,except for:
(i) governmental bodies or departments; or
(ii) single tenants rated by Dun & Bradstreet as having a
credit risk score higher than two[16], where exposure may not
exceed 5% of the rent roll.
-- The Company will not undertake speculative development except
for the refurbishment of existing holdings,but may invest in
forward funding agreements where the Company may acquire pre-let
development land and constructinvestment property with the
intention of owning the completed development.
-- The Company may use gearing provided that the maximum LTV
shall not exceed 35%, with a medium-term netgearing target of 25%
LTV. 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.
Board succession
We were delighted to welcome Elizabeth McMeikan and Chris
Ireland to the Board on 1 April 2021 who bring a range of different
but complementary skills, strengthen the Board's property and
governance experience and add to its diversity.
Two of the Company's five 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 and a
recruitment process is underway to appoint an Audit and Risk
Committee Chair designate.
The Board is conscious of the increased focus on diversity and
recognises the value and importance of diversity in the boardroom.
No Directors are from a minority ethnic background. The appointment
of Elizabeth McMeikan increased the female representation on the
Board to 33% which meets the gender diversity recommendations of
the Hampton-Alexander Review for at least 33% female representation
on FTSE350 company boards. As a constituent of the FTSESmallCap
Index Custodian REIT is not bound by this recommendation. The Board
supports the overall recommendations of the Hampton-Alexander and
Parker Reports although it is not seen to be in the interests of
the Company and its shareholders to set prescriptive diversity
targets for the Board at this point.
Environmental, social and governance ("ESG")
The Board recognises that its decisions have an impact on the
environment, people and communities. It also believes there are
positive financial reasons to incorporate good ESG practices into
the way we do business.
The Board shares the increased stakeholder interest in, and
recognises the importance of, compliance requirements around good
ESG management. It seeks to adopt sustainable principles wherever
possible, actively seeking opportunities to make environmentally
beneficial improvements to its property portfolio and encouraging
tenants to report and improve emissions data. The ESG Committee
monitors the Company's performance against its environmental key
performance indicators ("KPIs") to ensure it complies with its
environmental reporting requirements and encourages positive social
outcomes being achieved for its stakeholders and the communities in
which it operates.
As a result, the Board has committed to:
-- Seek to minimise emissions, energy consumption and waste;
-- Comply with all relevant environmental legislation and real
estate reporting best practice;
-- Gather and analyse data on our environmental performance
across our property portfolio;
-- Monitor environmental performance and achievements against
targets for our properties;
-- Invest in on-site renewables and carbon reducing technology
as a commitment to continuous improvement;and
-- Let buildings which are comfortable, safe and high-quality
spaces where the wellbeing of occupants andthe quality of their
occupancy is maximised.
Outlook
The absolute focus on rent collection, financial resilience and
maintaining fully covered dividends 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.
The Board is confident that the Company's portfolio is well
placed to meet these objectives through income and valuation
growth.
David Hunter
Chairman
29 November 2021
Investment Manager's report
Property market
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.
We were delighted to take advantage of the strength and depth of
demand in the industrial/logistics sector and the increasing demand
for retail warehousing by making some opportunistic sales during
the Period. We completed the sale of a portfolio 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
helped 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 normally be considered a target property
for Custodian REIT we did not feel holding the property would
achieve the upside value delivered by the sale.
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.
Rent collection
Custodian Capital invoices and collects rent directly,
importantly allowing it, as Investment Manager, 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.
95% of rent relating to the Period net of contractual rent
deferrals has been collected, or 98% before contractual deferrals,
as set out below:
Net of contractual rent Before contractual rent
deferrals deferrals
GBPm
Rental income from investment property (IFRS basis) 19.3
Lease incentives (0.7)
Cash rental income expected, before contractual rent 18.6 100%
deferrals
Contractual rent deferrals relating to the Period (0.1) (1%)
Contractual rent deferred from prior year falling due 0.7 4%
during the Period
Cash rental income expected, net of contractual rent 19.2 100% 103%
deferrals
Outstanding rental income (1.0) (5%) (5%)
Rental income collected 18.2 95% 98%
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.
Property portfolio performance
At 30 September 2021 the Company's property portfolio comprised
152 assets (31 March 2021: 159 assets), 197 tenants and 263
tenancies with an aggregate net initial yield ("NIY") of 6.2% (31
March 2021: 6.6%) and weighted average unexpired lease term to
first break or expiry ("WAULT") was 5.0 years (31 March 2021: 5.0
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 by Valuation Weighting
income[17] by income
30 Sept 31 March Valuation movement
2021 30 Sept 2021 31 March before acquisition costs
GBPm Weighting by Weighting by value
GBPm 2021 GBPm 2021 value 30 Sept 31 March 2021
2021
Sector
Industrial 275.9 40% 270.2 41% 28.3 49% 49%
Retail 105.3 21% 99.7 21% 8.1 19% 18%
warehouse
Other[18] 85.2 16% 84.4 16% 1.2 15% 15%
Office 61.8 13% 54.8 12% 0.4 11% 10%
High street 37.1 10% 42.8 10% (5.7) 6% 8%
retail
Total 565.3 100% 551.9 100% 32.3 100% 100%
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.
The COVID-19 pandemic has deepened the challenges facing the
high street retail sector causing further declines in retail values
and the Company has continued to re-balance the portfolio away from
secondary high street locations. By contrast we have witnessed a
strong recovery in out-of-town retail/retail warehousing which
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 by 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.
Custodian REIT targets properties across all asset classes that
are capable of supporting the Company's ESG objectives and it is
fully committed to investing in and refurbishing both new
properties and the existing portfolio to meet these objectives.
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 Sep movement 11 11
2021 30 Sep 31 Mar
30 Sep GBPm Period valuation 2021 2021
2021 movement
Location
GBPm
West Midlands 119.1 21% 7.0 6% 20% 20%
North-West 102.2 18% 1.4 2% 19% 17%
South-East 80.9 14% 9.2 13% 14% 14%
East Midlands 73.7 13% 2.6 4% 14% 14%
South-West 59.6 11% 1.6 3% 10% 10%
Scotland 49.0 9% 3.1 7% 8% 9%
North-East 48.0 8% 3.7 9% 9% 10%
Eastern 26.9 5% 3.3 14% 5% 5%
Wales 5.9 1% 0.4 8% 1% 1%
Total 565.3 100% 32.3 6% 100% 100%
For details of all properties in the portfolio please see
custodianreit.com/property/portfolio.
Acquisitions
The Company invested GBP12.475m in three 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 aNIY of 6.1%;
-- A 49k sq ft industrial asset in Knowsley, Liverpool for
GBP4.325m. The asset comprises six units occupiedby Engineering
Solutions and Automations, Portakabin, Green Thumb, Central
Electrical Armature and Med Imaging witha WAULT of 4.0 years and an
aggregate annual passing rent of GBP260k, reflecting a net initial
yield[19] ("NIY") of5.6%; 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. 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 yield[20] ("RY") of 8.4%
-- All properties charged under a GBP25m RCF facility with The
Royal Bank of Scotland
DRUM REIT represents 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.
Details of each property within DRUM REIT's portfolio are:
Location: Gosforth, Newcastle Location: Central Glasgow
Sector: Retail (shopping centre) Sector: Office
Tenants: Sainsbury's, multiple small local retailers Tenant: Skills Development Scotland
RY: 8.1% RY: 6.8%
Purchase price: GBP8.975m Purchase price: GBP7.087m
Location: Cheadle, Greater Manchester Location: Edinburgh Business Park
Sector: Office Sector: Office
Tenants: Agilent Technologies, Micron Europe Tenant: Multiple
RY: 9.3% RY: 10.0%
Purchase price: GBP5.036m Purchase price: GBP4.593m
Location: Central Manchester Location: Southport
Sector: Office Sector: Retail warehouse
Tenants: Multiple Tenant: Multiple
RY: 12.4% RY: 9.0%
Purchase price: GBP4.503m Purchase price: GBP3.963m
Location: Dunfermline Location: Gloucester
Sector: Retail warehouse Sector: Retail warehouse
Tenants: Multiple Tenant: Farmfoods
RY: 9.8% RY: 8.3%
Purchase price: GBP3.687m Purchase price: GBP2.396m
Location: Aberdeen airport Location: Gateshead
Sector: Industrial Sector: Office
Tenants: Multiple Tenants: Worldpay, Datawright
RY: 11.8% RY: 17.0%
Purchase price: GBP1.66m Purchase price: GBP1.6m
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 significantly 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 GBP38.5m:
-- 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 31 March
2021 valuations. The properties wereacquired either in the seed
portfolio at IPO or within subsequent portfolio acquisitions and
have an aggregatecurrent passing rent of GBP2.0m, reflecting a NIY
on sale price of 5.9%;
-- A 31,062 sq ft retail warehouse in Galashiels for GBP4.5m to
a special purchaser, GBP1.8m (67%) ahead of the30 June 2021
valuation;
-- A vacant children's day nursery in Basingstoke for GBP0.65m,
GBP0.1m ahead of the last published valuation;and
-- A retail unit in Nottingham at auction for GBP0.7m, in line
with the most recent valuation.
Since the Period end the Company sold:
-- A 42,289 sq ft car showroom in Stockport for GBP9.0m, GBP1.4m
(18%) ahead of the 30 June 2021 valuation;
-- A 22,720 sq ft car showroom in Stafford for GBP4.9m, GBP1.15m
(31%) ahead of the 30 June 2021 valuation; and
-- A high street retail units in Cheltenham at valuation for an
aggregate GBP0.2m.
Property portfolio risk
The property portfolio's security of income is enhanced by 18%
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 32%
expiring in the next three years and 14% within one year.
30 Sept 31 Mar
2021 2021
Aggregate income expiry
0-1 years 14% 11%
1-3 years 18% 20%
3-5 years 20% 22%
5-10 years 35% 34%
10+ years 13% 13%
100% 100%
The Company's Annual Report for the year ended 31 March 2021 set
out the principal risks and uncertainties facing the Company at
that time. We do not anticipate any changes to those risks and
uncertainties over the remainder of the financial year, but
highlight the following:
Unidentified liabilities
The purchase of DRUM REIT increases the likelihood of
unidentified liabilities having been acquired, but this risk has
been mitigated through comprehensive financial, tax, property and
legal due diligence being undertaken in conjunction with the
Company's professional advisers.
COVID-19 pandemic
The impact of the COVID-19 pandemic has been pervasive across
the globe and we believe it will continue to impact rental
receipts, tenant stability, property valuations and government
legislation for at least the remainder of the financial year ending
31 March 2022.
We believe the Company is well placed to weather any further
negative impacts of the COVID-19 pandemic because of its diverse
portfolio by sector and location with an institutional grade tenant
base and low net 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.
Health and safety
Although the Company's portfolio has no exposure to 'high risk'
assets, typically high-rise properties (over 18m tall) or
properties used for multiple residential occupation, it owns
properties where cladding material has been used in construction.
Whilst there is no legal requirement to remove composite cladding
which is not Loss Prevention Certification Board ("LCPB") compliant
(typically used in construction prior to 2005), to mitigate risk,
the Investment Manager:
-- Ensures tenants provide up to date Fire Risk Assessments
(FRA) undertaken by a reputable assessor;
-- Ascertains the composition of cladding, where practical, and
ensures the tenant and local Fire Authorityare notified of any
risks; and
-- Confirms tenants comply with FRA recommendations and
remediations.
If core drilling identified non LCPB compliant cladding and the
FRA recommended removal as potential mitigation measures might not
be sufficient the Investment Manager would work with the tenants to
ensure cladding was replaced.
Outlook
The resilience shown by real estate during the Pandemic and its
strong recovery in the last six months, notwithstanding the threat
from new COVID-19 variants, bears testament to continued occupier
demand in industrial/ logistics and retail warehousing, in
particular. In addition, the motor trade has also performed well
and we are witnessing a recovery in occupier demand for
offices.
Increasingly tenants require properties that meet their
environmental and social objectives, never more so than in the
office sector, where businesses will need to attract their staff
back to the office and away from home. Custodian REIT is poised to
meet the demands of its tenants and potential new occupiers, in
this regard, investing in EV ("electric vehicle") charging on its
retail parks and office sites and focusing refurbishment and
re-development budgets on environmentally responsible fit out while
working with tenants to improve the energy performance of existing
buildings.
For so long as we can offer properties to our tenants that are
fit for purpose and that lead on environmental performance
improvements, we remain confident that the Company's diversified
portfolio of smaller regional property 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
29 November 2021 Asset management report
Our continued focus on asset management during the year
including rent reviews, new lettings, lease extensions and the
retention of tenants beyond their contractual break clauses and
expiries resulted in a GBP2.3m valuation increase in the
Period.
Property portfolio summary
30 Sept 2021 31 Mar 2021
Property portfolio value GBP565.3m GBP551.9m
Separate tenancies 263 265
EPRA occupancy rate 91.6% 91.6%
Assets 152 159
WAULT 5.0 years 5.0 years
NIY 6.2% 6.6%
Weighted average EPC rating C (62) C (63)
During the Period we have seen that continued close
collaboration with tenants will generate asset management
opportunities including lease extensions and re-gears which has
seen the Company maintain its weighted average unexpired lease term
to first break or expiry ("WAULT") at five years despite the
effects of the COVID-19 pandemic.
Key asset management initiatives completed during the Period
include:
-- A new five year lease with a third year break option to Green
Retreats at a vacant industrial unit inFarnborough at an annual
rent of GBP185k, increasing valuation by GBP0.9m;
-- 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 10 year lease renewal with a fifth year break option with
BSS Group at an industrial unit in Bristol,increasing the annual
passing rent from GBP250k to GBP255k with an open market rent
review in year five, increasingvaluation by GBP0.3m;
-- A new 10 year lease of the vacant ground floor and a five
year extension of the first floor with Dehns atthe Company's
recently acquired offices in Oxford with an aggregate annual
passing rent of GBP271k, increasingvaluation by GBP0.2m;
-- 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 10 year lease to SpaMedica at a vacant office building
in Leicester with annual rent of GBP87k andopen market rent review
in year five, with no impact on valuation;
-- A new lease with Just for Pets on a vacant retail warehouse
unit in Evesham for a term of 10 years with abreak in year six, at
an annual rent of GBP95k, with no impact on valuation;
-- A five year lease renewal with Quantem Consulting at an
office building in Birmingham, increasing theannual passing rent
from GBP30k to GBP39k, with no impact on valuation;
-- A 10 year lease extension with a break option in year five
with Subway at a retail unit in Birmingham,maintaining the annual
passing rent of GBP14k, with no impact on valuation;
-- 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.
Since the Period end the following initiatives have been
completed:
-- A new 15 year lease to Loungers at Pride Hill, Shrewsbury at
an annual rental of GBP90k;
-- A new 10 year lease to Ramsdens Financial at a retail unit on
Argyle St, Glasgow at an annual rent ofGBP55k, increasing to GBP60k
in year five;
-- A new five year lease of a retail unit at Pride Hill,
Shrewsbury to Clogau Shrewsbury Limited at anannual rental of
GBP55k;
-- A 15 year reversionary lease to Smyths Toys at a retail
warehouse unit at Eastern Avenue, Gloucester atan annual rental of
GBP130k;
-- A new five year lease to Midon Limited at an industrial unit
in Penrhyn Court, Knowsley at an annualrental of GBP37k.
These positive asset management outcomes have been partially
offset by the impact of the Administrations of JTF Wholesale
(GBP586k of annual rent) and Rapid Vehicle Repair (GBP71k of annual
rent) which have resulted in an aggregate 1.8% decrease in the
annual rent roll.
While the short-term impact of an Administration is a hit to
cash flow and valuation, the opportunity created by taking back
control of the JTF site in Warrington 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.
Tenant business failures have resulted in occupancy levels being
maintained at 91.6% since 31 March 2021, but letting activity is
increasing across most sectors.
Outlook
Looking forward, we maintain a positive outlook with many of the
asset management initiatives currently under way expected to come
to fruition over the next 6-12 months which should see new tenants
secured, leases extended and new investment into existing assets
improving their environmental credentials and realising their full
potential.
Alex Nix
Assistant Investment Manager
for and on behalf of Custodian Capital Limited
Investment Manager
29 November 2021
ESG Committee Report
The Company is committed to delivering its strategic objectives
in an ethical and responsible manner and meeting its corporate
responsibilities towards society, human rights and the environment.
The Board acknowledges its responsibility to society is broader
than simply generating financial returns for shareholders. The
Company's approach to ESG addresses the importance of these issues
in the day-to-day running of the business, as detailed below.
ESG policy
Environmental - we want our properties to minimise their impact
on the local and wider environment. The Investment Manager
carefully considers the environmental performance of our
properties, both before we acquire them, as well as during our
period of management. Sites are visited on a regular basis by the
Investment Manager and any obvious environmental issues are
reported.
Social - Custodian REIT strives to manage and develop buildings
which are comfortable, safe and high-quality spaces. As such, our
aim is that the safety and well-being of occupants of our buildings
is maximised. We have implemented a portfolio approach to
well-being which encourages engagement with tenants, ensures
maximum building safety and optimises comfort and quality of
occupancy.
Governance - high standards of corporate governance and
disclosure are essential to ensuring the effective operation of the
Company and instilling confidence amongst our stakeholders. We aim
to continually improve our levels of governance and disclosure to
achieve industry best practice.
The Committee encourages the Investment Manager to act
responsibly in the areas it can influence as a landlord, for
example by working with tenants to improve the environmental
performance of the Company's properties and minimise their impact
on climate change. The Committee believes that following this
strategy will ultimately be to the benefit of shareholders through
enhanced rent and asset values.
The Company's environmental policy commits the Company to:
-- Seek to reduce pollution and comply with all relevant
environmental legislation;
-- Gather and analyse data on the environmental performance of
our properties; and
-- Set targets for the environmental performance of our
properties and monitor achievements as a commitmentto continuous
improvement.
Environmental key performance indicators
Target environmental key performance indicators ("KPIs") provide
a strategic way to measure the Company's success towards achieving
its environmental objectives and ensure the Investment Manager is
embedding key ESG principles in order to directly support climate
risk mitigation and capture some ESG opportunities from the
transition to a low-carbon economy.
The Company's qualitative and quantitative environmental
targets, measured via the KPIs, cover four 'boundaries' and are set
out below:
Area KPI Progress during the Period
Reduce total portfolio absolute Tenant data collection via a data platform currently covers c.
emissions against a 2019 baseline by 35% of the Company's portfolio by floor area which is expected to
Emissions and 30% by 2025 increase with improved tenant engagement. Analysis of this data
energy will allow us to analyse the portfolio and identify assets which
Reduce absolute energy consumption of are performing poorly in order to make improvements
the property portfolio by 15% against a
2019 baseline by 2025
All 'D' EPC ratings to be removed or
improved by 2027, all 'E' EPC ratings
to be removed or improved by 2025 and Weighted average EPC rating has moved from C(63) to C(62) during
EPCs all 'F' and 'G' EPC ratings to be the Period, detailed further below, and all F and G ratings have
removed or improved by 31 March 2022 been removed or improved
Switch all landlord-controlled sites to Currently at 95% and expect to achieve further improvements by
100% renewables by 2025 the end of the financial year
Green
procurement
11 properties have moved over to renewable energy contracts
Switch all landlord-controlled sites to during the Period
green gas by 2025
We have EV charging points on seven of our eleven retail park
assets which have landlord-controlled areas. We are working with
Install EV charging points across 100% PodPoint to target 100% coverage across the retail park portfolio
of the Company's retail warehouse and exploring roll out of EV charging points on a selection of
Onsite assets by 2025 and investigate onsite single let properties. On-site renewables have been introduced
renewables renewables on one asset by 2025 by way of solar PV panels at a property in West Bromwich
described in more detail below and are now being considered
across other assets within the portfolio
Zero waste to landfill from We are working with managing agents and contractors in order to
landlord-controlled waste by 2022 achieve this
Waste and
water Working with managing agents on initiatives in buildings such as
Reduce landlord-controlled water sensor taps, flow regulators,
consumption by 50% by 2025
reduced leakage, water saving showers
Engage with tenants during lease We have updated the green clause to include renewable energy as
negotiations to incorporate standard and our lawyers are using this when drafting new leases
sustainability clauses into new leases
Tenant
engagement
Engage with tenants on quarterly basis Tenant benchmark reports were circulated in June 2021 for the
on ESG issues first time which has led to positive feedback
Achieve EPRA Gold Standard for the year Achieved
External ended 31 March 2021
reporting
Appropriate disclosures were made in the 2021 Annual Report.
Although TCFD are not mandatory for the Company, reporting will
Report to TCFD by 2021 continue to be developed in the current financial year following
TCFD guidance where considered appropriate
Due diligence
Investment Committee reports for any new property acquisition/
refurbishment now include
Incorporate ESG factors into all
investment due diligence undertaken dedicated ESG rationale detailing improvements to be made
alongside relevant capital expenditure
Case study
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.
EPC ratings
During the Period the Company has updated EPCs at 20 units
across 14 properties covering 272k sq ft for properties where
existing EPCs had expired or where works had been completed, and at
the Period end have a weighted average EPC rating of C (62) (31
March 2021: C (63)). For updated EPCs, there was an aggregate
improvement in the rating of 16 energy performance asset rating
points[21]. Some of the properties showing an improvement are
detailed below:
-- Burton upon Trent - a new Starbucks drive through restaurant
was built on the site of a former tool hirecentre, improving the
EPC score from D (99) to B (43)
-- Daventry - a significant refurbishment of this industrial
property was carried out during the year,improving the EPC score
from C (52) to B (46)
-- Glasgow West George Street - a refurbishment of these offices
improved the EPC score from E (62) to B(34)
The Company's weighted average EPC score is shown below:
31 Mar
30 Sept 2021 30 Sept 2020
2021
GBP000 GBP000
EPC rating GBP000
A 1% 1% 1%
B 17% 12% 15%
C 43% 40% 43%
D 29% 29% 30%
E 9% 14% 11%
F 1% 2% -
G - 1% -
Outlook
The Committee is pleased with the progress made on the Company's
environmental credentials during the Period, in particular the
continued improvement in the weighted average EPC rating and looks
forward to the Company making further progress against its
environmental KPIs over the remainder of the financial year.
Approval
This report was approved by the Committee and signed on its
behalf by:
Hazel Adam
Chair of the ESG Committee
29 November 2021
Property portfolio
Location Tenant % Portfolio Income[22]
INDUSTRIAL
Winsford H&M 1.5%
Ashby Teleperformance 1.3%
Burton ATL Transport 1.2%
Salford Restore 1.1%
Hilton Daher Aerospace 1.0%
Doncaster Silgan Closures 1.0%
Eurocentral Next 0.9%
Warrington Life Technologies 0.9%
Milton Keynes Massmould 0.9%
Tamworth ICT Express 0.9%
Kettering Multi-let 0.9%
Normanton Yesss Electrical 0.8%
Biggleswade Turpin Distribution 0.8%
Warrington Procurri Europe and Synertec 0.8%
Cannock HellermannTyton 0.8%
Bellshill Yodel 0.8%
Daventry Multi-Color 0.7%
Edinburgh Menzies Distribution 0.7%
Gateshead Worthington Armstrong 0.7%
Plymouth Sherwin-Williams 0.7%
Nuneaton DX Network Service 0.6%
Milton Keynes Saint Gobain Building Distribution 0.6%
Avonmouth Superdrug 0.6%
Bristol BSS Group 0.6%
Coventry Royal Mail 0.6%
Manchester Unilin Distribution 0.6%
Bedford Heywood Williams Components 0.6%
Glasgow Menzies Distribution 0.6%
Weybridge Menzies Distribution 0.6%
Knowsley Multi-let 0.6%
Aberdeen Menzies Distribution 0.6%
Hamilton Ichor Systems 0.6%
Stevenage Morrison Utility Services 0.6%
Cambuslang Brenntag 0.5%
Livingston A Share & Sons (t/a SCS) 0.5%
Oldbury Sytner 0.5%
Warwick Semcon 0.5%
Farnborough Green Retreats 0.4%
Norwich Menzies Distribution 0.4%
Coalville MTS Logistics 0.4%
Erdington West Midlands Ambulance Service 0.4%
Langley Mill Warburtons 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 0.4%
Hilton Multi-let 0.3%
Swansea Menzies Distribution 0.3%
Leeds Tricel Composites 0.3%
Sheffield Arkote 0.3%
Kettering Sealed Air 0.3%
Atherstone North Warwickshire Borough Council 0.3%
Liverpool, Speke DHL International 0.3%
Huntingdon PHS Group 0.3%
Dundee Menzies Distribution 0.3%
Glasgow DHL Global Forwarding 0.3%
Normanton Acorn Web Offset 0.3%
Sheffield ITM Power 0.3%
Kilmarnock Royal Mail 0.2%
Sheffield River Island 0.1%
Knowsley, Leeds, Redditch, Warrington and West VACANT 4.3%
Bromwich
40.4%
OFFICE
West Malling Regus (Maidstone West Malling) 1.6%
Oxford Multi-let 1.4%
Birmingham Multi-let 1.0%
Leicester Galliford Try, Regus (Leicester Grove Park) and 1.0%
SpaMedica
Sheffield Secretary of State for Communities and Local 0.9%
Government
Castle Donnington National Grid 0.8%
Leeds First Title (t/a Enact) 0.8%
Cheadle Wienerberger 0.8%
Leeds First Title (t/a Enact) 0.8%
Leicester Countryside Properties and Erskine Murray 0.7%
Derby Edwards Geldards 0.6%
Solihull Lyons Davidson 0.5%
Glasgow Multi-let 0.4%
Manchester Fourthline, Meridian Healthcomms and Venditan 0.4%
Birmingham, Glasgow, Leicester and Manchester VACANT 1.3%
13.0%
OTHER
Stockport Williams Motor Co 1.6%
Liverpool Liverpool Community Health NHS Trust and Royal Base 1.0%
Restaurants
Perth Bannatyne Fitness, Scotco Eastern (t/a KFC) and TH 1.0%
UK (t/a Tim Hortons)
Derby VW Group 0.8%
Crewe Mecca Bingo, Mecca Bingo (sublet to Odeon Cinemas) 0.8%
and Pizza Hut
Stafford VW Group 0.7%
Stoke Nuffield Health 0.7%
Lincoln Total Fitness Health Clubs 0.7%
Torquay Multi-let 0.7%
Gillingham Co-Op 0.7%
York Pendragon 0.6%
Salisbury Parkwood Health & Fitness 0.5%
Shrewsbury VW Group 0.5%
Lincoln MKM Buildings Supplies 0.5%
Crewe Multi-let 0.4%
Loughborough Listers Group 0.4%
Bath Chokdee (t/a Giggling Squid) 0.3%
Castleford MKM Buildings Supplies 0.3%
High Wycombe Stonegate Pub Co 0.3%
Maypole Starbucks 0.3%
Shrewsbury - TJ Vickers TJ Vickers & Sons 0.3%
Nottingham Kbeverage (t/a Starbucks) 0.3%
Carlisle The Gym Group 0.3%
Portishead AGO Hotels 0.3%
Shrewsbury Ask Italian and Sam's Club (t/a House of the Rising 0.3%
Sun)
Plymouth McDonald's 0.2%
Portishead JD Wetherspoons 0.2%
King's Lynn Loungers 0.1%
Stratford The Universal Church of the Kingdom of God 0.1%
Burton 1 Oak (t/a Starbucks) 0.1%
Chesham Bright Horizons Family Solutions 0.1%
Knutsford Knutsford Day Nursery 0.1%
Leicester Pizza Hut 0.1%
Watford Pizza Hut 0.1%
Crewe VACANT 0.5%
15.9%
RETAIL
Worcester Superdrug 0.9%
Cardiff Multi-let 0.9%
Portsmouth Poundland, Sportswift and Your Phone Care 0.6%
Southampton URBN UK 0.6%
Colchester H Samuel, Leeds Building Society and Lush 0.4%
Guildford Reiss 0.4%
Southsea Portsmouth City Council and Superdrug 0.4%
Birmingham Multi-let 0.4%
Chester Felldale Retail (t/a Lakeland) and Signet Trading 0.3%
(t/a Ernest Jones)
Shrewsbury Holland & Barrett and Greggs 0.3%
Norwich Specsavers 0.3%
Edinburgh Phase Eight 0.3%
Chester Aslan Jewellery and Der Touristik 0.3%
Portsmouth The Works 0.3%
Shrewsbury Nationwide Building Society 0.3%
Stratford Foxtons 0.2%
Taunton Wilko Retail 0.2%
Bury St Edmunds The Works 0.2%
Colchester Kruidvat Real Estate (t/a Savers) 0.2%
St Albans Crepeaffaire 0.2%
Cirencester Brook Taverner and The Danish Wardrobe Co (t/a Noa 0.2%
Noa)
Weston-super-Mare Superdrug 0.2%
Bury St Edmunds Savers Health & Beauty 0.1%
Chester Ciel (Concessions) (t/a Chesca) 0.1%
Cheltenham Done Brothers (t/a Betfred) 0.1%
Chester, Colchester, Glasgow, Guildford, VACANT 1.3%
Portsmouth and Shrewsbury
9.7%
RETAIL WAREHOUSE
Evesham Multi-let 2.2%
Carlisle Multi-let 2.0%
Weymouth B&Q, Halfords and Sports Direct 1.9%
Winnersh Pets at Home and Wickes 1.4%
Burton CDS Superstores (t/a The Range) and Wickes 1.3%
Swindon B&M, Go Outdoors and InstaVolt 1.3%
Leicester Matalan 1.2%
Banbury B&Q 1.2%
Ashton-under-Lyne B&M 1.0%
Plymouth B&M, Magnet and InstaVolt 1.0%
Plymouth A Share & Sons (t/a SCS) and Oak Furniture Land 0.9%
Gloucester InstaVolt, Magnet and Smyths Toys 0.9%
Sheldon Multi-let 0.9%
Leighton Buzzard Homebase 0.8%
Leicester Magnet 0.6%
Torpoint Sainsburys 0.5%
Portishead InstaVolt, Majestic Wine Warehouse and TJ Morris t/ 0.5%
a Homebargains
Grantham Carpetright, InstaVolt and Poundstretcher 0.4%
Grantham and Milton Keynes VACANT 1.0%
21.0%
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2021
Audited
Unaudited Unaudited
12
6 months 6 months months
to 30 Sept to 30 Sept to 31
2021 2020 Mar
2021
Note GBP000 GBP000 GBP000
Revenue 4 20,152 20,286 39,578
Investment management fee (1,788) (1,653) (3,331)
Operating expenses of rental property
(914)
-- rechargeable to tenants (882) (892)
-- directly incurred (1,708) (3,781) (5,559)
Professional fees (262) (195) (489)
Directors' fees (145) (115) (218)
Administrative expenses (356) (310) (551)
Expenses (5,141) (6,946) (11,062)
Operating profit before financing and revaluation of investment property
15,011 13,340 28,516
Unrealised gains/(losses) on revaluation of investment property:
- relating to gross property revaluations
9 32,310 (27,388) (19,611)
-- relating to acquisition costs 9 (1,069) (69) (707)
Net valuation increase/decrease 31,241 (27,457) (20,318)
Profit on disposal of investment property 4,165 485 393
Net profit/(losses) on investment property 35,406 (26,972) (19,925)
Operating (loss)/profit before financing 50,417 (13,632) 8,591
Finance income 5 - 27 61
Finance costs 6 (2,347) (2,471) (4,903)
Net finance costs (2,347) (2,444) (4,842)
Profit/(loss) before tax 48,070 (16,076) 3,749
Income tax 7 - - -
(Loss)/profit and total comprehensive (expense)/income for the Period, net
of tax
48,070 (16,076) 3,749
Attributable to:
Owners of the Company 48,070 (16,076) 3,749
Earnings per ordinary share:
Basic and diluted (p) 3 11.4 (3.8) 0.9
EPRA (p) 3 3.0 2.6 5.6
The profit/(loss) for the Period arises from the Company's
continuing operations. Condensed consolidated statement of
financial position
As at 30 September 2021
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2021 2020 2021
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 9 565,279 532,250 551,922
Total non-current assets 565,279 532,250 551,922
Current assets
Trade and other receivables 10 6,452 7,754 6,001
Cash and cash equivalents 12 37,139 26,205 3,920
Total current assets 43,591 33,959 9,921
Total assets 608,870 566,209 561,843
Equity
Issued capital 14 4,206 4,201 4,201
Share premium 251,015 250,469 250,469
Retained earnings 190,648 145,032 155,196
Total equity attributable to equity holders of the Company
445,869 399,702 409,866
Non-current liabilities
Borrowings 13 145,713 148,493 138,604
Other payables 571 575 572
Total non-current liabilities 146,284 149,068 139,176
Current liabilities
Trade and other payables 11 10,098 10,653 6,185
Deferred income 6,619 6,786 6,616
Total current liabilities 16,717 17,439 12,801
Total liabilities 163,001 166,507 151,977
Total equity and liabilities 608,870 566,209 561,843
These interim financial statements of Custodian REIT plc were
approved and authorised for issue by the Board of Directors on 29
November 2021 and are signed on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2021
Audited
Unaudited Unaudited
12
6 months 6 months months
to 30 Sept to 30 Sept to 31
2021 2020 Mar
2021
Note GBP000 GBP000 GBP000
Operating activities
Profit/(loss) for the Period 48,070 (16,076) 3,749
Net finance costs 5,6 2,347 2,444 4,842
Net revaluation (profit)/loss 9 (31,241) 27,457 20,318
Profit on disposal of investment property (4,165) (485) (393)
Impact of lease incentives 9 (741) (877) (1,932)
Amortisation 4 4 7
Income tax 7 - - -
Cash flows from operating activities before changes in working capital and
provisions
14,274 12,467 26,591
Increase in trade and other receivables (451) (2,457) (704)
Increase/(decrease) in trade and other payables 3,913 2,576 (2,065)
Cash generated from operations 3,462 12,586 23,822
Interest and other finance charges (2,176) (2,301) (4,556)
15,560 10,285
Net cash flows from operating activities 19,266
Investing activities
Purchase of investment property (12,217) (900) (11,443)
Capital expenditure and development (1,803) (348) (2,308)
Acquisition costs (1,069) (69) (707)
Proceeds from the disposal of investment property 38,299 2,800 4,422
Costs of disposal of investment property (424) (15) (69)
Interest received and similar income 5 - 27 61
Net cash flows from/(used in) investing activities 22,786 1,495 (10,044)
Financing activities
Proceeds from the issue of share capital 558 - -
Costs of the issue of share capital (5) - -
New borrowings 13 7,000 - (10,000)
New borrowings origination costs 13 (62) - (66)
Dividends paid 8 (12,618) (10,974) (20,635)
Net cash flows (used in)/from financing activities (5,127) (10,974) (30,701)
33,219 806
Net increase in cash and cash equivalents (21,479)
Cash and cash equivalents at start of the Period 3,920 25,399 25,399
Cash and cash equivalents at end of the Period 37,139 26,205 3,920
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2021
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2021 (audited) 4,201 250,469 155,196 409,866
Profit and total comprehensive income for Period -
- 48,070 48,070
Transactions with owners of the Company, recognised directly in equity
Dividends 8 - - (12,618) (12,618)
Issue of share capital 14 5 546 - 551
As at 30 September 2021 (unaudited) 4,206 251,015
190,648 445,869
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 (audited) 4,201 250,469 172,082 426,752
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
Notes to the interim financial statements for the period ended
30 September 2021 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 29 November 2021.
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 2022 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 United Kingdom, 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 2021 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.
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
Provision 30 of the UK Corporate Governance Code 2018 ("the
Code") requires the Board to report whether the business is a going
concern and identify any material uncertainties to the Company's
ability to continue to do so. 95% of rent, adjusted for contractual
deferrals, was collected for the Period and in considering the
Code's requirements the Investment Manager has continued to
forecast prudently in particular regarding cash flows and borrowing
facilities. This 12 month forecast indicates that:
-- The Company has surplus cash to continue in operation and
meet its liabilities as they fall due;
-- Interest cover and LTV covenants on borrowings are complied
with; and
-- REIT tests are complied with.
This assessment considered the following 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.
The results of this assessment are described below:
Covenant compliance
The Company operates four loan facilities which are summarised
in Note 13. At 30 September 2021 the Company has significant
headroom on lender covenants at a portfolio level with net gearing
of 19.6% and compared to a maximum LTV covenant of 35% and, once
the process of charging GBP30.3m of property to replace charged
assets sold during the Period is complete, 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.
Completion of property acquisitions and disposals since the
Period end have increased net gearing to approximately 22%.
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:
-- The rate of loss or deferral of contractual rent would need
to deteriorate by a further 44% from the 5%level included in the
Company's forecasts to breach interest cover covenants; and
-- Property valuations would have to decrease by 44% from the 30
September 2021 position to risk breachingthe overall 35% LTV
covenant.
The Board notes that the October 2021 IPF Forecasts for UK
Commercial Property Investment survey suggests an average 0.7%
reduction in rents during 2021 and a 1.2% increase in 2022, with
capital value increases forecast of 2.3% in both 2021 and 2022. The
Board believes 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 over 150 assets and circa 200 typically 'institutional
grade' tenants across all commercial sectors.
Liquidity
At 30 September 2021 the Company has:
-- GBP37.1m of cash with gross borrowings of GBP147m resulting
in low net gearing, with no short-termrefinancing risk and a
weighted average debt facility maturity of circa seven years;
and
-- An annual contractual rent roll of GBP37.4m, with interest
costs on drawn loan facilities of only c. GBP3.5mper annum.
The acquisition of DRUM REIT since the period end has resulted
in the addition of a GBP25m RCF facility, currently GBP22.5m drawn,
which expires in September 2022. We expect this facility to be
refinanced before expiry.
The Company has sufficient cash and undrawn facilities at 30
September 2021 to settle DRUM REIT's RCF facility and 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. In this scenario
all financial covenants and the REIT tests are complied with and
the Company has surplus cash to settle its liabilities.
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;
-- Decreases 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;
-- Non-compliance with regulatory or legal changes;
-- Business interruption from cyber or terrorist attack or
pandemics;
-- Failure to meet ESG compliance requirements or shareholder
expectations; and
-- Unidentified liabilities associated with acquisitions.
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 2021. The Company's principal risks and
uncertainties have not changed materially since the date of that
report. Brexit is not considered to be a principal risk to the
Company. 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:
Audited
Unaudited 6 Unaudited 6 12
months months months
to 30 Sept 2021 to 30 Sept 2020 to 31
Mar
2021
Net profit/(loss) and diluted net profit/(loss) attributable to equity holders
of the Company (GBP000) 48,070 (16,076)
3,749
Net (profit)/losses on investment property (GBP000) (35,406) 26,972 19,925
EPRA net profit attributable to equity holders of the Company (GBP000) 12,664 10,896
23,674
Weighted average number of ordinary shares:
Issued ordinary shares at start of the Period (thousands) 420,053 420,053
420,053
441 -
Effect of shares issued during the Period (thousands) -
Basic and diluted weighted average number of shares (thousands)
420,494 420,053 420,053
Basic and diluted EPS (p) 11.4 (3.8) 0.9
3.0 2.6
EPRA EPS (p) 5.6 4. Revenue
Audited
Unaudited 6 months Unaudited
12 months
to 30 Sept 6 months
2021 to 31 Mar
to 30 Sept 2020
GBP000 2021
GBP000
GBP000
Rental income from investment property 19,270 19,394 38,664
Income from recharges to tenants 882 892 914
20,152 20,286 39,578 5. Finance income
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
GBP000 GBP000 2021
GBP000
Bank interest - 27 28
Finance income - - 33
- 27 61 6. Finance costs
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
GBP000 GBP000 2021
GBP000
Amortisation of arrangement fees on debt facilities 171 170 347
Other finance costs 34 96 287
Bank interest 2,142 2,205 4,269
2,347 2,471 4,903 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:
Audited
Unaudited 6 Unaudited 12
months 6 months months
to 30 Sept to 30 Sept to 31
2021 2020 Mar
GBP000 GBP000 2021
GBP000
(Loss)/profit before income tax 48,070 (16,076) 3,749
Tax charge/(benefit) on profit/(loss) at a standard rate of 19.0% (30 September 2020:
19.0%, 31 March 2021: 19.0%)
9,133 (3,054) 712
Effects of:
REIT tax exempt rental (profits)/losses (9,133) 3,054 (712)
Income tax expense for the Period - - -
Effective income tax rate 0.0% 0.0% 0.0%
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 Audited
6 months Unaudited 6 months 12 months
to 30 Sept to 30 Sept 2020 to 31 Mar
2021 GBP000 2021
GBP000 GBP000
Interim equity dividends paid on ordinary shares relating to the periods ended:
31 March 2020: 1.6625p - 6,983 6,983
30 June 2020: 0.95p - 3,991 3,990
30 September 2020: 0.95p - - 4,411
31 December 2020: 1.25p - - 5,251
31 March 2021: 1.25p 5,258 - -
31 March 2021: 0.5p 2,102 - -
30 June 2021: 1.25p 5,258 - -
12,618 10,974 20,635
All dividends paid are classified as property income
distributions.
The Directors approved an interim dividend relating to the
quarter ended 30 September 2021 of 1.25p per ordinary share in
November 2021 which has not been included as a liability in these
interim financial statements. This interim dividend will be paid on
30 November 2021 to shareholders on the register at the close of
business on 12 November 2021. 9. Investment property
GBP000
At 31 March 2021 551,922
Impact of lease incentives 741
Additions 13,286
Capital expenditure 1,803
Disposals (33,710)
Amortisation of right-of-use asset (4)
Valuation increase before acquisition costs 32,310
Acquisition costs (1,069)
Valuation increase including acquisition costs 31,241
As at 30 September 2021 565,279
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
The investment property is stated at the Directors' estimate of
its 30 September 2021 fair value. Savills and Knight Frank LLP
("KF"), professionally qualified independent valuers, valued the
properties as at 30 September 2021 in accordance with the Appraisal
and Valuation Standards published by the Royal Institution of
Chartered Surveyors. Savills and KF have recent experience in the
relevant location and category of the properties being valued.
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 4.0% to 11.5%. 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 and 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. 10. Trade and other
receivables
Unaudited as at 30 Sept Unaudited as at 30 Sept Audited
2021 2020 as at 31 Mar
2021
GBP000 GBP000
GBP000
Trade receivables before expected credit loss
provision
8,875 10,220 7,222
Expected credit loss provision (2,940) (3,246) (3,030)
Trade receivables 5,935 6,974 4,192
Other receivables 477 218 1,706
Prepayments and accrued income 40 562 103
6,452 7,754 6,001
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 expected
credit loss ("ECL") matrix based on its experience of collecting
rent arrears and deferred rents since the onset of the 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
GBP1,788k in the income statement. 11. Trade and other payables
Unaudited as at 30 Sept 2021 Unaudited as at 30 Sept 2020 Audited
as at 31 Mar 2021
GBP000 GBP000
GBP000
Falling due in less than one year:
Trade and other payables 4,714 2,956 1,730
Social security and other taxes 1,144 4,302 882
Accruals 3,235 2,717 2,665
Rental deposits and retentions 1,005 678 908
10,098 10,653 6,185
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.
12. Cash and cash equivalents
Unaudited as at 30 Sept 2021 Unaudited as at 30 Sept 2020 Audited
as at 31 Mar 2021
GBP000 GBP000
GBP000
Cash and cash equivalents 37,139 26,205 3,920
Cash and cash equivalents at 30 September 2021 include GBP24.5m
(2020: GBP3.5m, 31 March 2021: GBP2.6m) of restricted cash
comprising: GBP23.4m (2020: GBP15.2m, 31 March 2020: GBPnil)
disposal proceeds held in charged disposal accounts, GBP0.8m (2020:
GBP0.7m, 31 March 2020: GBP0.7m) rental deposits held on behalf of
tenants, GBP0.3m (2020: GBP0.2m, 31 March 2020: GBP0.2m) retentions
held in respect of development fundings and GBPnil (2020: GBP2.6m,
31 March 2021: GBP1.5m) interest 'prepayments' in connection with
arranging interest cover covenant waivers in April 2020. 13.
Borrowings
Costs incurred in the arrangement of bank
borrowings
Bank GBP000
borrowings
Total
GBP000
GBP000
At 31 March 2021 140,000 (1,396) 138,604
New borrowings 7,000 - 7,000
Costs incurred in the arrangement of bank - (62) (62)
borrowings
Amortisation - 171 171
At 30 September 2021 147,000 (1,287) 145,713
Costs incurred in the arrangement of bank
borrowings
Bank GBP000
borrowings
Total
GBP000
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
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 2021 is set out in
the Annual Report for the year ended 31 March 2021.
During the Period the Company extended the term of its RCF
facility by one year, with expiry now on 17 September 2024. 14.
Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
At 31 March 2021 420,053,344 4,201
Issue of share capital 550,000 5
At 30 September 2021 420,603,344 4,206
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
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 All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
earnings 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 orliability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for the asset or liability that are not
based on observable market data (unobservableinputs).
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 2021, the fair
value of investment property was GBP565.3m and during the Period
the valuation increase was GBP31.2m.
Interest bearing loans and borrowings - level 3
As at 30 September 2021, 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 amounts 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 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 GBP200mdivided by 4;
-- 0.75% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m but belowGBP500m divided by
4;
-- 0.65% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP500m but belowGBP750m divided by 4;
plus
-- 0.55% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP750m divided by 4.
Administrative fees payable to the Investment Manager under the
IMA since during the Period were:
-- 0.125% of the NAV of the Company as at the relevant quarter
day which is less than or equal to GBP200mdivided by 4;
-- 0.08% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m but belowGBP500m divided by
4;
-- 0.05% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP500m but belowGBP750m 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 which commenced in
June 2020. 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% (2020:
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
GBP1.79m (2020: GBP1.63m) in respect of asset management and
investment management fees, GBP0.21m (2020: GBP0.21m) in respect of
administrative fees and GBP2k (2020: GBPnil) in respect of
marketing fees. 17. Events after the reporting date
Property acquisitions
On 4 November 2021 the Company completed the corporate
acquisition of DRUM REIT for consideration of 20,247,040 new
ordinary shares in the Company. Based on the nature of the
acquisition it does not fall within the scope of IFRS 3 Business
Combinations and the assets acquired were purchased at fair value.
The transaction was financed by way of a share for share exchange
with DRUM REIT maintaining its existing GBP25m RCF which expires in
September 2022.
On 20 October 2021 the Company acquired a 29k sq ft industrial
unit in York for GBP2.962m.
Property disposals
On 21 October 2021 the Company sold a 42,289 sq ft car showroom
in Stockport for GBP9.0m.
On 29 October 2021 the Company sold a 22,720 sq ft car showroom
in Stafford for GBP4.9m.
On 11 November the Company sold a high street retail unit in
Cheltenham at valuation for GBP0.2m. 18. Additional disclosures
NAV per share total return
A measure of performance taking into account both capital
returns and dividends by assuming dividends declared are reinvested
at NAV at the time the shares are quoted ex-dividend, shown as a
percentage change from the start of the Period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
2021
Net assets (GBP000) 445,869 399,702 409,866
Shares in issue at the period end (thousands) 420,603 420,053 420,053
NAV per share at the start of the period (p) 97.6 101.6 101.6
Dividends per share paid during the period (p) 3.0 2.6125 4.9125
NAV per share at the end of the period (p) 106.0 95.2 97.6
NAV per share total return 11.7% (3.7%) 0.9%
Share price total return
A measure of performance taking into account both share price
returns and dividends by assuming dividends declared are reinvested
at the ex-dividend share price, shown as a percentage change from
the start of the period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
2021
Share price at the start of the period (p) 91.8 99.0 99.0
Dividends per share for the period (p) 3.0 2.6125 4.9125
Share price at the end of the period (p) 93.1 88.8 91.8
Share price total return 4.7% (7.7%) (2.3%) Net gearing
Gross borrowings less cash (excluding rent deposits), divided by
property portfolio value.
Unaudited as at 30 Sept 2021 Unaudited as at 30 Sept 2020 Audited
as at 31 Mar 2021
GBP000 GBP000
GBP000
Gross borrowings 147,000 150,000 140,000
Cash (37,139) (26,205) (3,920)
Tenant rental deposits and retentions 1,142 908 1,179
Net borrowings 111,003 124,703 137,259
Investment property 565,279 532,250 551,922
Net gearing 19.6% 23.4% 24.9% EPRA EPS
A measure of the Company's operating results excluding gains or
losses on investment property, giving a better indication than
basic EPS of the extent to which dividends paid in the year are
supported by recurring net income.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
GBP000 GBP000 2021
GBP000
Profit/(loss) for the Period after taxation 48,070 (16,076) 3,749
Net (profits)/losses on investment property (35,406) 26,972 19,925
EPRA earnings 12,664 10,896 23,674
Weighted average number of shares in issue (thousands)
420,494 420,053 420,053
EPRA EPS (p) 3.0 2.6 5.6
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 30 Sept Unaudited as at 30 Sept Audited
2021 2020 as at 31 Mar
2021
GBP000 GBP000
GBP000
Annualised potential rental value of vacant premises 3,424 3,024 3,562
Annualised potential rental value for the property 41,009 42,516 42,554
portfolio
EPRA vacancy rate 8.4% 7.1% 8.4% EPRA Net Tangible Assets ("NTA")
Assumes that the Company buys and sells assets for short-term
capital gains, thereby crystallising certain deferred tax
balances.
Audited
Unaudited as at 30 Sept 2021 Unaudited as at 30 Sept 2020 as at 31 Mar 2021
GBP000 GBP000 GBP000
Group and Company
IFRS NAV 445,869 399,702 409,865
Fair value of financial instruments - - -
Deferred tax - - -
EPRA NTA 445,869 399,702 409,865
Closing number of shares in issue 420,603 420,053 420,053
(thousands)
EPRA NTA per share (p) 106.0 95.2 97.6 Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of
the Company for the Period from 1 April 2021 to 30 September
2021.
We confirm that to the best of our knowledge: a. The condensed
interim financial statements have been prepared in accordance with
IAS 34 'InterimFinancial Reporting' as adopted by the EU; b. The
condensed set of financial statements, which has been prepared in
accordance with the applicable setof accounting standards, gives a
true and fair view of the assets, liabilities, financial position
and profit orloss 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 theDisclosure and
Transparency Rules, being an indication of important events that
have occurred during the first sixmonths of the financial year, and
their impact on the Condensed Financial Statements, and a
description of theprincipal 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 theDisclosure and Transparency Rules,
being material related party transactions that have taken place in
the first sixmonths of the current financial year and any material
changes in the related party transactions described in thelast
Annual Report.
A list of the current directors of Custodian REIT plc is
maintained on the Company's website at custodianreit.com.
By order of the Board
David Hunter
Chairman
29 November 2021
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 2021, which comprise 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 will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34 "Interim Financial Reporting".
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 2021 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 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
London, United Kingdom
29 November 2021
- Ends -
-----------------------------------------------------------------------------------------------------------------------
[1] The six-month period ended 30 September 2020.
[2] Before rent top-ups of GBP0.3m and acquisition costs of
GBP1.1m.
[3] Net of rent top-ups of GBP0.2m and disposal costs of
GBP0.4m.
[4] The European Public Real Estate Association.
[5] Profit after tax excluding net gain or loss on investment
property divided by the weighted average number of shares in
issue.
[6] Profit after tax divided by the weighted average number of
shares in issue.
[7] Net Asset Value ("NAV") movement including dividends paid
during the period on shares in issue at 31 March 2021.
[8] Before issue costs of GBP0.1m.
[9] Share price movement including dividends paid during the
six-month period.
[10] Following the recent update to EPRA's Best Practice
Recommendations Guidelines the Company's peer group has adopted
EPRA net tangible assets ("NTA") as the primary measure of net
asset value. There are no differences between the Company's IFRS
NAV, EPRA NAV and EPRA NTA.
[11] Gross borrowings less cash (excluding tenant rental
deposits and retentions) divided by property portfolio value.
[12] ERV of vacant space as a percentage of the ERV of the whole
property portfolio.
[13] For properties in Scotland, English equivalent EPC ratings
have been obtained.
[14] Dividends of 3.0p per share were paid during the Period on
shares in issue throughout the Period.
[15] A full version of the Company's Investment Policy is
available at custodianreit.com/wp-content/uploads/2021/02/
CREIT-Investment-policy.pdf
[16] A risk score of two represents "lower than average
risk".
[17] Current passing rent plus ERV of vacant properties.
^[18] Includes drive-through restaurants, car showrooms, trade
counters, gymnasiums, restaurants and leisure units. [19] Passing
rent divided by purchase price plus assumed purchasers' costs.
[20] ERV of portfolio divided by property valuation plus
purchaser's costs.
[21] One EPC letter represents 25 energy performance asset
rating points.
[22] % of property portfolio passing rent plus ERV of vacant
units.
-----------------------------------------------------------------------------------------------------------------------
ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 127878
EQS News ID: 1252711
End of Announcement EQS News Service
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