Custodian REIT plc (CREI) Custodian REIT plc : Unaudited net
asset value as at 31 December 2021 10-Feb-2022 / 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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10 February 2022
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 31 December 2021
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company focused on smaller lot-sizes, today reports its
unaudited net asset value ("NAV") as at 31 December 2021 and
highlights for the period from 1 October 2021 to 31 December 2021
("the Period").
Financial highlights
-- Dividend per share approved for the Period of 1.375p, a 10%
increase from the quarter ended 30 September2021 of 1.25p
-- Target dividends per share of no less than 5.25p for the year
ending 31 March 2022 and 5.5p for the yearending 31 March 2023
-- NAV total return per share1 for the Period of 8.5%,
comprising 1.2% dividends paid and a 7.3% capitalincrease
-- NAV per share of 113.7p (30 Sept 2021: 106.0p)
-- NAV increased to GBP501.4m (30 Sept 2021: GBP445.9m) due to
valuation increases of GBP36.2m during the Periodand issuing
GBP19.1m new equity for the corporate acquisition of DRUM Income
Plus REIT plc ("DRUM REIT")
-- Dividend cover2 for the year ending 31 March 2022 to date of
109%
-- EPRA earnings per share3 for the Period decreased to 1.3p
(quarter ended 30 Sept 2021: 1.6p) primarilydue to;? Net gearing4
of 19.5% loan-to-value (30 Sept 2021: 19.6%) remaining below the
25% target as wecontinue to redeploy the proceeds from profitable
disposals in September and October 2021; and ? EPRA occupancy5
decreasing to 90.9% (30 Sept 2021: 91.6%). Of the vacant space, 34%
is currentlyunder offer to let and a further 32% is planned vacancy
to enable redevelopment or refurbishment.
Portfolio highlights
-- Property portfolio value of GBP637.9m (30 Sept 2021:
GBP565.3m)
-- GBP36.2m aggregate valuation increase for the Period
comprising:? GBP6.2m from successful asset management initiatives;
? GBP22.7m of general valuation increases, primarily in the
industrial and logistics sector; and ? GBP7.3m increase from
acquiring DRUM REIT at a c.28% discount to its NAV
-- GBP49.2m6 invested during the Period in DRUM REIT's
portfolio, an industrial unit in York and a retailwarehouse in
Cromer
-- GBP1.1m profit on disposal from the sale of four properties
for an aggregate consideration of GBP14.8m7
1 NAV per share movement including dividends paid during the
Period.
2 Profit after tax, excluding net gains or losses on investment
property, divided by dividends approved relating to the period.
3 Profit after tax excluding net gains or losses on investment
property divided by weighted average number of shares in issue.
4 Gross borrowings less cash (excluding rent deposits) divided
by portfolio valuation.
5 Estimated rental value ("ERV") of let property divided by
total portfolio ERV.
6 Before acquisition costs.
7 Before disposal costs.
Net asset value
The unaudited NAV of Custodian REIT at 31 December 2021 was
GBP501.4m, reflecting approximately 113.7p per share, an increase
of 7.7p (7.3%) since 30 September 2021:
Pence per share GBPm
NAV at 30 September 2021 106.0 445.9
Issue of equity8 (0.5) 19.1
Valuation increase having acquired DRUM REIT at a discount to valuation 1.6 7.3
Corporate acquisition and equity issuance costs (0.2) (0.9)
Net increase from the DRUM REIT acquisition 0.9 25.5
Valuation movements relating to:
- Asset management activity 1.4 6.2
- General valuation increases 5.2 22.7
- Profit on disposal 0.2 1.1
Net valuation movement 6.8 30.0
Asset acquisition costs - (0.2)
6.8 29.8
EPRA earnings for the Period 1.3 5.7
Interim dividend paid9 during the Period (1.3) (5.5)
NAV at 31 December 2021 113.7 501.4
8 Issue of 20,247,040 new shares at their market value on 3
November 2021 of 94.5p.
9 An interim dividend of 1.25p per share relating to the quarter
ended 30 September 2021 was paid on 30 November 2021.
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation as at 31 December
2021 and net income for the Period. The movement in NAV reflects
the payment of an interim dividend of 1.25p per share during the
Period, but does not include any provision for the approved
dividend of 1.375p per share for the Period to be paid on 28
February 2022.
Investment Manager's market commentary
Inflation is a clear and present risk in the market today and
traditionally investors have looked to real estate as a hedge
against the negative impact of inflation on investment returns.
Over the longer term history suggests property values and rents
will increase broadly in line with inflation. Following a period of
growth, the challenge for managers is to own properties with
further rental growth potential whose valuation will most closely
keep pace with rising prices.
Over the 12 months to 31 December 2021 Custodian REIT's
like-for-like10 portfolio has seen rental growth and sharp
valuation increases across its principal investment sectors as
shown below:
12 months to 31 December 21 3 months to 31 December 21
Capital value change Rental value change Capital value change Rental value change
Sector
Industrial +23.2% +9.7% +8.2% +2.6%
Retail warehouse +12.0% -2.6% +4.7% 0.0%
Office -0.7% +0.9% -0.3% -0.6%
Other +5.0% -3.3% +1.8% +0.7%
High street retail -11.3% -6.6% +4.3% +1.9%
10 Adjusting for the impact of acquisitions and disposals.
Across the industrial and logistics portfolio, notwithstanding
the rental growth to date, the average rent stands at only GBP5.27
per sq ft with an estimated rental value of GBP6.20 per sq ft,
suggesting a latent rental uplift of c.18%. Furthermore, both
passing rents and estimated rental values are some way below the
rent required to bring forward new development, indicating further
growth potential.
Retail warehousing and high street retail rents appear to be
bottoming out and we are even seeing some recent demand led rental
growth in these sectors. Importantly these rents are growing from a
low base making them affordable for tenants. By way of example, the
average retail warehouse rent across the portfolio stands at circa
GBP13.50, in line with current estimated rental values, and much
lower than previous market levels.
In select locations, notably prime regional city centres, we are
seeing office rents increasing. This is by no means applicable to
all regional offices but is focused on high quality, flexible
office space with strong environmental credentials. The recent
acquisition of 60 Fountain Street in Manchester is an example of
how Custodian REIT is taking advantage of the opportunity to
reposition property to meet the expected demands of tenants, post
pandemic, and to pick up the higher rents attributable to
refurbished space.
The greater driver of inflation appears to be cost-push rather
than demand-pull as the economy struggles with supply chain
constraints, labour shortages and the aftermath of pandemic
restrictions. These factors all mitigate against widespread, low
cost, speculative development which would otherwise help resolve
the demand/supply imbalance that is promoting rental growth.
We believe Custodian REIT's portfolio is particularly well
positioned to see rental growth as it is focused on smaller
regional properties:
In the industrial and logistics sector, which accounts for 50%
of the portfolio by value, smaller properties are more expensive to
develop, pro-rata, so require higher rents to justify development.
Rents will continue to grow until they balance out inflation in
build costs.
The retail warehouse portfolio is almost exclusively focused on
DIY, homewares, discounters and food, all let off affordable rents.
This occupier profile is best matched with current market demand
and so well placed to pick up rental growth.
We have reorganised our high street retail portfolio over the
last two years, exiting most of the secondary retail locations. We
completed three new lettings in the Period and have terms agreed or
are seeing active demand for the very limited vacant space we have
in the high street portfolio from both retail and leisure
occupiers. Low vacancy rates in prime locations and occupier demand
should be supportive of future rental growth.
In the office portfolio we have identified, or are progressing,
a number of refurbishment opportunities with a keen eye on
environmental improvements. Owners of smaller regional offices are
often not sufficiently well resourced to create high quality small
suite offices that are a match for the larger floorplates. However,
we believe that occupier demand will be focused on higher quality
space to support businesses in attracting their employees back into
the office. We believe that by positioning our office portfolio to
meet occupier demand we will reduce vacancy and drive rental
growth.
Dividends
During the Period the Company paid an interim dividend of 1.25p
per share relating to the quarter ended 30 September 2021, fully
covered by EPRA earnings, and approved an interim dividend per
share of 1.375p for the Period.
The Board intends to pay further quarterly dividends per share
of at least 1.375p to achieve a target dividend11 per share for the
year ending 31 March 2022 of at least 5.25p and for the year ending
31 March 2023 of at least 5.5p.
The Board's objective is to grow the dividend on a sustainable
basis, at a rate which is fully covered by net rental income and
does not inhibit the flexibility of the Company's investment
strategy.
11 This is a target only and not a profit forecast. There can be
no assurance that the target can or will be met and it should not
be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
Acquisitions
On 3 November 2021 the Company acquired 100% of the ordinary
share capital of DRUM REIT for consideration of 20,247,040 new
ordinary shares in the Company, calculated on an 'adjusted
NAV-for-NAV basis', adjusting each company's 30 June 2021 NAV for
respective acquisition costs and adjusting DRUM REIT's property
portfolio valuation to the agreed purchase price of GBP43.5m (31
December 2021 valuation: GBP49.0m).
The Company also invested GBP7.5m in the following asset
acquisitions during the Period:
-- A 29k sq ft industrial unit in York for GBP3.0m occupied by
Menzies Distribution with an annual passingrent of GBP186k,
reflecting a net initial yield12 ("NIY") of 5.9%; and
-- A 46k sq ft retail warehouse in Cromer for GBP4.5m occupied
by Homebase with an annual passing rent ofGBP300k, reflecting a NIY
of 6.3%.
12 Passing rent divided by property valuation plus purchaser's
costs.
Disposals
Owning the right properties at the right time is a key element
of effective property portfolio management, which necessarily
involves periodically selling properties to balance the property
portfolio. Custodian REIT is not a trading company but identifying
opportunities to dispose of assets ahead of valuation or that no
longer fit within the Company's investment strategy is
important.
The Company sold the following properties during the Period for
an aggregate consideration of GBP14.8m:
-- A 42k sq ft car showroom in Stockport for GBP9.0m, GBP1.4m
(18%) ahead of the 30 June 2021 valuation;
-- A 23k sq ft car showroom in Stafford for GBP4.9m, GBP1.15m
(31%) ahead of the 30 June 2021 valuation; and
-- High street retail units in Kings Lynn and Cheltenham at
valuation for an aggregate GBP0.9m.
Asset management
The Investment Manager has remained focused on active asset
management during the Period, completing the following
initiatives:
-- A new 10 year lease with a fifth year tenant break option
with Harbour International Freight on anindustrial unit in
Manchester with an annual rent of GBP316k, increasing valuation by
GBP2.1m;
-- A new 10 year lease with a fifth year tenant break option
with PDS Group on a newly refurbishedindustrial unit in West
Bromwich with an annual rent of GBP395k, increasing valuation by
GBP2.0m;
-- Exchanging agreements for lease for 15 year leases with Tim
Hortons on former Pizza Hut restaurants inLeicester and Watford,
which are to be converted to drive-through restaurants following
Pizza Hut's CVA withaggregate annual rent of GBP275k, increasing
valuations by GBP1.9m;
-- A new 10 year lease with third and fifth year tenant break
options with Ramsdens Financial on a vacantretail unit in Glasgow
with an annual rent of GBP55k, increasing valuation by GBP0.1m;
-- A new 10 year lease with fifth and seventh year tenant break
options with Industrial Control Distributorson an industrial unit
in Kettering with an annual rent of GBP25k, increasing valuation by
GBP0.1m;
-- A new 15 year lease without break with Loungers on a retail
unit in Shrewsbury, with an annual rent ofGBP90k, with no impact on
valuation;
-- A 15 year lease renewal with a tenth year tenant break option
with Smyths Toys on a retail warehouse unitin Gloucester with an
annual rent of GBP130k, with no impact on valuation;
-- A new 10 year lease with a fifth year tenant break option
with Diamonds of Chester Camelot on a vacantretail unit in Chester,
with an annual rent of GBP35k, with no impact on valuation;
-- A new five year lease without break with Midon on an
industrial unit in Knowsley, with an annual rent ofGBP37k, with no
impact on valuation;
-- A new five year lease with a third year tenant break option
with Clogau on a vacant retail unit inShrewsbury with an annual
rent of GBP50k, with no impact on valuation;
-- A six month lease extension with Saint Gobain on an
industrial unit in Milton Keynes, with passing rentincreasing from
GBP265k to a 'premium rent' of GBP441k, with no impact on
valuation; and
-- A short-term four month licence with Royal Mail on a vacant
industrial unit in Redditch for a licence feeof GBP135k, with no
impact on valuation.
Despite the positive impact of these asset management outcomes
EPRA occupancy decreased from 91.6% at 30 September 2021 to 90.9%
primarily due to the acquisition of DRUM REIT which had an EPRA
occupancy rate of 86.1% on acquisition.
In line with the Company's environmental objectives, during the
previous quarter we completed a GBP1.4m 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. Letting this property during
the Period meant rents increased from GBP280k pa (c.GBP4.80 per sq
ft) to GBP395k pa (c.GBP6.75 per sq ft) with valuation increasing
by GBP2.0m.
Borrowings
Custodian REIT and its subsidiaries operate the following loan
facilities:
-- A GBP35m revolving credit facility ("RCF") with Lloyds Bank
plc ("Lloyds") expiring on 17 September 2024with interest of
between 1.5% and 1.8% above SONIA13, determined by reference to the
prevailing LTV ratio of adiscrete security pool. The RCF facility
limit can be increased to a maximum of GBP50m with Lloyds'
approval;
-- A GBP25m RCF with The Royal Bank of Scotland expiring on 30
September 2022 with interest of 1.75% aboveSONIA;
-- A GBP20m term loan with Scottish Widows plc ("SWIP")
repayable on 13 August 2025 with interest fixed at3.935%;
-- A GBP45m term loan with SWIP repayable on 5 June 2028 with
interest fixed at 2.987%; and
-- A GBP50m term loan with Aviva Investors Real Estate Finance
comprising:a. A GBP35m tranche repayable on 6 April 2032 with fixed
annual interest of 3.02%; and b. A GBP15m tranche repayable on 3
November 2032 with fixed annual interest of 3.26%.
Each facility has a discrete security pool, comprising a number
of individual properties, over which the relevant lender has
security and covenants:
-- The maximum LTV of the discrete security pool is between 45%
and 50%, with an overarching covenant on theproperty portfolio of a
maximum 35% LTV; and
-- Historical interest cover, requiring net rental receipts from
each discrete security pool, over thepreceding three months, to
exceed 250% of the facility's quarterly interest liability.
The Company and its subsidiaries complied with all loan
covenants during the Period.
13 The sterling overnight index average ("SONIA") which has
replaced LIBOR as the UK's main interest rate benchmark.
Portfolio analysis
At 31 December 2021 the property portfolio comprised 160 assets
with a NIY of 6.1% (30 Sept 2021: 6.2%). The portfolio is split
between the main commercial property sectors, in line with the
Company's objective to maintain a suitably balanced investment
portfolio. Sector weightings are shown below:
Valuation
Period valuation
31 Dec movement14 Weighting by Weighting by
2021 Weighting by value 31 Period valuation14 income15 income15
Dec 2021 GBPm movement 31 Dec 2021 30 Sep 2021
GBPm
Sector
Industrial 302.4 47% 21.8 8.3% 39% 40%
Retail 120.9 19% 4.8 4.5% 21% 21%
warehouse
Office 88.4 14% (0.3) (0.5%) 16% 13%
Other16 75.0 12% 2.2 2.6% 12% 16%
High street 51.2 8% 0.4 1.1% 12% 10%
retail
Total 637.9 100% 28.9 5.2% 100% 100%
14 Excluding the GBP7.3m increase from acquiring DRUM REIT at a
discount to its NAV.
15 Current passing rent plus ERV of vacant properties.
16 Comprises drive-through restaurants, car showrooms, trade
counters, gymnasiums, restaurants and leisure units.
The Company and its subsidiaries operate 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 property portfolio at 31 December
2021 was as follows:
Valuation
Period valuation Weighting Weighting
31 Dec Weighting by value 31 Dec movement14 by income by income
2021 2021 Period valuation14 15 15
GBPm movement 31 Dec 30 Sep
GBPm 2021 2021
Location
West Midlands 124.9 20% 9.2 8.0% 18% 20%
North-West 114.5 18% 5.3 5.7% 19% 19%
South-East 83.0 13% 2.1 2.6% 13% 14%
East Midlands 78.3 12% 4.4 6.0% 13% 14%
Scotland 70.5 11% 2.0 4.1% 10% 8%
North-East 64.8 10% 2.1 4.3% 12% 9%
South-West 63.6 10% 1.9 3.2% 9% 10%
Eastern 32.4 5% 1.8 6.9% 5% 5%
Wales 5.9 1% 0.1 1.7% 1% 1%
Total 637.9 100% 28.9 5.2% 100% 100%
For details of all properties in the portfolio please see
custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the
Company's website custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which
listed on the main market of the London Stock Exchange on 26 March
2014. Its portfolio comprises properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
principally characterised by properties with individual values of
less than GBP10m at acquisition.
The Company offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. By principally targeting sub GBP10m lot-size,
regional properties, the Company seeks to provide investors with an
attractive level of income with the potential for capital
growth.
Custodian Capital Limited is the discretionary investment
manager of the Company.
For more information visit custodianreit.com and
custodiancapital.com.
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ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 142056
EQS News ID: 1278811
End of Announcement EQS News Service
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