Custodian Property Income REIT plc (CREI) Custodian Property
Income REIT plc: Final results for the year ended 31 March 2023
15-Jun-2023 / 07:00 GMT/BST
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15 June 2023
Custodian Property Income REIT plc
("the Company" or "Custodian Property Income REIT")
Final results for the year ended 31 March 2023
Custodian Property Income REIT (LSE: CREI), which seeks to
deliver an enhanced income return by investing in a diversified
portfolio of smaller regional, core/core-plus properties across the
UK, today announces its final results for the year ended 31 March
2023.
Commenting on the final results, David Hunter, Chairman of
Custodian Property Income REIT, said:
"Our strategy of investing in smaller, regional, core/core-plus
property demonstrated its relative resilience and defensive
qualities this year as the market corrected to the new interest
rate environment, with the Company's portfolio experiencing a 11.8%
like-for-like decline in valuations compared to a 17% market
decrease.
"Since the year end we are beginning to see some optimism
returning to real estate markets following six months of economic
turbulence. Valuations appear to have largely stabilised and the
Company saw a return to a positive quarterly NAV total return per
share in Q4.
"Recurring (EPRA) earnings per share of 5.6p for the year
compares to 5.9p in 2022 and 5.6p in 2021. While capital valuations
have fluctuated, the underlying occupational property market has
remained strong, maintaining relatively stable income returns.
"Capturing rental growth to support earnings is a key focus of
the Investment Manager in the coming year. In an inflationary
environment and with a lack of supply of modern, smaller regional
properties we expect to see continued rental growth. It will be
this growth in income that is likely to form the greater component
of total return over the next phase of the property market and we
believe that Custodian Property Income REIT's strong income
yielding portfolio, supported by higher-than-peer group EPRA
earnings, will underpin shareholder returns."
For further information, 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 Tel: +44 (0)20 7260 1000
Nathan Brown / Hugh Jonathan www.numiscorp.com
FTI Consulting Tel: +44 (0)20 3727 1000
Richard Sunderland / Andrew Davis / Oliver Parsons custodianreit@fticonsulting.com
Custodian Property Income REIT plc Annual Report and Accounts
2023
Custodian Property Income REIT plc ("Custodian Property Income
REIT" or "the Company") is a UK real estate investment trust
("REIT") which seeks to deliver an enhanced income return by
investing in a diversified portfolio of smaller, regional,
core/core-plus properties let to predominantly institutional grade
tenants across the UK.
Property highlights
2023
GBPm Comments
Portfolio value 613.6
Property valuation (91.6) Market movements due to rising interest rates and inflation, largely reversing the GBP94.0m of
decreases[1]: gains in the prior year, explained further in the Investment Manager's report
-- GBP15.0m retail park in Nottingham
-- GBP11.1m distribution unit near Glasgow
Property -- GBP8.9m retail warehouses in Droitwich and Measham
acquisitions[2] 52.6 -- GBP7.5m industrial facility in Grangemouth
-- GBP3.6m high street retail units in Winchester
-- GBP3.5m industrial unit in Chesterfield
-- GBP3.0m drive-through restaurants in York
Primarily comprising:
-- GBP3.6m redeveloping an industrial site in Redditch
Capital investment 11.1 -- GBP3.6m refurbishing industrial assets in Avonmouth and Winsford, offices in
Manchester, a retail warehouse in Swindon and a leisure asset in Crewe
-- GBP1.2m invested in electric vehicle chargers and photovoltaics at various sites
Sale proceeds of GBP28.8m at an aggregate 18% premium to valuation comprising:
-- GBP9.3m shopping centre in Gosforth
Profit on disposal -- GBP8.5m industrial unit in Milton Keynes
[3] 4.4 -- GBP5.6m Audi dealership in Derby
-- GBP2.8m business park offices in Leicester
-- GBP1.4m industrial unit in Kilmarnock
-- GBP0.7m high street retail unit in Weston-Super-Mare
-- GBP0.5m high street retail unit in Bury St Edmunds
Financial highlights and performance summary
2023 2022 Comments
Returns
*EPRA[4] earnings per share 5.6p 5.9p Decreased due to increases in interest rates applicable to variable rate
[5] borrowing and professional fee inflation
Basic and diluted earnings (14.9p) 28.5p
per share[6] Loss for the year a result of GBP91.6m valuation decreases caused by market
sentiment around interest rate rises and inflation
(Loss)/profit before tax (GBPm) (65.8) 122.3
Dividends per share[7] 5.5p 5.25p Target dividend per share for the year ended 31 March 2024 of not less
than 5.5p
*Dividend cover[8] 102.2% 110.3% In line with the Company's policy of paying fully covered dividends
*NAV total return per share (12.5%) 28.4% 4.6% dividends paid (2022: 5.8%) and a 17.1% capital decrease (2022: 22.6%
[9] capital increase)
*Share price total return[10] (7.0%) 17.0% Share price decreased from 101.8p to 89.2p during the year
Capital values
NAV and *EPRA NTA[11] (GBPm) 437.6 527.6
Decreased due to GBP91.6m of valuation decreases
NAV per share and *NTA per 99.3p 119.7p
share
*Net gearing[12] 27.4% 19.1% Broadly in line with the Company's 25% target
*Weighted average cost of 3.8% 3.0% Base rate (SONIA) increased from 0.7% to 4.2% during the year
drawn debt facilities
Costs
*Ongoing charges ratio[13] 1.96% 1.94%
("OCR")
Increases in ESG compliance and professional fee inflation
*OCR excluding direct 1.23% 1.20%
property expenses[14]
Environmental
*Weighted average energy performance certificate C C Continued improvements in the environmental performance
("EPC") rating[15] (58) (61) of the portfolio
*Alternative performance measures - the Company reports
alternative performance measures ("APMs") to assist stakeholders in
assessing performance alongside the Company's results on a
statutory basis, set out above. 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. The Company
uses APMs based upon the EPRA Best Practice Recommendations
Reporting Framework which is widely recognised and used by public
real estate companies. 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 22.
Business model and strategy
Purpose
Custodian Property Income 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 from a portfolio with strong environmental credentials,
becoming the REIT of choice for private and institutional investors
seeking high and stable dividends from well-diversified UK real
estate.
The Board also recognises the importance of stakeholder
interests and keeps these at the forefront of business and
strategic decisions, ensuring the Company:
-- Understands and meets the needs of its occupiers, owning fit
for purpose properties with strongenvironmental credentials in the
right locations which comply with necessary safety regulations;
-- Protects and improves its stable cash flows with long-term
planning and decision making, implementing itspolicy of paying
sustainable dividends fully covered by recurring earnings and
securing the Company's future; and
-- Adopts a responsible approach to communities and the
environment, actively seeking ways to minimise theCompany's impact
on climate change and providing the real estate fabric of the
economy, giving employers a place ofbusiness.
Investment Policy
The Company's investment policy[16] is summarised below:
-- To invest in a diverse portfolio of UK commercial real
estate, principally characterised by individualproperty values of
less than GBP15m at acquisition[17].
-- 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 acquire modern buildings or those considered fit for
purpose by occupiers, focusing on areas with:
-- High residual values;
-- Strong local economies; and
-- An imbalance between supply and demand.
-- No one tenant or property should account for more than 10% of
the rent roll at the time of purchase,except for:
-- Governmental bodies or departments; or
-- Single tenants rated by Dun & Bradstreet as having a
credit risk score worse than two[18], where exposuremay not exceed
5% of the rent roll.
-- The Company will not undertake speculative development,
except for the refurbishment or redevelopment ofexisting holdings,
but may invest in forward funding agreements where the Company may
acquire pre-let developmentland and construct investment property
with the intention of owning the completed development.
-- The Company may use gearing provided that the maximum
loan-to-value ("LTV") shall not exceed 35%, with amedium-term net
gearing target of 25% LTV.
The Board reviews the Company's investment objectives at least
annually to ensure they remain appropriate to the market in which
the Company operates and in the best interests of shareholders.
Differentiated property strategy
The Company's portfolio is focused on smaller, regional,
core/core-plus assets which helps achieve our target of high and
stable dividends from well-diversified real estate by offering:
-- An enhanced yield on acquisition - with no need to sacrifice
quality of property/location/tenant orenvironmental performance for
income and with a greater share of value in 'bricks and
mortar';
-- Greater diversification - spreading risk across more assets,
locations and tenants and offering morestable cash flows; and
-- A higher income component of total return - driving
out-performance with forecastable and predictablereturns.
Success in achieving the Company's performance and ESG
objectives is, in part, measured by performance against key
performance indicators set out in detail in the Financial review
and ESG Committee reports respectively. The Principal risks and
uncertainties section of the Strategic Report sets out potential
risks in achieving the Company's objectives.
Richard Shepherd-Cross, Investment Manager, commented: "Our
smaller-lot specialism has consistently delivered significantly
higher yields without exposing shareholders to additional risk".
Growth strategy
The Board is committed to seeking further growth in the Company
to increase the liquidity of its shares and reduce ongoing charges.
Our growth strategy involves:
-- Organic growth through share issuance at a premium to
NAV;
-- Broadening the Company's shareholder base, particularly
through further penetration into onlineplatforms;
-- Becoming the natural choice for private clients and wealth
managers seeking to invest in UK real estate;
-- Taking market share from failing open-ended funds; and
-- Strategic property portfolio acquisitions and corporate
consolidation.
The Board ensures that property fundamentals are central to all
decisions. Diverse portfolio
Annual passing
rent % portfolio
income
(GBPm)
Top 10 tenants Asset locations
Menzies Distribution Aberdeen, Edinburgh, Glasgow, Ipswich, Norwich, Dundee, 1.5 3.7%
Swansea, York
B&M Retail Swindon, Ashton-under-Lyne, Plymouth, Carlisle 1.3 3.0%
Wickes Building Supplies Winnersh, Burton upon Trent, Southport, Nottingham 1.2 2.8%
B&Q Banbury, Weymouth 1.0 2.4%
Matalan Leicester, Nottingham 1.0 2.3%
DFS Droitwich, Measham 0.9 2.1%
First Title (t/a Enact Leeds 0.6 1.5%
Conveyancing)
Homebase Leighton Buzzard, Cromer 0.6 1.5%
Regus (Maidstone West West Malling 0.6 1.5%
Malling)
Gist Glasgow 0.6 1.5%
Weighting
31 March 2023
Weighting by income Location
31 March 2023
Sector West Midlands 19%
North-West 19%
Industrial 40% East Midlands 14%
Retail warehouse 23% South-East 13%
Office 16% Scotland 12%
Other 13% South-West 10%
High street retail 8% North-East 8%
Wales 1%
Our environmental, social and governance ("ESG") objectives
-- Improving the energy performance of our buildings - investing
in carbon reducing technology,infrastructure and onsite renewables
and ensuring redevelopments are completed to high environmental
standards
-- Reducing energy usage and emissions - liaising closely with
our tenants to gather and analyse data on theenvironmental
performance of our properties to identify areas for improvement
-- Achieving positive social outcomes and supporting local
communities - engaging constructively withtenants and local
government to ensure we support the wider community through local
economic and environmentalplans and strategies and playing our part
in providing the real estate fabric of the economy, giving
employers safeplaces of business that promote tenant well-being
-- Understanding environmental risks and opportunities -
allowing the Board to maintain appropriategovernance structures to
ensure the Investment Manager is appropriately mitigating risks and
maximisingopportunities
-- Complying with all requirements and reporting in line with
best practice where appropriate - exposing theCompany to public
scrutiny and communicating our targets, activities and initiatives
to stakeholders Investment Manager
Custodian Capital Limited ("the Investment Manager") is
appointed under an investment management agreement ("IMA") to
provide property management and administrative services to the
Company. Richard Shepherd-Cross is Managing Director of the
Investment Manager. Richard has over 25 years' experience in
commercial property, qualifying as a Chartered Surveyor in 1996 and
until 2008 worked for JLL, latterly running its national portfolio
investment team.
Richard established Custodian Capital Limited as the Property
Fund Management subsidiary of Mattioli Woods plc ("Mattioli Woods")
and in 2014 was instrumental in the launch of Custodian Property
Income REIT from Mattioli Woods' syndicated property portfolio and
its 1,200 investors. Following the successful IPO of the Company,
Richard has overseen the growth of the Company to its current
property portfolio of over GBP600m.
Richard is supported by the Investment Manager's other key
personnel: Ed Moore - Finance Director, Alex Nix - Assistant
Investment Manager and Tom Donnachie - Portfolio Manager, along
with a team of five other surveyors and four accountants.
Chair's statement
The year to 31 March 2023 was a year of two halves. In the six
months to September a market driven by weight of incoming capital
and cheap debt pushed market valuations to levels that swiftly
became unsupportable in the face of rising interest rates in the
second half of the year. Custodian Property Income REIT's strategy
of investing in smaller regional property demonstrated its relative
resilience and defensive qualities as the market corrected to the
new interest rate environment, with its portfolio experiencing a
11.8% like-for-like decline in valuations during the year of
GBP91.6m (2022: increase of GBP94.0m) compared to a 17%[19] market
decrease. However, since the year end we are beginning to see some
optimism returning to real estate markets following six months of
economic turbulence. Property pricing has reacted promptly to the
new interest rate environment and to punishing refurbishment/build
cost inflation, allowing the market to continue to function despite
transaction levels remaining low.
Valuations appear to have largely stabilised and the Company saw
a return to a positive quarterly NAV total return per share in Q4.
NAV total return per share for the year was -12.5%, compared to
+28.4% last year and these significant variations in the headline
return demonstrate the extreme impact of volatile valuations which
are driven by market sentiment. This volatility reinforces our view
that NAV is a poor measure of underlying performance, believing
instead that we should follow the US approach of focusing on EPRA
earnings per share ("EPRA EPS" or funds from operations). EPRA EPS
was 5.6p for the year which compares to 5.9p in 2022 and 5.6p in
2021. While capital valuations have fluctuated, the underlying
occupational property market has remained strong, maintaining
relatively stable income returns.
Dividends
Acknowledging the importance of income for shareholders the
Board was pleased to maintain the rate of quarterly dividends
during the second half of the year taking the total dividends
declared for the year to 5.5p per share (2022: 5.25p). This
dividend was one of the highest fully covered dividends amongst the
Company's peer group of listed property investment companies[20]
for the year ended 31 March 2023 and, in line with the Company's
policy, was 102% covered by EPRA earnings.
The Company is targeting a dividend per share of at least 5.5p
per share for the year ending 31 March 2024. Strategy for future
growth
We continue to believe that there is a strong case for
consolidation amongst the subscale listed REITs, with much of the
market trading at persistently high discounts to NAV. In this
respect, and given our low discount to NAV relative to much of the
listed REIT sector, we intend to seek opportunities to purchase
complementary portfolios via mergers or corporate acquisitions,
similar to our acquisition of Drum Income Plus REIT plc ("DRUM") in
2021.
Net asset value
The NAV of the Company at 31 March 2023 was GBP437.6m,
approximately 99.3p per share, a decrease of 20.4p or 17.0% since
31 March 2022 (2022: increase of 22.1p or 22.6%):
Pence per share GBPm
NAV at 31 March 2022 119.7 527.6
Valuation decrease before acquisition costs (20.7) (91.6)
Impact of asset acquisition costs (0.8) (3.4)
Valuation decrease including acquisition costs (21.5) (95.0)
Profit on disposal of investment property 1.0 4.4
Net loss on investment property (20.5) (90.6)
EPRA earnings 5.6 24.8
Dividends paid[21] (5.5) (24.2)
NAV at 31 March 2023 99.3 437.6
The valuation decrease before acquisition costs of GBP91.6m
largely reversed the GBP94.0m gains in the year to 31 March 2022
despite improving prospects for rental growth across the portfolio.
A property valuation commentary is detailed in the Investment
Manager's report. The market
Much of the optimism in real estate is due to the prospect of
rental growth which is the key component of anticipated total
returns. In an inflationary environment, real returns from real
assets can be achieved when rents are growing. The Company's
portfolio has an EPRA net initial yield[22] of 5.8% and an
equivalent yield[23] of 7.3%, demonstrating the reversionary
potential of the Company's properties, which we continue to
capture.
Our asset management of the portfolio and the types of assets we
own are focused on where occupational demand is strongest, allowing
us to lease vacant space across all sectors and deliver rental
growth. This has supported EPRA earnings per share and underpins
the Company's long-term track record of paying a fully covered
dividend.
Custodian Property Income REIT's balance sheet resilience, with
low gearing and a longer-term fixed rate debt profile, has left the
Company well insulated from the negative impact of interest rate
rises. Rental growth feeding into the portfolio will create
headroom for eventual refinancing.
Borrowings
In June 2022 the Company arranged a GBP25m tranche of 10 year
debt with Aviva Real Estate Investors ("Aviva") at a fixed rate of
interest of 4.10% per annum to refinance a GBP25m variable rate
revolving credit facility with Royal Bank of Scotland ("RBS") which
was due to expire in September 2022.
This refinancing mitigated interest rate risk and refinancing
risk for shareholders and increased the proportion of the Company's
drawn debt facilities that are at fixed rates of interest to 81% at
31 March 2023. The refinancing also maintained the accretive margin
between the Company's 3.8% weighted average cost of debt and
property portfolio EPRA topped-up net initial yield[24] of 6.2%.
Investment Manager
The performance of the Investment Manager is reviewed each year
by the Management Engagement Committee. During the year the fees
charged by the Investment Manager were GBP4.5m (2022: GBP4.4m) in
respect of annual management, administrative and transaction
fees.
Further details of fees payable to the Investment Manager are
set out in Note 19.
The Board is pleased with the performance of the Investment
Manager, particularly its effective communication programme with
shareholders, continued successful asset management initiatives and
capital improvements to the Company's portfolio, which mitigated
decreases in valuations, enhanced the environmental performance and
maintained occupancy and income. As a result the Board believes the
continued appointment of the Investment Manager is in the interests
of the shareholders as a whole.
In light of additional work required to achieve the Company's
environmental objectives the Board has agreed, with effect from 1
April 2022, to amend the rates applicable in calculating
administrative fees payable to the Investment Manager under the IMA
(detailed in Note 19). A rate increase for NAV between GBP200m and
GBP500m has resulted in administrative fees increasing by GBP95k
for the year with a projected additional annual fee of GBP83k based
on the year-end NAV of GBP437.6m. However, rate decreases
applicable to NAV in excess of GBP500m mean that this fee
differential decreases with growth in NAV beyond GBP500m and the
rate changes, in aggregate, will decrease the overall
administrative fee if NAV exceeds GBP950m. The Board believes this
fee change is in the long-term interest of shareholders and is
satisfied that the Investment Manager's performance remains aligned
with the Company's purpose, values and strategy.
Board succession and tenure
In line with the Company's succession plan, Matthew Thorne
retired as a director at the 31 August 2022 AGM and I intend to
retire as a Director at the 8 August 2023 AGM following our
respective eight and nine years of service.
Where possible, the Board's policy is to recruit successors well
ahead of the retirement of Directors. Responding pre-emptively to
these departures we were delighted to welcome Malcolm Cooper and
David MacLellan, who joined the Board on 6 June 2022 and 9 May 2023
respectively. Their appointments bring a wealth of experience and
skills including leadership, financial expertise, property and
governance.
The Company's independent Directors are appointed on an initial
three-year term, with a typical expectation that two, three-year
terms will be served, plus the potential to be invited to serve for
an additional three-year period. The Company's succession policy
allows for a Chair 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.
Diversity
The Board is conscious of the importance stakeholders place on
diversity and understands a diverse Board brings constructive
challenge and fresh perspectives to discussions.
The Company follows the AIC Code which recommends:
-- The Board has a combination of skills, experience and
knowledge; and
-- Both appointments and succession plans should be based on
merit and objective criteria and, within thiscontext, should
promote diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths.
The Board's positive approach to diversity means that, where
possible, each time a director is recruited at least one of the
shortlist candidates is female and at least one of the shortlist
candidates is from a minority ethnic background. During both
recruitment processes a number of female candidates and at least
one candidate from a minority ethnic background were interviewed.
Neither David MacLellan nor Malcolm Cooper are from minority ethnic
backgrounds and the appointments were made based on skillset and
experience, particularly having chaired the Board and Audit
Committees of other listed or investment entities.
The Board supports the overall recommendations of the FTSE Women
Leaders Review and Parker Reviews for appropriate gender and ethnic
diversity. During the year the FCA has introduced 'comply or
explain' targets of:
-- At least 40% of the board should be women;
-- At least one of the senior board positions (Chair, Chief
Executive Officer, Chief Financial Officer orSenior Independent
Director ("SID") should be a woman; and
-- At least one member of the board should be from a minority
ethnic background.
At the year end, the Company only meets one of the three
criteria above, as Elizabeth McMeikan acts as the Senior
Independent Director. In line with the requirements of listing rule
LR 9.8.6, the Board's ethnicity and gender balance at the year-end
is shown in tabular format below. No other categories of ethnicity
are relevant for the Company and as the Company has no executive
directors it has not reported the fields and the corresponding data
relating to executive management in the table below as required by
listing rule 15.4.29RB.
Number of senior positions on the board
Number of board Percentage of (SID and Chair)
members the board
White British or other White (including
minority-white groups) 6 100% 2
Female 2 33% 1
Male 4 67% 1
This information has been collected by self-disclosure directly
from the individuals concerned who were asked to confirm their
gender and ethnicity.
Custodian Property Income REIT is an investment company with no
Executive Directors and a small Board compared to equivalent size
listed trading companies. As a result, the Company does not comply
with the newly introduced diversity targets.
The Committee considers diversity in a broad sense, not limited
to gender or ethnicity, including socio-economic background and
education. 14% of the Board are from working class backgrounds[25]
and 57% attended state-run schools.
The Board welcomes the diversity offered by the Investment
Management team working with the Company, which has a 33% ethnic
minority representation and is 33% female.
Environmental, social and governance
The Board recognises that its decisions have an impact on the
environment, people and communities. The Board also believes that
the Company's property strategy and ESG aspirations create a
compelling rationale to make environmentally beneficial
improvements to its property portfolio and incorporate ESG best
practice into everything the Company does.
The Company's ESG Committee: develops the Company's
environmental key performance indicators ("KPIs") and monitors its
performance against them; ensures it complies with its
environmental reporting requirements and best practice; assesses
the engagement with the Company's environmental consultants; and
assesses the level of social outcomes being achieved for its
stakeholders and the communities in which it operates.
The Company's ESG policy outlines our approach to managing ESG
impacts and provides the framework for setting and reviewing
environmental and social objectives to ensure we are continuously
improving our performance and setting a leadership direction.
As a result, the Board has committed to:
-- Understanding environmental risks and opportunities;
-- Improving the energy performance of our buildings;
-- Reducing energy usage and emissions;
-- Achieving positive social outcomes and supporting local
communities; and
-- Complying with all requirements and reporting in line with
best practice where appropriate.
Progress towards these commitments during the year and details
of the Company's environmental policy and performance against its
targets are contained within the ESG Committee report within the
Strategic report.
The Board is determined to ensure the Company's expected pathway
towards net zero carbon fits with stakeholder expectations and the
Company's property strategy. We see the careful implementation of a
practical carbon reduction strategy as a crucial next step in the
Company's ESG journey and during the course of the year ending 31
March 2024 we will publish a detailed plan to achieve this.
Case study - Winsford
The previous tenant at this site vacated in June 2022 and
alongside the required dilapidations works we have recently
completed an extensive refurbishment of the site including the
following which have significantly improved the building's ESG
credentials and futureproofed the site:
-- LED lighting across the warehouse and office space;
-- Decarbonisation of the site by removing the gas boiler and
replacing with an air source heat pump system;and
-- 12 EV charging points installed for the tenant's usage.
The site also benefits from the installation of photovoltaics
("PV") which will be utilised by the incoming tenant, with any
surplus to be sold back to a distribution network operator to
assist with the shortfall of green energy currently available in
the UK. This assists with investment returns of the PV with
providers offering between 5-20p/ kWh for surplus energy
produced.
Company name
To better reflect the Company's focus on income and to
facilitate retail investors more easily identifying the Company's
shares via online platforms, the Board changed the Company's name
from Custodian REIT plc to Custodian Property Income REIT plc at
the 31 August 2022 AGM.
Investment policy
Since IPO the Company has sought to provide enhanced income
returns from UK real estate by following a smaller lot-sized,
regional property strategy, and we expect this approach to continue
in the future.
As market demand has changed over time, the properties that
provide the enhanced income characteristics targeted by the Company
have also changed, and the Company's Investment Policy relating to
maximum lot-size and weighted average unexpired lease term has been
updated a number of times in response.
While smaller lot-size properties will continue to dominate the
strategy, we believe their characteristics can be found in a wider
range of properties that offer the same enhanced income
characteristics, which are not purely defined by lot-size.
Commercial real estate equity investments are classified into
three strategies:
-- Core - generally lowest risk and target returns;
-- Core-plus - generally low-to-moderate risk and target
returns; and
-- Value add - generally moderate-to-higher risk and target
returns.
The Custodian Property Income REIT strategy is best defined as a
balance between core and core-plus strategies. Its core strategy
delivers stable, long-term income from predominantly smaller
regional properties and the core-plus strategy provides enhanced
income through asset management or differentiated location, lease
length, tenant covenant or sector. We believe that 'core/core-plus'
best describes Custodian Property Income REIT's strategy, providing
no greater volatility in underlying values and a better risk and
return reward than a pure core strategy.
Accordingly, to better align the Investment Policy with the
Company's property strategy, and to provide more flexibility when
considering future acquisitions, the Board recommends that
shareholders approve changing the Company's Investment Policy,
using this well-established terminology rather than lot-size, as
follows (wording added or deleted is shown in underline and
strikethrough respectively):
"To invest in a diversified portfolio of UK commercial real
estate principally characterised by smaller, regional,
core/core-plus properties that provide enhanced income returns.
individual values of less than GBP15 million at acquisition."
Outlook
The Company enjoys the support of a wide range of shareholders
with the majority classified as private client or discretionary
wealth management investors. The Company's investment and dividend
strategy and diversified portfolio are well suited to investors
looking for a close proxy to direct real estate investment but in a
managed and liquid structure.
Capturing rental growth to support earnings is a key focus of
the Investment Manager as discussed in its report. In an
inflationary environment and with a lack of supply of modern,
smaller regional properties we expect to see continued rental
growth over the year ahead. Furthermore, where we can provide space
that meets the modern environmental standards demanded by both
legislation and tenants, we expect to see additional rental
growth.
It will be this growth in income that is likely to form the
greater component of total return over the next phase of the
property market and we believe that Custodian Property Income
REIT's strong income yielding portfolio, supported by
higher-than-peer group EPRA EPS, will underpin shareholder
returns.
David Hunter
Chair
14 June 2023
Investment Manager's report
The UK property market
Despite investment market volatility during 2022, in many ways
the real estate market is in a much better place than it has been
for the last 18 months. Rent collection levels are very strong,
COVID-19 restrictions appear to be behind us and the impact of
COVID-19 on tenants' businesses is largely resolved. The economy
has, thus far, narrowly avoided recession but even in a slowdown we
are not faced with an over-supply of real estate and rising vacancy
rates which are so often associated with the property market in
recession.
In the 12 months to 31 March 2023 the UK commercial property
market saw valuations decline by 17% with the bulk of the rerating
in the quarter to December 2023. These valuation decreases were
primarily due to changes in the macro-economic environment
including heightened uncertainty from rising inflation, slowing
economic growth, the energy crisis, increasing interest rates,
stresses in supply chains, constraints in the labour market and low
consumer spending against the backdrop of seeking to mitigate the
impact of climate change. The Company's portfolio experienced a
more muted fall of 11.8% like-for-like and we believe this lower
volatility is primarily due to Custodian Property Income REIT's
smaller regional property strategy and focus on income returns.
Firstly, the Company's valuations did not 'overheat' during
mid-2022 to the same extent as, say, prime logistics. Secondly, the
diversified strategy provided a softer landing as sub-sectors such
as high street retail, drive through restaurants and car showrooms
saw much less pricing volatility than logistics. With valuations
appearing to have stabilised it is possible to see the rapid
correction due to the new interest rate environment as strongly
positive for the market, maintaining liquidity and providing future
acquisition opportunities. The table below shows the reversionary
potential of the portfolio by sector once, by comparing EPRA net
initial yields ("NIY") to the equivalent yield, which factors in
expected rental growth and the letting of vacant units. Across the
whole portfolio, valuers' estimated rental values are 16% ahead of
passing rent and while part of the reversionary potential is due to
vacancy, the balance is this latent rental growth which will be
unlocked at rent review and lease renewal.
EPRA Topped-up NIY[27]
Equivalent yield[26]
31 March 2023 EPRA NIY[28]
31 March 2023
Sector 31 March 2023
Industrial 6.6% 5.1% 4.9%
Retail warehouse 7.3% 7.2% 6.7%
Other 8.0% 6.8% 6.3%
Office 8.9% 6.4% 5.4%
High street retail 8.6% 9.6% 9.4%
Portfolio total 7.3% 6.2% 5.8%
Retail warehousing has been a key sector for acquisitions for
some time and it demonstrated extraordinary resilience through the
pandemic, particularly in our favoured sub-sectors of food,
homewares, DIY and the discounters. Vacancy rates are very low and
future rental growth appears affordable for occupiers.
In the office sector, a much clearer picture is emerging of how
tenants will use and occupy offices in the new world of hybrid
working. Occupiers are demanding much higher levels of amenity both
from their offices and from their office locations. This favours
modern, flexible office space in city centre locations with strong
transport links and high environmental credentials. Where this
space can be provided there appears to be meaningful rental growth,
but conversely office space that cannot meet these criteria risks
becoming obsolete and will need to be re-purposed. In our portfolio
we have seen strong rental growth in Oxford and central Manchester
where we are currently refurbishing offices to meet the new market
demand.
Rental growth remains strong in the industrial and logistics
sector which accounts for 40% of the Company's rent roll and 48% of
the portfolio by value. Lack of supply, limited development of
smaller and mid-box industrial units and construction cost
inflation have all combined to heighten occupational demand and
produce low vacancy rates, driving rental growth for new-build
regional industrial units and well specified, refurbished
space.
We have reorganised our high street retail portfolio over the
last two years, exiting most of the secondary retail locations. We
have let three vacant high street properties during the year and
have terms agreed or are seeing active demand for the very limited
remaining 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.
Prevailing investment approach
Based on our assessment of the current market, our strategy of a
regionally focused diversified portfolio, set out below, has proven
resilient and we expect to continue to reinvest the proceeds from
selective disposals. In particular we intend to focus on:
-- Maintain weighting to industrial and logistics - assets in
this sector still have latent rental growth,and strong occupier
demand for small/mid-box units;
-- Retail warehousing let off low rents which should recover
from 2021 levels;
-- Selective regional offices with a focus on strong city centre
locations instead of out-of-town businessparks;
-- Drive-through expansion involving acquisition and development
where rental growth is anticipated;
-- Selective high street retail assets in the country's
strongest locations where rents have stabilised andthere is
potential for growth; and
-- Refurbishment of existing property, maximising all
opportunities to invest in the quality of our assetsand support our
ESG goals.
Sectoral view
Industrial and logistics
The recent rerating of market pricing was most acute in the
industrial and logistics sector and most particularly for large
prime distribution units where the margin over the cost of money
disappeared as debt costs escalated. While smaller regional
industrial assets were also re-rated the impact was less severe.
Low vacancy rates in the industrial sector are still driving rental
growth and take up continues to be at or above long-term averages
according to CBRE. A restricted supply should lead to an increase
in development activity but to generate the necessary gross
development value required to bring forward new developments,
higher investment yields and increased costs of finance, labour and
materials dictate that rents should continue to grow.
In summary:
-- Occupational demand is robust; supply is tight
-- Vacancy rate below the long-term average
-- Latent rental growth potential
-- Target sector for well-priced opportunities
High street retail
We have been a seller of smaller retail units in market towns
where we do not forecast rental growth. However, we are holders in
prime locations where rents appear to have bottomed out or are even
seeing a slight recovery, and lower rents are supporting occupier
demand and reducing vacancy rates and void periods.
In summary:
-- Over-supply - rents have suffered but are bottoming out
-- Yields are high in this unfashionable area
Retail warehouse
Out-of-town retail saw great pricing volatility throughout the
year to March 2023, but has shown early stability and some growth
in investor demand post year-end. The combination of convenience,
lower costs per square foot and the complementary offer to online
retail has kept these assets trading strongly, most notably amongst
DIY, discounters, homewares and food retailers, which should prove
defensive if consumer spending levels decrease. As the second
largest sector in the Custodian Property Income REIT portfolio, the
recovery in market sentiment towards out-of-town retail is positive
and vacancy rates remain low.
In summary:
-- Units let off low rents
-- Lower costs of occupation
-- Complementary to online
Offices
While there is talk of 'stranded assets' that are incapable of
meeting modern environmental standards, obsolescence in commercial
property and particularly in offices is a well understood concept.
For many years offices have required regular updating and
refurbishment to meet current fashions or requirements. The focus
on environmental improvements is little different and we believe
that the offices in the portfolio will be able to keep up with
modern requirements or be profitably re-purposed. Other
Weighting Weighting
by income by income
31 March 2023 31 March 2022
Sub-sector of 'Other' sector assets
Pub and restaurant 20% 18%
Gym 18% 20%
Drive-through 17% 14%
Motor trade 16% 24%
Leisure 13% 8%
Trade counter 8% 8%
Other 8% 8%
Total of 'Other' sector 100% 100%
The additional diversification provided by the 'other' or
'alternative' sector of the commercial property market has long
been a key differentiator and mitigator of risk for the Company. It
continues to be a target sector with opportunities for the
development of drive-through units being explored on existing sites
and the roll out of public access EV chargers on retail parks
adding to the rent roll. Property portfolio balance
Property portfolio summary
2023 2022
Property portfolio value GBP613.6m GBP665.2m
Separate tenancies 319 339
EPRA occupancy rate 90.3% 89.8%
Assets 161 160
Weighted average unexpired lease term to first break of expiry ("WAULT") 5.0 years 4.7 years
EPRA topped-up NIY 6.2% 5.5%
Weighted average EPC rating C (58) C (61)
The property portfolio is split between the main commercial
property sectors in line with the Company's objective to maintain a
suitably balanced investment portfolio. The Company has a
relatively low exposure to office and high street retail combined
with a relatively high exposure to industrial and to alternative
sectors, often referred to as 'other' in property market analysis.
The current sector weightings are:
Valuation Weighting Valuation Weighting
by income by income Valuation Valuation movement
31 March [29] 31 March movement before including
2023 2022 31 March acquisition costs acquisition costs
31 March GBPm Weighting by Weighting by
GBPm GBPm 2022 GBPm value 31 value 31
2023 March 2023 March 2022
Sector
Industrial 295.1 40% 325.1 38% (53.0) (54.4) 48% 49%
Retail 131.8 23% 125.4 21% (17.7) (19.4) 21% 19%
warehouse
Other 78.6 13% 76.9 13% 2.0 1.9 13% 12%
Office 71.7 16% 88.1 17% (15.6) (15.6) 12% 13%
High street 36.4 8% 49.7 11% (7.3) (7.5) 6% 7%
retail
Total 613.6 100% 665.2 100% (91.6) (95.0) 100% 100%
For details of all properties in the portfolio please see
custodianreit.com/property/portfolio. Acquisitions
The Company invested GBP52.6m (excluding acquisition costs)
during the year, described below:
-- The 70,160 sq ft Springfield Retail Park in Nottingham for
GBP15.0m comprising four units occupied byWickes, Matalan,
Poundland and KFC. The leases have a WAULT of nine years with an
aggregate passing rent of GBP994kper annum, reflecting a NIY[30] of
6.21%;
-- A 91,955 sq ft distribution facility on Eurocentral park
between Edinburgh and Glasgow for GBP11.125m letto Gist on a
five-year lease with third year break option. The annual rent is
GBP623k reflecting a NIY of 5.25% withan expected reversionary
yield[31] of 7.0%;
-- Two retail warehouses covering an aggregate 40,077 sq ft in
Droitwich and Measham for GBP8.9m. Both unitsare let to DFS with an
aggregate WAULT of 8.0 years and aggregate annual passing rent of
GBP894k reflecting a NIY of9.43%;
-- An 86,922 sq ft industrial facility in Grangemouth for
GBP7.5m let to Thornbridge Sawmills for a further 18years. The unit
has a passing rent of GBP388k per annum, with a reversion in
September 2023 linked to RPI, which isexpected to reflect a net
reversionary yield of 5.5%;
-- Two retail units on Winchester high street covering an
aggregate 5,228 sq ft for GBP3.65m let to NationwideBuilding
Society and Hobbs. The tenants' leases expire in April 2028 and
December 2031 respectively and arecurrently at an aggregate current
passing rent of GBP249k per annum, reflecting a NIY of 6.41%;
-- A 47,882 sq ft industrial facility near Chesterfield let to
Container Components with 20 years remainingon the lease for
GBP3.5m. The property produces an index linked passing rent of
GBP227k per annum, reflecting a NIY of6.10%; and
-- Two drive-through restaurants on Clifton Moor Retail Park,
York for GBP3.025m. The units are occupied byBurger King and KFC
franchisees with a WAULT of 9.7 years and an aggregate passing rent
of GBP163k per annum,reflecting a NIY of 5.07%.
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 Property Income 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 year for an
aggregate consideration of GBP28.8m:
-- A shopping centre in Gosforth for GBP9.3m, which had been
part of the purchase of DRUM REIT in November2021, for a 3.5%
premium to the GBP8.975m apportioned value of the asset at
purchase. Since acquisition, the assethas produced rental income of
c. GBP0.9m with the completion of several asset management
activities increasingoccupancy and extending contractual lease
terms;
-- An industrial unit in Milton Keynes to a special purchaser
for GBP8.5m, reflecting a 73% premium tovaluation
-- An Audi car dealership in Derby for GBP5.6m, GBP1.2m ahead of
valuation;
-- Business park offices in Leicester for GBP2.8m at valuation
where minimal future rent and valuation growthwas expected;
-- An industrial unit in Kilmarnock at auction for GBP1.4m, 12%
ahead of valuation. The unit's environmentalcredentials did not fit
with the Company's ESG objectives and it was not considered
practical to mitigate theserisks;
-- A high street retail unit in Weston-Super-Mare at valuation
for GBP0.7m; and
-- A high street retail unit in Bury St Edmunds at auction for
GBP0.5m, GBP0.1m (35%) ahead of valuation.
Since the year end the Company has sold a retail unit in
Cirencester at valuation for proceeds of GBP0.7m.
ESG
The sustainability credentials of both the building and the
location have become ever more important for occupiers and
investors. As Investment Manager we are absolutely committed to
achieving the Company's challenging goals in relation to ESG and
believe the real estate sector should be a leader in this
field.
Until recently we considered the environmental impact of real
estate and the management of the portfolio as separate issues. It
is now central to the asset management of the portfolio with the
moral imperative, legislation and importantly financial advantage
all pulling together to keep our focus on improving environmental
performance, as measured by the EPC.
Happily, our efforts in this regard are reflected in greater
tenant demand, additional rental growth and, increasingly, in
valuations.
As EPC requirements of the Minimum Energy Efficiency Standards
("MEES") tighten we expect to maintain a compliant portfolio of
properties. With energy efficiency a core tenet of the Company's
asset management strategy and with tenant requirements aligning
with our energy efficiency goals we see the advance of MEES as an
opportunity to secure greater tenant engagement and higher
rents.
Outlook
We remain confident that our ongoing intensive asset management
of the portfolio, which still offers a number of wide-ranging
opportunities to add value, will unlock its reversionary potential,
enhance cash flow and support consistent returns. Coupled with the
strength of the Company's balance sheet, this should continue to
support our high income return strategy.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
14 June 2023
ESG Committee report
Composition and designation
The ESG Committee ("the Committee") comprises Hazel Adam as
Chair, Malcolm Cooper and Elizabeth McMeikan, all of whom are
independent non-executive directors.
Reporting
The Committee was delighted to publish its inaugural ESG Report
earlier this year which is available at:
custodianreit.com/wp-content/uploads/2023/03/ESG%20Report%202023.pdf
This report contains details of the Company's ESG approach,
successes and aspirations along with case studies of recent
positive steps taken to improve the environmental performance of
the portfolio.
Responsibilities
The Committee's key responsibilities are:
-- To develop the Company's environmental KPIs, monitor
performance against those KPIs and ensure theInvestment Manager is
managing its property portfolio in line with the ESG policy;
-- To ensure the Company complies with its external reporting
obligations and best practice on ESG mattersincluding the Global
Real Estate Sustainability Benchmark ("GRESB"), EPRA and
Streamlined Energy and Carbon Report("SECR");
-- To assess, at least annually, the fees and scope of
engagement of the Company's environmentalconsultants; and
-- To assess whether the Company is obtaining a suitable level
of social outcomes for its tenants, otherstakeholders and the
communities in which it operates.
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 matters addresses the importance of these
issues in the day-to-day running of the business, as summarised
below. ESG approach
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 ownership. Sites are visited on a regular basis by the
Investment Manager and any obvious environmental issues are
reported.
Social - Custodian Property Income REIT strives to manage and
develop buildings which are safe, comfortable and high-quality
spaces. As such, the safety and well-being of occupants of our
buildings is paramount.
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:
-- Improving the energy performance of our buildings - investing
in carbon reducing technology,infrastructure and onsite renewables
and ensuring redevelopments are completed to high environmental
standards.
-- Reducing energy usage and emissions - liaising closely with
our tenants to gather and analyse data on theenvironmental
performance of our properties to identify areas for
improvement.
-- Achieving positive social outcomes and supporting local
communities - engaging constructively withtenants and local
government to ensure we support the wider community through local
economic and environmentalplans and strategies and playing our part
in providing the real estate fabric of the economy, giving
employers safeplaces of business that promote tenant
well-being.
-- Understanding environmental risks and opportunities -
allowing the Board to maintain appropriategovernance structures to
ensure the Investment Manager is appropriately mitigating risks and
maximisingopportunities
-- Reporting in line with best practice and complying with all
requirements - exposing the Company to publicscrutiny and
communicating our targets, activities and initiatives to
stakeholders
Environmental key performance indicators
The Company's environmental targets are measured by key
performance indicators ("KPIs"), which provide a strategic way to
assess its success towards achieving its environmental objectives
and ensure the Investment Manager has embedded key ESG
principles.
To help the assessment of progress against KPIs a central data
management system, hosted by the Company's environment consultants,
has been established to provide a robust data collation and
validation process. As 2023 KPIs have changed to monitor landlord
and tenant performance, this data management system will allow us
to identify data inefficiencies and improve data collection. This
data management system is also being used to identify tenant
engagement and asset optimisation opportunities and facilitates the
communication of environmental performance data to various
stakeholders.
The Company's performance against its KPIs is set out below:
Area Target Progress during the year
31 x 62.5kW or 75kW chargers (2,125kW/hr of capacity) are currently
active across the public facing assets in the portfolio.
Increase EV charging capacity to the
following by 2025[32]:
-- 4,200 kW/hr[33] across Works are in progress at a further three sites with installing 6 x
retail warehouse and other 75kW chargers (450kW/hr capacity), and we are in discussions with
sector assets; and suppliers to install a further 12 x 62.5kW chargers.
-- 980 kW/hr[34] across
office and industrial assets
Our non-public facing assets (office and industrial) have 23 x 7kW
chargers totalling 161kW/hr of capacity with a further 117
installations planned.
PV has been installed on two of the six redevelopments and major
refurbishments which took place during the year (33%). The plans
Install on-site renewable for the refurbishment of other assets were agreed before this KPI
electricity generation at 75% of was set. Ongoing PV and air source heat pumps installed at
redevelopments and major Trafford Park and Winsford refurbishments and such installations
Physical refurbishments are planned in Ashby. We are actively working with our largest
building tenant, Menzies Distribution, to proactively install PV at all
improvements eight of their sites let from the Company.
(whole
portfolio
boundary)
We have successfully installed smart meters at 18 sites (19% of
Install smart meters across 25% of floor areas) with four further locations due to be online in Q1
the portfolio by floor area FY24 (22% floor area).
All 'D' EPC ratings to be removed or
improved by 2027
EPC ratings across the portfolio are detailed below.
All 'E' EPC ratings to be removed or
improved by 2025
All redevelopments to achieve
Building Research Establishment
Environmental Assessment Method No redevelopments have been completed during the year. The ongoing
("BREEAM") Excellent rating work at Alto60 in Redditch is expected to be BREEAM Excellent.
For landlord controlled areas in the
like for like portfolio, on a 2019
baseline, achieve:
-- 7% like-for-like[36] decrease in Scope 1 and 2
-- Reduction in Scope 1 emissions since 2019
and 2 emissions of 30% by 2025
-- Reduction in energy
consumption of 15% by 2025 -- 12% like-for-like increase in energy consumption
since 2019
Landlord -- Less than 5% waste to -- Actual waste to landfill data coverage for the year
controlled landfill by 2022 is insufficient and the amount of data estimation required to
usage -- Reduction in water measure the progress towards this KPI would not depict an
(landlord consumption by 50% by 2025 accurate performance.
controlled -- 6% like-for-like increase in water consumption since
boundary[35]) 2019
Switch all landlord-controlled sites
to 100% renewable electricity by
2023 Achieved
Switch all landlord controlled sites Achieved
to green gas by 2023.
Disclosure is within the Company's ESG report available at:
Use best practice recommendations
and reporting frameworks to disclose custodianreit.com/wp-content/uploads/2023/03/
our approach to climate related ESG%20Report%202023.pdf
governance, strategy, risk
management and opportunities. As a closed-end investment fund, the Company is exempt from
disclosures relating to the Task Force for Climate Disclosures
("TCFD").
Risk
management and
reporting Incorporate ESG factors into all
investment due diligence undertaken Achieved - Investment Committee reports all include a section on
ESG impact of decisions.
Achieve an annual improvement in GRESB 'Real Estate' and 'Development' scores have both increased
GRESB score between 2021 and 2025 from 2022 to 2023:
-- Real estate - 50 (2022: 49)
-- Developments - 46 (2022: 35)
For the non-landlord controlled
like-for-like portfolio, on a 2019
baseline, achieve:
Tenant data collection via a data platform currently covers c. 19%
-- Reduction in tenants' of the Company's portfolio by floor area which is expected to
emissions of 20% by 2025 increase with improved tenant engagement. Analysis of this data
will allow us to analyse the portfolio and identify assets which
-- Reduction in energy are performing poorly in order to make improvements.
consumption of 10% by 2025
Tenant
engagement
(tenant
boundary[37]) Engage with tenants on a quarterly Ongoing - tenant survey has now been issued to tenants with a 32%
basis on ESG issues response rate representing an increase of 125% on the prior year.
Engage with occupiers during lease
negotiations to incorporate
sustainability clauses into new Ongoing. 23% of tenants are interested in green leases (based on
leases the latest tenant survey).
Utilise 25% of vacant high street
retail space for short-term Of three vacant retail properties one is being used by a charity
not-for-profit lettings and another property's windows and frontage are used by the local
Business Improvement District.
Install changing facilities and New cycle storage and shower facilities installed at Lochside Way,
secure cycle parking at all Edinburgh. Amenity block to be installed at industrial property in
appropriate assets Ashby as part of refurbishment. Cycle racks being installed at
Winsford and Oxford Willow Court.
Social
outcomes
Ensure properties comply with the
Company's cladding policy within Achieved for acquisitions made during the year.
three months of acquisition
Bat roost now installed at Alto 60, Redditch. We are exploring a
Consider biodiversity and habitat green wall and bug hotel as part of Ashby refurbishment where an
strategy during all redevelopments ecology survey has been commissioned as part of the refurbishment
works.
ESG policy
The Company's ESG policy is set out at:
custodianreit.com/wp-content/uploads/2022/06/Custodian-Capital-ESG-Policy-June-2022-FINAL.pdf
EPC ratings
During the year the Company has updated EPCs at 42 units across
32 properties covering 745k sq ft for properties where existing
EPCs had expired or where works had been completed. For updated
EPCs, there was an aggregate decrease in rating of 25 'energy
performance asset rating points[38] and the portfolio weighted
average EPC score has improved from 63 (C) to 58 (C) during the
year.
Significant improvements in rating occurred during the year
through the:
-- Refurbishment and conversion of two former Pizza Hut
restaurants into Tim Hortons drive-throughs inLeicester and
Watford, moving the EPC ratings from 87(D) to 24 (A) and from 109
(E) to 32 (B) respectively;
-- Tenant improvements of a pub in High Wycombe improving the
rating from 106 (E) to 34 (B); and
-- Refurbishment of an industrial unit in Avonmouth improving
the rating from 51 (C) to 29 (B).
The Investment Manager is currently reviewing and undertaking
new assessments of any EPCs that are older than five years and
below a 'C' rating. A 'C' rating is expected to become the minimum
standard under the MEES in 2027.
The Company's EPC profile is shown below:
Number of EPCs Weighted average
EPC rating 31 March 2023 31 March 2022 31 March 2023 31 March 2022
A 12 8 2% 1%
B 82 61 24% 17%
C 161 199 44% 45%
D 50 63 20% 26%
E 32 27 9% 11%
F 7 1 1% 0%
G - 1 - 0%
344 360 100% 100%
The table shows that the weighted average 'C' or better ratings
has increased from 63% to 70% during the year.
The 'F' rated units at 31 March 2023 are in two properties
(Atherstone and Arthur House, Manchester). Atherstone is let to
Warwickshire Borough Council which sub-lets the units to small
local businesses and the EPC assessment of its single 'F' rated
unit is out of the Company's control, meaning it is exempt from
MEES regulations. We are in ongoing discussions with our tenant
regarding it arranging an updated EPC. Arthur House, Manchester has
six 'F' rated units, all of which are vacant and earmarked for
refurbishment which is expected to improve the EPC rating once
complete.
Net zero[39] carbon pathway
Continuing the journey towards net zero carbon is a crucial next
step in our ESG strategy and making this journey align with
stakeholder goals and the Company's property strategy is one of the
key challenges facing the Company and the real estate sector.
During the course of the year ending 31 March 2024 we expect to
publish a detailed plan to achieve this.
Outlook
The Company will work towards achieving its ESG targets over the
course of the next financial year, improving our understanding of
the specific impacts of climate change on the Company, seeking to
further influence tenant behaviour to improve environmental
outcomes and continuing to develop our strategy towards creating a
Net Zero pathway.
Approval
This report was approved by the Committee and signed on its
behalf by:
Hazel Adam
Chair of the ESG Committee
14 June 2023
Financial review
A summary of the Company's financial performance for the year is
shown below:
Year ended Year ended
Financial summary 31 March 2023 31 March 2022
GBP000
GBP000
Revenue 44,147 39,891
Expenses and net finance costs (19,359) (14,639)
EPRA profits 24,788 25,252
Net (loss)/profit on investment property (90,609) 97,073
(Loss)/profit before tax (65,821) 122,325
EPRA EPS (p) 5.6 5.9
Dividend cover 102.2% 110.3%
OCR excluding direct property costs 1.23% 1.20%
Borrowings
Net gearing 27.4% 19.1%
Weighted average debt maturity 5.9 years 5.7 years
Weighted average cost of drawn debt 3.8% 3.0%
The GBP97.1m of net gains on investment property experienced in
2022 largely reversed during the year which saw a GBP90.6m net
loss, resulting in a loss before tax of GBP65.8m (2022: GBP122.3m
profit). EPRA earnings per share of 5.6p (2022: 5.9p, 2021: 5.6p)
fully covered dividends, but were impacted by rising interest rates
which increased finance costs on the Company's variable rate
revolving credit facility ("RCF") facility.
Reported revenue increased by GBP4.3m due to a GBP2.7m increase
in amounts rechargeable to tenants, which offsets an equivalent
amount in expenses, and GBP1.6m from the Company's rent roll
increasing by 3.7% from GBP40.5m at 31 March 2022 to GBP42.0m at 31
March 2023.
This increase in contractual rent was due primarily to net
property acquisitions, which added GBP1.3m, but importantly the
graph above illustrates aggregate rental growth across the
portfolio and the positive impact of asset management activity in
increasing like-for-like occupancy through net new lettings, which
demonstrate the robust nature of the Company's diverse property
portfolio.
The decrease in EPRA EPS to 5.6p (2022: 5.9p, 2021: 5.6p) was
due primarily to increasing interest rates. During the year we
deployed GBP9.6m of variable rate debt on property development and
refurbishments, most of which will not be income producing until
the next financial year when the associated properties are let.
SONIA increased from 0.7% to 4.2% during the year and in June 2022
we refinanced a GBP25m variable rate revolving credit facility with
a GBP25m tranche of 10 year debt with Aviva at a fixed rate of
interest of 4.10% per annum.
Dividend policy
The Board acknowledges the importance of income for shareholders
and during the year its policy was to pay dividends on a
sustainable basis at a rate fully covered by net rental income
which does not inhibit the flexibility of the Company's investment
strategy.
The Company paid dividends totalling 5.5p per share during the
year (GBP24.2m) comprising fourth interim dividend relating to the
year ended 31 March 2022 of 1.375p, and quarterly interim dividends
of 1.375p per share relating to the year ended 31 March 2023.
The Company paid a fourth quarterly interim dividend of 1.375p
per share for the quarter ended 31 March 2023 on 31 May 2023
totalling GBP6.1m. Dividends relating to the year ended 31 March
2023 of 5.5p (2022: 5.25p) were 102% (2022: 110%) covered by EPRA
earnings of GBP24.8m (2022: GBP25.3m), as calculated in Note
22.
Key performance indicators
The Board reviews the Company's quarterly performance against a
number of key financial and non-financial measures:
-- EPS and EPRA EPS - reflect the Company's ability to generate
recurring earnings from the propertyportfolio which underpin
dividends;
-- Dividends per share and dividend cover - to provide an
attractive, sustainable level of income toshareholders, fully
covered from net rental income. The Board reviews target dividends
in conjunction withdetailed financial forecasts to ensure that
target dividends are being met and are sustainable;
-- Target dividend per share - an expectation of the Company's
ability to deliver an income stream toshareholders for the
forthcoming year;
-- NAV per share total return - reflects both the NAV growth of
the Company and dividends payable toshareholders. The Board
assesses NAV per share total return over various time periods and
compares the Company'sreturns to those of its peer group of listed,
closed-ended property investment funds;
-- Share price total return - reflects the movement in share
price and dividends payable to shareholders,giving returns that
were available to shareholders during the year;
-- NAV/NTA per share, share price and market capitalisation -
reflect various measures of shareholder valueat a point in
time;
-- Net gearing - measures the Company's borrowings as a
proportion of its investment property, balancing theadditional
returns available from utilising debt with the need to effectively
manage risk;
-- Weighted average cost of debt - measures the cost of the
Company's borrowings based on amounts drawn andSONIA at the year
end;
-- OCR - measures the annual running costs of the Company and
indicates the Board's ability to operate theCompany efficiently,
keeping costs low to maximise earnings from which to pay fully
covered dividends; and
-- Weighted average EPC rating - measures the overall
environmental performance of the Company's propertyportfolio.
The Board considers the key performance measures over various
time periods and against similar funds. A record of these measures
is disclosed in the Financial highlights and performance summary,
the Chair's statement and the Investment Manager's report.
EPRA performance measures
EPRA Best Practice Recommendations, which are APMs, have been
disclosed to facilitate comparison with the Company's peers through
consistent reporting of key real estate specific performance
measures.
2023 2022
EPRA EPS (p) 5.6 5.9
EPRA Net Tangible Assets ("NTA") and Net Reinstatement Value ("NRV") per share (p) 99.3 119.7
EPRA Net Disposal Value ("NDV") per share (p) 101.0 119.7
EPRA NIY 5.8% 5.0%
EPRA 'topped-up' NIY 6.2% 5.5%
EPRA vacancy rate 9.7% 10.2%
EPRA cost ratio (including direct vacancy costs) 23.3% 22.9%
EPRA cost ratio (excluding direct vacancy costs) 18.7% 19.0%
EPRA LTV 27.3% 20.5%
EPRA capital expenditure (GBPm) 63.7 69.0
EPRA like-for-like rental growth (GBPm) 36.6 35.3
-- EPRA EPS - a key measure of the Company's underlying
operating results and an indication of the extent towhich current
dividend payments are supported by earnings
-- EPRA NAV per share metrics - make adjustments to the NAV per
the IFRS financial statements to providestakeholders with
information on the fair value of the assets and liabilities of a
real estate investment company,under different scenarios. EPRA NTA
- assumes that entities buy and sell assets, thereby crystallising
certainlevels of unavoidable deferred tax. EPRA NDV - includes an
adjustment for the fair value of fixed rate debt.
-- EPRA NIY and 'topped-up' NIY - alternative measures of
property portfolio valuation based on cash passingrents at the
reporting date and once lease incentive periods have expired, net
of ongoing property costs
-- EPRA vacancy rate - estimated rental value ("ERV") of vacant
space as a percentage of the ERV of thewhole property portfolio and
offers insight into the additional rent generating capacity of the
portfolio.
-- EPRA cost ratios - alternative measures of ongoing charges
based on expenses, excluding operatingexpenses of rental property
recharged to tenants, but including increases in the doubtful debt
provision, comparedto gross rental income
-- EPRA LTV - a measure of gearing including all payables and
receivables
-- EPRA capital expenditure - capital expenditure incurred on
the Company's property portfolio during theyear
-- EPRA like-for-like rental growth - a measure of passing rent
of the property portfolio, excludingacquisitions and disposals
-- EPRA Sustainability Best Practice Recommendations -
environmental performance measures focusing onemissions and
resource consumption which create transparency to potential
investors by enabling a comparisonagainst peers and set a direction
towards improving the integration of ESG into the management of the
Company'sproperty portfolio.
Debt financing
The Company operates with a conservative level of net gearing,
with target borrowings over the medium-term of 25% of the aggregate
market value of all properties at the time of drawdown. The
Company's net gearing increased from 19.1% LTV last year to 27.4%
at the year end primarily due to GBP91.6m of valuation
decreases.
During the year the Company arranged a GBP25m tranche of 10 year
debt with Aviva at a fixed rate of interest of 4.10% per annum to
refinance a GBP25m variable rate revolving credit facility with
RBS. At the year end the Company had the following facilities
available:
-- A GBP40m RCF with Lloyds Bank plc ("Lloyds") with interest of
between 1.5% and 1.8% above SONIA, determinedby reference to the
prevailing LTV ratio of a discrete security pool of assets, and
expiring on 17 September 2024. The facility limit can be increased
to GBP50m with Lloyds' approval;
-- A GBP20m term loan facility with Scottish Widows Limited
("SWIP") repayable in August 2025, with fixedannual interest of
3.935%;
-- A GBP45m term loan facility with SWIP repayable in June 2028,
with fixed annual interest of 2.987%; and
-- A GBP75m term loan facility with Aviva comprising:
-- A GBP35m tranche repayable on 6 April 2032, with fixed annual
interest of 3.02%;
-- A GBP15m tranche repayable on 3 November 2032 with fixed
annual interest of 3.26%; and
-- A GBP25m tranche repayable on 3 November 2032 with fixed
annual interest of 4.10%.
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 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 income from
each discrete security pool, over thepreceding three months, to
exceed 250% of the facility's quarterly interest liability.
At the year end the Company had GBP166.3m (27% of the property
portfolio) of unencumbered assets which could be charged to the
security pools to enhance the LTV on the individual loans.
The weighted average cost of the Company's drawn debt facilities
at 31 March 2023 was 3.8% (2022: 3.0%), with a weighted average
maturity of 5.9 years (2022: 5.2 years). At 31 March 2023 the
Company had GBP33.5m (2022: GBPnil) drawn under its Lloyds RCF,
meaning 81% (2022: 84%) of the Company's drawn debt facilities were
at fixed rates of interest.
This high proportion of fixed rate debt significantly mitigates
long-term interest rate risk for the Company and provides
shareholders with a beneficial margin between the fixed cost of
debt and income returns from the property portfolio.
Outlook
The Company's business model has remained resilient during the
year and we have further mitigated against interest rate rises by
refinancing GBP25m of variable rate debt at a fixed rate. We have a
scalable cost structure and flexible capital structure to be on the
front foot when opportunities present themselves to raise new
equity and exploit acquisition opportunities.
Ed Moore
Finance Director
for and on behalf of Custodian Capital Limited
Investment Manager
14 June 2023
Principal risks and uncertainties
The Board has overall responsibility for reviewing the
effectiveness of the system of risk management and internal control
which is operated by the Investment Manager. During the year the
Board has performed a robust assessment of the principal and
emerging risks facing the Company through a periodic review of its
risk register. The Company's risk management process is designed to
identify, evaluate and mitigate the significant risks the Company
faces. At least annually, the Board undertakes a risk review, with
the assistance of the Audit and Risk Committee, to assess the
effectiveness of the Investment Manager's risk management and
internal control systems. During this review, no significant
failings or weaknesses were identified in respect of risk
management, internal control and related financial and business
reporting. Further information on the risk governance and risk
management processes are included in the Internal control and risk
management section of the Governance report.
The Company holds a portfolio of high quality property let
predominantly to institutional grade tenants and is primarily
financed by fixed rate debt. It does not undertake speculative
development.
There are a number of potential risks and uncertainties which
could have a material impact on the Company's performance over the
forthcoming financial year and could cause actual results to differ
materially from expected and historical results. The Directors have
assessed the risks facing the Company, including risks that would
threaten the business model, future performance, solvency or
liquidity. The table below outlines the principal risks identified,
but does not purport to be exhaustive as there may be additional
risks that materialise over time that the Company has not yet
identified or has deemed not likely to have a potentially material
adverse effect on the business.
Risk on business Likelihood and impact Overall change in Mitigating factors Appetite
risk from last year
Loss of revenue -- Diverse
property portfolio
-- Tenant covering all key
default due to a sectors and
cessation or geographical areas
curtailment of
trade -- The Company
-- An has 319 individual
increasing number tenancies with the
of tenants largest tenant
exercising accounting for 3.7% of
contractual breaks the rent roll
or not renewing at -- Investment
lease expiry policy limits the
Company's rent roll to
-- Enforced no more than 10% from a
reduction in Likelihood: Moderate single tenant and 50%
contractual rents from a single sector
through a CVA or
legislative changes -- Primarily The Board relies on
Impact: High Increased - institutional grade the Investment
-- Property deterioration in tenants Manager's processes
environmental the UK's short-term -- Focused on regarding due
performance economic outlook. established business diligence on
insufficient to Loss of revenue has an locations for acquisitions and
attract tenants or immediate impact on investment lettings. A degree of
maintain rents earnings and dividend -- Active tenant covenant risk
capacity. There is also Discussed further management of lease and short WAULTs are
-- Decreases an increased risk of in the Investment expiry profile accepted due to the
in ERVs resulting breaching interest cover Manager's report considered in forming nature of the
in decreases in covenants on borrowings acquisition and business
passing rent to detailed in Note 16, disposal decisions
secure long-term which could ultimately
occupancy lead to default. -- Building
-- Expiries specifications
or breaks typically not tailored
concentrated in a to one user
specific year -- Strong tenant
relationships
-- Unable to -- Significant
re-let void units focus and pro-active
investment in
-- Low UK asset-by-asset
economic growth environmental
impacting the performance to maintain
occupational or improve rental
property market levels
Decreases in property -- Occupational
portfolio valuation demand has been
resilient during the
-- Reduced year despite economic
property market headwinds
sentiment and -- Active
investor demand property portfolio
affecting market diversification between
pricing office, industrial
-- Decreases Likelihood: High (distribution,
in sector-specific manufacturing and
ERVs Increased - warehousing), retail There is no certainty
-- Loss of valuation decreases warehousing, high that
contractual revenue Impact: Moderate experienced during street retail and other
the year due to property values will
-- Tenants worsening UK -- Investment be realised.
exercising economic outlook, policy limits the
contractual breaks Significant valuation macro-economic Company's property This is an inherent
or not renewing at decreases increase the shocks, interest portfolio to no more risk of property
lease expiry risk of non-compliance rate rises and high than 50% in any investment.
with LTV covenants on inflation impacting specific sector or
-- Change in borrowings, detailed in investor demand geographical region The Investment
demand for space Note 16, which could Manager aims to
ultimately lead to -- Smaller minimise this risk
-- Property default. The Company's lot-size business model through its asset
environmental sensitivity to valuation Discussed further limits exposure to selection
performance decreases is considered in the Chair's individual asset values
insufficient to in Going concern and statement and and active asset
attract tenants longer-term viability Investment -- High quality management
below Manager's report assets in good initiatives.
-- locations should remain
Properties popular with investors
concentrated in a
specific -- Significant
geographical focus on asset-by-asset
location or sector ESG performance and
pro-actively investing
-- Lack of in environmental
transactional performance to maintain
evidence or improve demand
Likelihood: Moderate -- The Company
Financial has three lenders
-- Reduced -- The Company's
availability or Impact: High weighted average The Board and
increased cost of maturity on its debt is Investment Manager
arranging or c. six years focus
servicing debt -- Target net
Increases in interest gearing of 25% LTV on on having funding in
-- Breach of rates in the short-term Increased due to property portfolio place to take
financial and reduce earnings and increases in advantage of
non-financial dividend capacity to the interest rates -- 81% of drawn opportunities as they
borrowing covenants extent the Company has which face debt facilities at the arise.
drawn balances on its continued upward year end at a fixed
-- variable rate RCF. Lack pressure rate of interest The Board's aim is to
Significant of availability of minimise this risk to
increases in financing would have a -- Significant the extent possible
interest rates significant impact on unencumbered properties through arranging
property strategy if available to cure any longer-term
-- properties needed to be potential breaches of facilities.
Refinancing risk sold to repay loans. LTV covenants
from upcoming -- Ongoing
expiries monitoring and
management of the
forecast liquidity and
covenant position
Likelihood: Low
-- Ongoing
review of performance
Operational by independent Board of
Impact: High Directors The Board relies on
-- -- Outsourced the Investment
Inadequate internal audit function Manager's processes.
performance, No change reporting directly to Its appetite for such
controls or systems Increased risk of the Audit and Risk
operated by the sub-optimal returns Committee risk is low
Investment Manager impacting earnings and -- External
dividend capacity, depositary with
ineffective risk or responsibility for
threat management or safeguarding assets and
decisions made on performing cash
inaccurate information. monitoring
-- Strong
compliance culture
Regulatory and legal -- External
Likelihood: Moderate professional advisers
-- Adverse are engaged to review
impact of new or and advise upon control
revised legislation environment, ensure
or regulations, or Impact: High regulatory compliance
by changes in the and advise on the
interpretation or impact of changes The Board has no
enforcement of No change appetite for
existing government Reputational damage could -- Business non-compliance
policy, laws and impact demand for shares. model and culture
regulations Earnings and dividend embraces FCA principles
-- capacity would decrease
Non-compliance with with penalties/fines for -- REIT regime
the REIT regime[40] non-compliance or through compliance is
or changes to the an increased tax charge considered by the Board
Company's tax in assessing the
status Company's financial
position and setting
dividends and by the
Investment Manager in
making operational
decisions
-- Data is
regularly backed up and
replicated and the
Investment Manager's IT
Business interruption systems are protected
Likelihood: Moderate by anti-virus software
-- and firewalls that are
Cyber-attack regularly updated
results in the
Investment Manager Impact: High -- Fire
being unable to use protection and access/
its IT systems and/ security procedures are The Board relies on
or losing data in place at all of the the Investment
Reputational damage from No change Company's managed Manager's processes.
-- Terrorism not being able to properties It has no appetite
or pandemics communicate with -- Comprehensive for such risk
interrupt the shareholders on a timely property damage and
Company's and accurate basis. Loss business interruption
operations through of earnings and dividend insurance is held,
impact on either capacity if contractual including three years'
the Investment rents not invoiced. Fines lost rent and terrorism
Manager or the and penalties from
Company's assets or non-compliance with -- At least
tenants reporting requirements. annually, a fire risk
assessment and health
and safety inspection
is performed for each
property in the
Company's managed
portfolio
-- The Company
has engaged specialist
environmental
ESG consultants to advise
the Board on compliance
-- Failure with requirements and
to appropriately adopting best practice
manage the where possible
environmental -- The Company
performance of the has a published ESG
property portfolio, policy which seeks to
resulting in it not improve energy
meeting the efficiency and reduce
required standards emissions
of environmental -- The ESG
legislation and Committee ensures
making properties Likelihood: Moderate compliance with
unlettable or environmental
unsellable requirements, the ESG
-- ESG Increased due to policy and
policies and Impact: Moderate increasing best environmental KPIs
targets being practice
insufficient to requirements and -- At a property The Board has a low
meet the required continued level an environmental tolerance for
standards of Risk of reputational investment in EV assessment is non-compliance with
stakeholders damage, suboptimal chargers and PV undertaken which risks that adversely
returns for shareholders, influences decisions impact reputation,
-- decreased asset regarding acquisitions, stakeholder sentiment
Non-compliance with liquidity, reduced access refurbishments and and asset liquidity.
environmental to debt and capital Discussed further asset management
reporting markets and poor in the ESG initiatives
requirements relationships with Committee report -- Upgrading
stakeholders power supplies where
-- availability permits
Insufficient
electricity supply -- All
to maintain tenant investments are
operations due to scrutinised by the
inadequate Investment Manager's
infrastructure Investment Committee.
Investment Committee
-- reports include a
Unsuccessful dedicated ESG
investment in new rationale. Carbon
technology reducing technology is
a key part of the
carbon-reduction
strategy but is not
invested in
speculatively and only
established products
are considered.
-- Comprehensive
Acquisitions due diligence is
undertaken in
-- Likelihood: Low conjunction with
Unidentified Decreased - no professional advisers
liabilities corporate and the provision of The Board accepts
associated with the acquisitions insured warranties and risk with such
acquisition of new Impact: Moderate completed during indemnities are sought transactions with the
properties (whether the year from vendors where mitigations opposite
acquired directly appropriate used to manage risk
or via a corporate -- Acquired where possible
structure) Decrease in NAV and loss companies' trade and
of shareholder value assets are hived-up
into Custodian Property
Income REIT plc and the
acquired entities are
subsequently liquidated
Emerging risks
The following emerging risks have been identified:
-- Macro-economic environment - the recovery in global demand
following the COVID-19 pandemic and theongoing war in Ukraine have
contributed to global supply chain issues, inflation and the risk
of agriculturalshortages. These impact the Company in terms of the
cost and availability of materials and labour in carrying
outredevelopments, refurbishments and maintenance, their effect on
increasing interest rates and indirectly throughtheir impact on the
UK economy in terms of growth and consumer spending and the
consequential impact onoccupational demand for real estate.
The Board believes the Company effectively mitigates the
longer-term impact of these risks because the Company:
-- Carefully assesses the economic viability of all capital
projects, ensuring as a minimum that resultingexpected,
demonstrable rental increases will result in valuations increasing
that at least cover capitalexpenditure over the medium-term;
-- Notes that occupational demand has proven robust, discussed
in more detail in the Investment Manager'sreport;
-- Has a portfolio diversified by sector and location with a
predominantly institutional grade tenant base;
-- Has low gearing with 81% of drawn debt facilities at the year
end at a fixed rate of interest; and
-- Has a stable investment portfolio and does not undertake
speculative development.
No other emerging risks have been added to the Company's risk
register during the year.
Going concern and longer-term viability
The Board assesses the Company's prospects over the long-term,
taking into account rental growth expectations, climate related
risks, longer-term debt strategy, expectations around capital
investment in the portfolio and the UK's long-term economic
outlook. At quarterly Board meetings, the Board reviews summaries
of the Company's liquidity position and compliance with loan
covenants, as well as forecast financial performance and cash
flows.
Forecast
The Investment Manager maintains a detailed forecast model
projecting the financial performance of the Company over a period
of three years, which provides a reasonable level of accuracy
regarding projected lease renewals, asset-by-asset capital
expenditure, property acquisitions and disposals, rental growth,
interest rate changes, cost inflation and refinancing of the
Company's variable rate debt which typically has a maximum tenor of
three years. The detailed forecast model allows robust sensitivity
analysis to be conducted and over the three year forecast period
included the following key, prudent assumptions:
-- A 1% annual loss of contractual revenue through CVA or tenant
default;
-- No changes to the demand for leasing the Company's assets
going forwards, maintaining the occupancy rate;
-- No portfolio valuation movements and no net
acquisitions/disposals;
-- Rental growth, captured at lease expiry, based on consensus
forecasts;
-- The Company's capital expenditure programme to invest in its
existing assets continues as expected; and
-- Modest further interest rate rises experienced based on the
prevailing forward curve.
The Directors have assessed the Company's prospects and
longer-term viability over this three-year period in accordance
with Provision 36 of the AIC Code, and the Company's prospects as a
going concern over a period of 12 months from the date of approval
of the Annual Report, using the same forecast model and assessing
the risks against each of these assumptions.
The Directors note that the Company has performed strongly
during the year despite economic headwinds and valuation decreases,
with rents and occupancy increasing over the last 12 months.
Sensitivities
Sensitivity analysis involves flexing these key assumptions,
taking into account the principal risks and uncertainties and
emerging risks detailed in the Strategic Report, and assessing
their impact on the following areas:
Covenant compliance
The Company operates the loan facilities summarised in Note 16.
At 31 March 2023 the Company had significant headroom on lender
covenants at a portfolio level with:
-- Net gearing of 27.4% compared to a maximum LTV covenant of
35%, with GBP166.3m (27% of the propertyportfolio) unencumbered by
the Company's borrowings; and
-- 122% minimum headroom on interest cover covenants for the
quarter ended 31 March 2023.
Over the one and three year assessment periods the Company's
forecast model projects a small increase in net gearing and an
increase in headroom on interest cover covenants. Reverse stress
testing has been undertaken to understand what circumstances would
result in potential breaches of financial covenants over these
periods. 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' assessment of
the viability of the Company. The testing indicated, assuming no
unencumbered properties were charged, that:
-- The rate of loss or deferral of contractual rent on the
borrowing facility with least headroom would needto deteriorate by
30% (for the going concern assessment period) and 59% (for the
longer-term viability assessmentperiod) from the levels included in
the Company's prudent base case forecasts to breach interest cover
covenants;or
-- At a portfolio level property valuations would have to
decrease by 19% from the 31 March 2023 position torisk breaching
the overall 35% LTV covenant for both assessment periods.
The Board notes that the February 2023 IPF Forecasts for UK
Commercial Property Investment survey suggests an average 0.6%
increase in rents during 2023 with capital value decreases of 5.5%.
The Board believes that the valuation of the Company's property
portfolio will prove resilient due to its higher weighting to
industrial assets and overall diverse and high-quality asset and
tenant base comprising 161 assets and over 300 typically
'institutional grade' tenants across all commercial sectors.
Liquidity
At 31 March 2023 the Company had:
-- GBP6.8m of cash and GBP6.5m undrawn RCF (can be increased to
GBP16.5m with Lloyds' consent), with grossborrowings of GBP173.5m
resulting in low net gearing of 27.4%, with no short-term
refinancing risk and a weightedaverage debt facility maturity of
six years; and
-- An annual contractual rent roll of GBP42.0m, with interest
costs on drawn loan facilities of only c. GBP6.7mper annum.
The Company's forecast model projects it will have sufficient
cash and undrawn facilities to settle its target dividends and its
expense and interest liabilities over the one and three year
assessment periods.
As detailed in Note 16, the Company's Lloyds RCF expires in
September 2024 and discussions are underway regarding a renewal.
The Board anticipates lender support in agreeing subsequent
facilities, and would seek to refinance the RCF with another lender
or dispose of sufficient properties to repay it in September 2024
in the unlikely event of lender support being withdrawn.
Results of the assessments
Based on the prudent assumptions within the Company's forecasts
regarding the factors set out above, the Directors expect that over
the one-year and three-year periods of their assessment:
-- The Company has surplus cash to continue in operation and
meet its liabilities as they fall due;
-- Borrowing covenants are complied with; and
-- REIT tests are complied with.
Section 172 statement and stakeholder relationships
The Directors consider that in conducting the business of the
Company over the course of the year they have complied with Section
172(1) of the Companies Act 2006 ("the Act") by fulfilling their
duty to promote the success of the Company and act in the way they
consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a
whole.
Issues, factors and stakeholders
The Board has direct engagement with the Company's shareholders
and seeks a rounded and balanced understanding of the broader
impact of its decisions through regular engagement with its
stakeholder groups (detailed below) to understand their views,
typically through feedback from the Investment Manager and the
Company's broker, which is regularly communicated to the Board via
quarterly meetings. Stakeholder engagement also ensures the Board
is kept aware of any significant changes in the market, including
the identification of emerging trends and risks, which in turn can
be factored into its strategy discussions.
Management of the Company's day-to-day operations has been
delegated to the Investment Manager, Custodian Capital Limited, and
the Company has no employees. This externally managed structure
allows the Board and the Investment Manager to have due regard to
the impact of decisions on the following matters specified in
Section 172 (1) of the Act:
Section 172(1) factor
Approach taken
The business model and strategy of the Company is set out within the Strategic Report. Any
deviation from or amendment to that strategy is subject to Board and, if necessary,
shareholder approval. The Company's Management Engagement Committee ensures that the
Investment Manager is operating within the scope of the Company's investment objectives.
At least annually, the Board considers a budget for the delivery of its strategic objectives
based on a three year forecast model. The Investment Manager reports non-financial and
financial key performance indicators to the Board, set out in detail in the Business model and
strategy section of the Strategic report, at least quarterly which are used to assess the
outcome of decisions made.
Likely consequences of
any decision in the The Board's commitment to keeping in mind the long-term consequences of its decisions
long-term underlies its focus on risk, including risks to the long-term success of the business.
The investment strategy of the Company is focused on medium to long-term returns and
minimising the Company's impact on communities and the environment and as such the long-term
is firmly within the sights of the Board when all material decisions are made.
The board gains an understanding of the views of the Company's key stakeholders from the
Investment Manager, broker and Management Engagement Committee, and considers those
stakeholders' interests and views in board discussions and long-term decision-making.
The Company has no employees as a result of its external management structure, but the
Directors have regard to the interests of the individuals responsible for delivery of the
property management and administration services to the Company to the extent that they are
The interests of the able to.
Company's employees
The Company's Nominations Committee is responsible for applying the diversity policy set out
in the Nominations Committee Report to Board recruitment.
Business relationships with suppliers, tenants and other counterparties are managed by the
Investment Manager. Suppliers and other counterparties are typically professional firms such
as lenders, property agents and other property professionals, accounting firms and legal firms
and tenants with which the Investment Manager often has a longstanding relationship. Where
material counterparties are new to the business, checks, including anti money laundering
checks where appropriate, are conducted prior to transacting any business to ensure that no
The need to foster the reputational or legal issues would arise from engaging with that counterparty. The Company
Company's business also periodically reviews the compliance of all material counterparties with relevant laws and
relationships with regulations such as the Modern Slavery Act 2015. The Company pays suppliers in accordance
suppliers, customers and with pre-agreed terms. The Management Engagement Committee engages directly with the
others Company's key service providers providing a direct line of communication for receiving
feedback and resolving issues.
Because the Investment Manager directly invoices most tenants and collects rent without using
managing agents, it has open lines of communication with tenants and can understand and
resolve any issues promptly.
The Board recognises the importance of supporting local communities where the Company's assets
are located and seeks to invest in properties which will be fit for future purpose and which
align with ESG targets. The Company also seeks to benefit local communities by creating
social value through employment, viewing its properties as a key part of the fabric of the
local economy.
The impact of the
Company's operations on
the community and the
environment The Board takes overall responsibility for the Company's impact on the community and the
environment and its ESG policies are set out in the ESG report.
The Company's approach to preventing bribery, money laundering, slavery and human trafficking
is disclosed in the Governance report.
The desirability of the The Board believes that the ability of the Company to conduct its investment business and
Company maintaining a finance its activities depends in part on the reputation of the Board and Investment Manager's
reputation for high team. The risk of falling short of the high standards expected and thereby risking its
standards of business business reputation is included in the Board's review of the Company's risk register, which is
conduct conducted periodically. The principal risks and uncertainties facing the business are set out
in that section of the Strategic report. The Company's requirements for a high standard of
conduct and business ethics are set out in the Governance report.
The Company's shareholders are a very important stakeholder group. The Board oversees the
Investment Manager's formal investor relations programme which involves the Investment Manager
engaging routinely with the Company's shareholders. The programme is managed by the Company's
broker and the Board receives prompt feedback from both the Investment Manager and broker on
the outcomes of meetings and presentations. The Board and Investment Manager aim to be open
with shareholders and available to them, subject to compliance with relevant securities laws.
The Chair of the Company and other Non-Executive Directors make themselves available for
The need to act fairly meetings as appropriate and attend the Company's AGM.
as between members of
the Company
The investor relations programme is designed to promote formal engagement with investors and
is typically conducted after each half-yearly results announcement. The Investment Manager
also engages with existing investors who may request meetings and with potential new investors
on an ad hoc basis throughout the year, including where prompted by Company announcements.
Shareholder presentations are made available on the Company's website. The Company has a
single class of share in issue with all members of the Company having equal rights.
Methods used by the Board
The main methods used by the Directors to perform their duties
include:
-- Board Strategy Days held at least annually to review all
aspects of the Company's business model andstrategy and assess the
long-term sustainable success of the Company and its impact on key
stakeholders;
-- The Management Engagement Committee assesses the Company's
engagements with its key service providers andthe Investment
Manager reports on their performance to the Board. The
responsibilities of the ManagementEngagement Committee are detailed
in the Management Engagement Committee report;
-- The Board is ultimately responsible for the Company's ESG
activities set out in the ESG Committee report,which it believes
are a key part of benefitting the local communities where the
Company's assets are located;
-- The Board's risk management procedures set out in the
Governance report identify the potentialconsequences of decisions
in the short, medium and long-term so that mitigation plans can be
put in place toprevent, reduce or eliminate risks to the Company
and wider stakeholders;
-- The Board sets the Company's purpose, values and strategy,
detailed in the Business model and strategysection of the Strategic
report, and the Investment Manager ensures they align with its
culture;
-- The Board carries out direct shareholder engagement via the
AGM and Directors attend shareholder meetingson an ad hoc
basis;
-- External assurance is received through internal and external
audits and reports from brokers andadvisers; and
-- Specific training for existing Directors and induction for
new Directors as set out in the Governancereport. Principal
decisions in the year
The Board has delegated operational functions to the Investment
Manager and other key service providers. In particular,
responsibility for management of the Company's property portfolio
has been delegated to the Investment Manager. The Board retains
responsibility for reviewing the engagement of the Investment
Manager and exercising overall control of the Company, reserving
certain key matters as set out in the Governance report. The
principal non-routine decisions taken by the Board during the year,
and its rationale on how the decision was made, were:
Decision How decision was made
Setting target dividends at 5.5pps for the year In line with the Board's dividend policy of paying a high,
ending 31 March 2024. sustainable level of dividend which maximises shareholder returns
without negatively influencing property strategy.
Re-appointing Knight Frank as one of the The Management Engagement Committee recommended Knight Frank's
Company's independent valuers for a further three reappointment based on its strong performance during its first period
years. of appointment, which offers stakeholders reassurance over the
accuracy of the Company's reported NAV.
Appointing JLL as the Company's ESG adviser in
October 2022 and considering its net zero carbon
strategy as described in the ESG Committee JLL is a market leader in real estate ESG advisory and the Board
report. believed its appointment would enable the Company to accelerate the
implementation of its ESG strategy and more effectively achieve its
objectives.
Appointing new Directors as detailed in the The Board believes Malcolm Cooper and David MacLellan bring a wealth
Chair's statement. of experience and skills including leadership, financial expertise,
property and governance which will benefit all shareholders.
Due to the nature of these decisions, a variety of stakeholders
had to be factored into the Board's discussions. Each decision was
announced at the time, so that all stakeholders were aware of the
decisions. Stakeholders
The Board recognises the importance of stakeholder engagement to
deliver its strategic objectives and believes its stakeholders are
vital to the continued success of the Company. The Board is mindful
of stakeholder interests and keeps these at the forefront of
business and strategic decisions. Regular engagement with
stakeholders is fundamental to understanding their views. The below
section highlights how the Company engages with its key
stakeholders, why they are important and the impact they have on
the Company and therefore its long-term success, which the Board
believes helps demonstrate the successful discharge of its duties
under s172(1) of the Act.
Stakeholder Stakeholder interests Stakeholder engagement
-- Regular dialogue
through rent collection process
-- High quality
assets -- Review published data,
Tenants -- Profitability such as accounts, trading updates
and analysts' reports
The Investment Manager understands the businesses -- Efficient -- Ensured buildings
occupying the Company's assets and seeks to create operations comply with the necessary safety
long-term partnerships and understand their needs to -- Knowledgeable regulations and insurance
deliver fit for purpose real estate and develop and committed landlord -- Most tenants contacted
asset management opportunities to underpin long-term to request environmental
sustainable income growth and maximise occupier -- Flexibility to performance data and offer an
satisfaction adapt to the changing UK engagement programme on their
commercial landscape premises' environmental
performance
-- Buildings with -- Occupancy has remained
strong environmental around 90% during the year
credentials
-- Long-term
viability of the Company
-- Board and Committee
The Investment Manager and its employees -- Long-term meetings
relationship with the -- Face-to-face and
As an externally managed fund the Company's key Company video-conference meetings with
service provider is the Investment Manager and its -- Well-being of the Chair and other Board
employees are a key stakeholder. The Investment the Investment Manager's Directors
Manager's culture aligns with that of the Company employees -- Quarterly KPI reporting
and its long-standing reputation of operating in the -- Being able to to the Board
smaller lot-size market is key when representing the attract and retain -- Board evaluation,
Company high-calibre staff including feedback from key
Investment Manager personnel
-- Maintaining a
positive and transparent -- Ad hoc meetings and
relationship with the calls
Board
-- Collaborative
Suppliers and transparent working -- Board and Committee
relationships meetings
A collaborative relationship with our suppliers, -- Responsive -- One-to-one meetings
including those to whom key services are outsourced, communication
ensures that we receive high quality services to -- Being able to -- Annual review of key
help deliver strategic and investment objectives deliver service level service providers for the
agreements Management Engagement Committee
-- Sustainable -- Annual and half year
growth presentations
-- Attractive -- AGM
Shareholders level of income returns -- Market announcements
and corporate website
Building a strong investor base through clear and -- Strong -- Regular investor
transparent communication is vital to building a Corporate Governance and feedback received from the
successful and sustainable business and generating environmental Company's broker, distribution
long-term growth credentials agents and PR adviser as well as
-- Transparent seeking feedback from
reporting framework face-to-face meetings
-- On-going dialogue with
analysts
-- Stable cash
flows
-- Stronger
covenants
Lenders -- Being able to
meet interest payments
Our lenders play an important role in our business.
The Investment Manager maintains close and -- Maintaining -- Regular covenant
supportive relationships with this group of agreed gearing ratios reporting
long-term stakeholders, characterised by openness, -- Regular catch-up calls
transparency and mutual understanding -- Regular
financial reporting
-- Proactive
notification of issues
or changes
-- Openness and
transparency
-- Proactive
compliance with new
Government, local authorities and communities legislation
-- Proactive
As a responsible corporate citizen the Company is engagement
committed to engaging constructively with central -- Support for -- Engagement with local
and local government and ensuring we support the local economic and authorities where we operate
wider community environmental plans and
strategies -- Two way dialogue with
-- Playing its regulators and HMRC
part in providing the
real estate fabric of
the economy, giving
employers a place of
business
Approval of Strategic report
The Strategic report, (incorporating the Business model and
strategy, Chair's statement, Investment Manager's report, ESG
Committee report, Financial report, Principal risks and
uncertainties and Section 172 statement and stakeholder
relationships) was approved by the Board of Directors and signed on
its behalf by:
David Hunter
Chair
14 June 2023
Board of Directors and Investment Manager personnel
The Board currently comprises seven non-executive directors. A
short biography of each director is set out below:
David Hunter - Independent Chair
David is a professional non-executive director and strategic
adviser focused principally on UK and international real estate. He
chairs the Company and its Nominations Committee and is on the
boards of both listed and unlisted companies in the UK and
overseas, as well as holding corporate advisory roles. He qualified
as a chartered surveyor in 1978 and has over 25 years' experience
as a fund manager, including as Managing Director of Aberdeen Asset
Management's property fund business. David is a former President of
the British Property Federation and was actively involved in the
introduction of REITs to the UK. He is also Honorary Swedish Consul
to Glasgow and an Honorary Professor of real estate at Heriot-Watt
University.
David is Non-Executive Chair of Capital & Regional plc
("C&R"). During the year, David was appointed as Non-Executive
Chair of Dar Global plc ("DG"), a company established to develop
the international assets of Dar Al Arkan Real Estate Development
Company, a leading Saudi Arabian property developer.
The Board perceives no material conflicts of interest between
Custodian Property Income REIT and the activities of C &R or DG
due to their divergent property strategies.
David's other roles are not considered to impact his ability to
allocate sufficient time to the Company to discharge his
responsibilities effectively.
David MacLellan - Independent Director
David was appointed to the Board on 9 May 2023 and is expected
to take on the Chair role on 8 August 2023 following David Hunter's
scheduled retirement.
He has over 35 years' experience in private equity and fund
management and an established track record as Chair and
Non-Executive director of public and private companies. During his
executive career David was an Executive Director of Aberdeen Asset
Management plc following its purchase of Murray Johnstone Limited
("MJ") in 2000. At the time of the purchase he was Group Managing
Director of MJ, a Glasgow based fund manager managing inter alia
closed and open ended funds, having joined MJ's venture capital
team in 1984. Prior to joining MJ he qualified as a Chartered
Accountant at Arthur Young McLelland Moores (now EY).
David is currently Chair and Managing Partner of RJD Partners
("RJD"), a private equity business; Non-Executive Director and
Audit Committee Chair of J&J Denholm Limited, a family owned
business involved in shipping, logistics, seafoods and industrial
services; and Non-Executive Director and Audit Committee Chair of
Aquila Renewables plc, an investment trust.
David is former Chair and Senior Independent Director of John
Laing Infrastructure Fund, a FTSE 250 investment company, former
Chair of Stone Technologies Limited, former Chair of Havelock
Europa plc and former Non-Executive Director of Maven Income &
Growth VCT 2 plc. He was also Chair of Britannic UK Income Fund for
12 years until 2013 as well as a director of a number of private
equity backed businesses.
David's other roles are not considered to impact his ability to
allocate sufficient time to the Company to discharge his
responsibilities effectively.
Elizabeth McMeikan - Senior Independent Director
Elizabeth's substantive career was with Tesco plc, where she was
a Stores Board Director before embarking on a non-executive career
in 2005.
Elizabeth is currently Chair of Nichols plc, the AIM listed
diversified soft drinks group. She is Senior Independent Director
and Remuneration Committee Chair at both Dalata Hotel Group plc,
the largest hotel group in Ireland, and at McBride plc, Europe's
leading manufacturer of cleaning and hygiene products. She is also
Non-Executive Director of Fresca Group Limited, a fruit and
vegetable grower and importer.
Previously Elizabeth was SID and Remuneration Committee Chair at
both The Unite Group plc and at Flybe plc, SID at J D Wetherspoon
plc and Chair of Moat Homes Limited.
Elizabeth's other roles are not considered to impact her ability
to allocate sufficient time to the Company to discharge her
responsibilities effectively.
Hazel Adam - Independent Director
Hazel was an investment analyst with Scottish Life until 1996
and then joined Standard Life Investments. As a fund manager she
specialised in UK and then Emerging Market equities. In 2005 Hazel
joined Goldman Sachs International as an executive director on the
new markets equity sales desk before moving to HSBC in 2012,
holding a similar equity sales role until 2016.
Hazel was an independent non-executive director of Aberdeen
Latin American Income Fund Limited until June 2023 and holds the
CFA Level 4 certificate in ESG Investing and the Financial Times
Non-Executive Directors Diploma.
Chris Ireland FRICS - Independent Director
Chris joined international property consultancy King Sturge in
1979 as a graduate and has worked his whole career across the UK
investment property market. He ran the investment teams at King
Sturge before becoming Joint Managing Partner and subsequently
Joint Senior Partner prior to its merger with JLL in 2011.
Chris was Chief Executive Officer of JLL UK between 2016 and
2021 and subsequently its Chair from 2021 until retiring in March
2023. Chris is committed to leading the property sector on
sustainability and supporting the debate around the climate
emergency.
Chris is a former Chair of the Investment Property Forum and is
a Non-Executive Director of Le Masurier, a Jersey based family
trust with assets across the UK, Germany and Jersey. Chris is also
a keen supporter of the UK homelessness charity Crisis.
Chris' other roles are not considered to impact his ability to
allocate sufficient time to the Company to discharge his
responsibilities effectively.
Malcolm Cooper FCCA FCT - Independent Director
Malcolm was appointed to the Board on 6 June 2022.
He is a qualified accountant and an experienced FTSE 250 company
Audit Committee Chair with an extensive background in corporate
finance and a wide experience in infrastructure and property.
Malcolm worked with Arthur Andersen and British Gas/BG
Group/Lattice before spending 15 years with National Grid with
roles including Managing Director of National Grid Property and
Global Tax and Treasury Director, and culminated in the successful
sale of a majority stake in National Grid's gas distribution
business, now known as Cadent Gas.
Malcolm is currently a Non-Executive Director of Morgan Sindall
Group plc, a FTSE 250 UK construction and regeneration business,
Chairing its Audit and Responsible Business Committees. He is also
Senior Independent Director and Credit Committee Chair of MORhomes
plc, Non-Executive Director, Remuneration Committee Chair and Audit
Committee Chair at Southern Water Services Limited and
Non-Executive Director and Audit and Risk Committee Chair at Local
Pensions Partnership Investment. Malcolm was recently appointed as
Deputy President of the Association of Corporate Treasurers.
Malcolm was previously Senior Independent Director and Audit
Committee chair at CLS Holdings plc, a Non-Executive Director of St
William Homes LLP and a member of the Financial Conduct Authority's
Listing Authority Advisory Panel.
Malcolm's other roles are not considered to impact his ability
to allocate sufficient time to the Company to discharge his
responsibilities effectively.
Ian Mattioli MBE - Director
Ian is CEO of Mattioli Woods with over 35 years' experience in
financial services, wealth management and property businesses and
is the founder director of Custodian Property Income REIT. Together
with Bob Woods, Ian founded Mattioli Woods, the AIM-listed wealth
management and employee benefits business which is the parent
company of the Investment Manager. Mattioli Woods now has over
GBP15bn of assets under management, administration and advice. Ian
is responsible for the vision and operational management of
Mattioli Woods and instigated the development of its investment
proposition, including the syndicated property initiative that
developed into the seed portfolio for the launch of Custodian
Property Income REIT.
Ian is a non-independent Director of the Company due to his role
with Mattioli Woods and is viewed by the Board as representative of
Mattioli Woods' client shareholders which represent approximately
68% of the Company's shareholders.
His personal achievements include winning the London Stock
Exchange AIM Entrepreneur of the Year award and CEO of the year in
the 2018 City of London wealth management awards. Ian was awarded
an MBE in the Queen's 2017 New Year's Honours list for his services
to business and the community in Leicestershire and was appointed
High Sheriff of Leicestershire in March 2021, an independent
non-political Royal appointment for a single year. Ian and his
family own 6.1m shares in the Company.
Ian's other roles are not considered to impact his ability to
allocate sufficient time to the Company to discharge his
responsibilities effectively.
Investment Manager personnel
Short biographies of the Investment Manager's key personnel and
senior members of its property team are set out below:
Richard Shepherd-Cross MRICS - Managing Director
Richard qualified as a Chartered Surveyor in 1996 and until 2008
worked for JLL, latterly running its national portfolio investment
team.
Since joining Mattioli Woods in 2009, Richard established
Custodian Capital as the Property Fund Management subsidiary to
Mattioli Woods and in 2014 was instrumental in the establishment of
Custodian Property Income REIT from Mattioli Woods' syndicated
property portfolio and its 1,200 investors. Following the
successful IPO of the Company, Richard has overseen the growth of
the Company to its current property portfolio of over GBP0.6bn.
Richard and his family own 371,061 shares in the Company.
Ed Moore FCA - Finance Director
Ed qualified as a Chartered Accountant in 2003 with Grant
Thornton, specialising in audit, financial reporting and internal
controls across its Midlands practice. He is Finance Director of
Custodian Capital with responsibility for all day-to-day financial
aspects of its operations.
Since IPO in 2014 Ed has overseen the Company raising over
GBP300m of new equity, arranging or refinancing seven loan
facilities and completing four corporate acquisitions, including
leading on the acquisition of DRUM REIT in 2021. Ed's key
responsibilities for Custodian Property Income REIT are accurate
external and internal financial reporting, ongoing regulatory
compliance and maintaining a robust control environment. Ed is
Company Secretary of Custodian Property Income REIT and is a member
of the Investment Manager's Investment Committee. Ed is also
responsible for the Investment Manager's environmental initiatives,
attending Custodian Property Income REIT ESG Committee meetings and
co-leading the Investment Manger's ESG working group.
Ian Mattioli MBE - Founder and Chair
Ian's biography is set out above.
Alex Nix MRICS - Assistant Investment Manager
Alex graduated from Nottingham Trent University with a degree in
Real Estate Management before joining Lambert Smith Hampton, where
he spent eight years and qualified as a Chartered Surveyor in
2006.
Alex is Assistant Investment Manager to Custodian Property
Income REIT having joined Custodian Capital in 2012. Alex heads the
Company's property management and asset management initiatives,
assists in sourcing and executing new investments and is a member
of the Investment Manager's Investment Committee.
Tom Donnachie MRICS - Portfolio Manager
Tom graduated from Durham University with a degree in Geography
before obtaining an MSc in Real Estate Management from Sheffield
Hallam University. Tom worked in London for three years where he
qualified as a Chartered Surveyor with Workman LLP before returning
to the Midlands first with Lambert Smith Hampton and then CBRE.
Tom joined Custodian Capital in 2015 as Portfolio Manager with a
primary function to maintain and enhance the existing property
portfolio and assist in the selection and due diligence process
regarding new acquisitions. Tom co-leads the Investment Manager's
environmental working group and attends Custodian Property Income
REIT ESG Committee meetings.
Javed Sattar MRICS - Portfolio Manager
Javed joined Custodian Capital in 2011 after graduating from
Birmingham City University with a degree in Estate Management
Practice. Whilst working as a trainee surveyor on Custodian
Property Income REIT's property portfolio for Custodian Capital he
completed a PGDip in Surveying via The College of Estate Management
and qualified as a Chartered Surveyor in 2017.
Javed operates as Portfolio Manager managing properties
predominantly located in the North-West of England.
Aman Sharma MRICS - Portfolio Manager
Aman has worked in real estate for over 10 years having
graduated from Nottingham Trent University with a degree in Real
Estate Management and subsequently qualified as a Chartered
Surveyor in 2014, having spent time with AXA-IM Real Assets and
JLL.
Aman joined Custodian Capital in 2022 and is responsible for
managing a portfolio of mixed-use assets with a focus on the South
and East of England and assists in the sourcing and due diligence
process regarding new acquisitions.
Consolidated statements of comprehensive income
For the year ended 31 March 2023
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
Note GBP000 GBP000 GBP000 GBP000
Revenue 4 44,147 39,891 43,347 38,490
Investment management (3,880) (3,854) (3,880) (3,782)
Operating expenses of rental property
-- rechargeable to tenants (3,526) (852) (3,526) (852)
-- directly incurred (3,530) (3,422) (3,242) (3,174)
Professional fees (911) (617) (911) (579)
Directors' fees (318) (291) (318) (291)
Other expenses (822) (776) (819) (774)
Depreciation (112) - (112) -
Expenses (13,099) (9,812) (12,808) (9,452)
Operating profit before (loss)/profit on investment property, financing and
group reorganisations
31,048 30,079 30,539 29,038
Unrealised (loss)/profit on revaluation of investment property:
-- relating to property revaluations 10 (91,551) 93,977 (91,840) 86,656
-- relating to costs of acquisition 10 (3,426) (2,273) (3,426) (2,273)
Valuation (decrease)/increase (94,977) 91,704 (95,266) 84,383
Profit on disposal of investment property 4,368 5,369 4,368 5,369
Net (loss)/profit on investment property (90,609) 97,073 (90,898) 89,752
Operating (loss)/profit before financing and group reorganisations (59,561) 127,152 (60,359) 118,790
Finance income 6 22 - 22 -
Finance costs 7 (6,282) (4,827) (6,105) (4,615)
Net finance costs (6,260) (4,827) (6,083) (4,615)
(Loss)/profit before group reorganisations (65,821) 122,325 (66,442) 114,175
Impairment of investments on receipt of dividends from group companies 12 - - (22,538) -
Dividends received from group companies 12 - - 31,384 -
Other - - (75) -
Net income from group reorganisations 12 - - 8,771 -
(Loss)/profit before tax (65,821) 122,325 (57,671) 114,175
Income tax expense 8 - - - -
(Loss)/profit for the year and total comprehensive income for the year, net of tax (65,821) 122,325
(57,671) 114,175
Attributable to:
Owners of the Company (65,821) 122,325 (57,671) 114,175
Earnings per ordinary share:
Basic and diluted (p) 3 (14.9) 28.5
EPRA (p) 3 5.6 5.9
The profit for the year arises from continuing operations.
Consolidated and Company statements of financial position
As at 31 March 2023
Registered number: 08863271
Group Company
31 March
31 March 2023 31 March 2023 31 March 2022
2022
Note GBP000 GBP000 GBP000
GBP000
Non-current assets
Investment property 10 613,587 665,186 613,587 616,211
Property, plant and equipment 11 1,113 - 1,113 -
Investments 12 - - - 22,538
Total non-current assets 614,700 665,186 614,700 638,749
Current assets
Trade and other receivables 13 3,748 5,201 3,748 3,365
Cash and cash equivalents 15 6,880 11,624 6,880 9,217
Total current assets 10,628 16,825 10,628 12,582
Total assets 625,328 682,011 625,328 651,331
Equity
Issued capital 17 4,409 4,409 4,409 4,409
Share premium 17 250,970 250,970 250,970 250,970
Merger reserve 17 18,931 18,931 18,931 18,931
Retained earnings 17 163,259 253,330 163,259 245,180
Total equity attributable to equity holders of the Company
437,569 527,640 437,569 519,490
Non-current liabilities
Borrowings 16 172,102 113,883 172,102 113,883
Other payables 570 570 570 570
Total non-current liabilities 172,672 114,453 172,672 114,453
Current liabilities
Borrowings 16 - 22,727 - -
Trade and other payables 14 7,666 9,783 7,666 10,985
Deferred income 7,421 7,408 7,421 6,403
Total current liabilities 15,087 39,918 15,087 17,388
Total liabilities 187,759 154,371 187,759 131,841
Total equity and liabilities 625,328 682,011 625,328 651,331
These consolidated and Company financial statements of Custodian
Property Income REIT plc were approved and authorised for issue by
the Board of Directors on 14 June 2023 and are signed on its behalf
by:
David Hunter
Chair
Consolidated and Company statements of cash flows
For the year ended 31 March 2023
Group Company
Year Year Year Year
ended ended
ended ended
31 March 31 March
31 March 31 March
2023 2023
2022 2022
Note GBP000 GBP000 GBP000 GBP000
Operating activities
Profit for the year (65,821) 122,325 (57,671) 114,175
Net finance costs 6,260 4,827 6,083 4,615
Valuation decrease/(increase) of investment property 10 94,977 (91,704) 95,266 (84,383)
Impact of rent free 10 (1,677) (1,112) (1,690) (1,157)
Net income from group reorganisations 12 - - (8,771) -
Amortisation of right-of-use asset 8 7 8 7
Profit on disposal of investment property (4,368) (5,369) (4,368) (5,369)
Depreciation 112 - 112 -
Cash flows from operating activities before changes in working capital and
provisions
29,491 28,974 28,969 27,888
Decrease in trade and other receivables 2,954 1,923 4,349 2,636
(Decrease)/increase in trade and other payables and deferred income (2,104) 1,702 (1,559) 1,180
Cash generated from operations 30,341 32,599 31,759 31,704
Interest and other finance charges (6,072) (4,463) (5,918) (4,279)
Net cash inflows from operating activities 24,269 28,136 25,841 27,425
Investing activities
Purchase of investment property (52,603) (21,529) (52,603) (21,529)
Capital expenditure and development (11,333) (3,515) (11,333) (3,510)
Acquisition costs (3,426) (2,272) (3,426) (2,272)
Purchase of property, plant and equipment (1,225) - (1,225) -
Disposal of investment property 28,767 54,403 28,767 54,403
Costs of disposal of investment property (237) (479) (237) (479)
Interest and finance income received 6 22 - 22 -
Loan to subsidiaries - - (23,228) -
Cash acquired through the hive up of DRUM REIT - - 835 -
Net cash (outflows)/inflows from investing activities (40,035) 26,608 (62,428) 26,613
Financing activities
Proceeds from the issue of share capital 17 - 558 - 558
Costs of the issue of share capital - (51) - (51)
New borrowings 16 58,500 - 58,500 -
Repayment of borrowings and origination costs 16 (23,228) (25,057) - (25,057)
Dividends paid 9 (24,250) (24,191) (24,250) (24,191)
Net cash inflow/(outflow) from financing activities 11,022 (48,741) 34,250 (48,741)
Net (decrease)/increase in cash and cash equivalents (4,744) 6,003 (2,337) 5,297
Cash acquired through the acquisition of DRUM REIT - 1,701 - -
Cash and cash equivalents at start of the year 11,624 3,920 9,217 3,920
Cash and cash equivalents at end of the year 6,880 11,624 6,880 9,217
Consolidated statement of changes in equity
For the year ended 31 March 2023
Issued Merger Share Retained Total
reserve
capital premium earnings equity
GBP000
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 122,325 122,325
Total comprehensive income for year - - - 122,325 122,325
Transactions with owners of the Company, recognised directly in
equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 17 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 253,330 527,640
Loss for the year - - - (65,821) (65,821)
Total comprehensive loss for year - - - (65,821) (65,821)
Transactions with owners of the Company, recognised directly in
equity
Dividends 9 - - - (24,250) (24,250)
Issue of share capital 17 - - - - -
As at 31 March 2023 4,409 18,931 250,970 163,259 437,569
Company statement of changes in equity
For the year ended 31 March 2023
Issued Merger Share Retained Total
reserve
capital premium earnings equity
GBP000
Note GBP000 GBP000 GBP000 GBP000
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 114,175 114,175
Total comprehensive income for year - - - 114,175 114,175
Transactions with owners of the Company, recognised directly in
equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 17 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 245,180 519,490
Loss for the year - - - (57,671) (57,671)
Total comprehensive loss for year - - - (57,671) (57,671)
Transactions with owners of the Company, recognised directly in
equity
Dividends 9 - - - (24,250) (24,250)
Issue of share capital 17 - - - - -
As at 31 March 2023 4,409 18,931 250,970 163,259 437,569 Notes to the financial statements for the year ended 31 March 2023 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 consolidated and parent company 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 consolidated financial statements were
authorised for issue in accordance with a resolution of the
Directors on 14 June 2023. 2. Basis of preparation and accounting
policies 1. Basis of preparation
The consolidated financial statements and the separate financial
statements of the parent company have been prepared in accordance
with United Kingdom adopted international accounting standards and
International Financial Reporting Standards (IFRSs) as issued by
the IASB. The financial statements have also been prepared in
accordance with International Financial Reporting Standards as
issued by the IASB.
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. Basis of consolidation
The consolidated financial statements consolidate those of the
parent company and its subsidiaries. The parent controls a
subsidiary if it is exposed, or has rights, to variable returns
from its involvement with the subsidiary and has the ability to
affect those returns through its power over the subsidiary.
Custodian Real Estate Limited has a reporting date in line with the
Company. All transactions and balances between group companies are
eliminated on consolidation, including unrealised gains and losses
on transactions between group companies. Where unrealised losses on
intra-group asset sales are reversed on consolidation, the
underlying asset is also tested for impairment from a group
perspective. Amounts reported in the financial statements of the
subsidiary are adjusted where necessary to ensure consistency with
the accounting policies adopted by the Group. Profit or loss and
other comprehensive income of subsidiaries acquired or disposed of
during the year are recognised from the effective date the Company
gains control up to the effective date when the Company ceases to
control the subsidiary. 3. Business combinations
Where property is acquired, via corporate acquisitions or
otherwise, the substance of the assets and activities of the
acquired entity are considered in determining whether the
acquisition represents a business combination or an asset purchase
under IFRS 3 - Business Combinations.
A business combination is a transaction or event in which an
acquirer obtains control of one or more businesses. A business is
defined in IFRS 3 as an integrated set of activities and assets
that is capable of being conducted and managed for the purpose of
providing goods or services to customers, generating investment
income (such as dividends or interest) or generating other income
from ordinary activities. To assist in determining whether a
purchase of investment property via corporate acquisition or
otherwise meets the definition of a business or is the purchase of
a group of assets, the group will apply the optional concentration
test in IFRS 3 to determine whether substantially all of the fair
value of the gross assets acquired is concentrated in a single
identifiable asset or group of similar identifiable assets. If the
concentration test is not met the group applies judgement to assess
whether acquired set of activities and assets includes, at a
minimum, an input and a substantive process by applying IFRS 3:B8
to B12D. Where such acquisitions are not judged to be a business
combination, due to the asset or group of assets not meeting the
definition of a business, they are accounted for as asset
acquisitions and the cost to acquire the corporate entity is
allocated between the identifiable assets and liabilities of the
entity based on their relative fair values at the acquisition date.
Accordingly no goodwill or additional deferred taxation arises.
Under the acquisition accounting method, the identifiable
assets, liabilities and contingent liabilities acquired are
measured at fair value at the acquisition date. The consideration
transferred is measured at fair value which is calculated as the
sum of the acquisition-date fair values of assets transferred by
the Group, liabilities incurred by the Group to the former owners
of the acquiree and the equity interest issued by the Group in
exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred. 4. Application of new and
revised International Financial Reporting Standards
During the year the Company adopted the following new standards
with no impact on reported financial performance or position:
-- Amendments to IFRS 3 - References to the conceptual
framework
-- Amendments to IAS 16 - Property, plant and equipment -
proceeds before intended use
-- Amendments to IAS 37 - Onerous contracts - cost of fulfilling
a contract
-- Annual improvements to IFRSs: 2018-2020 - amendments to IFRS
1, IFRS 9, IFRS 16, and IAS 41
The IASB and the International Financial Reporting
Interpretations Committee have issued the following standards and
interpretations, as at the date of this report, that are mandatory
for later accounting periods and which have not been adopted early.
They are not expected to have a material impact on the financial
statements.
-- IFRS 17 - Insurance contracts
-- Amendments IFRS 17 - Initial application of IFRS 17 and IFRS
9 - comparative information
-- Amendments IFRS 16 - Lease liability in a sale and
leaseback
-- Amendments IAS 1 - Classification of liabilities as current
or non-current - deferral of effective date
- Disclosure of accounting policies
- Non-current liabilities with covenants
-- Amendments IAS 8 - Definition of accounting estimates
-- Amendments IAS 12 - Deferred tax related to assets and
liabilities arising from a single transaction
-- Amendments IFRS 4 - Extension of the temporary exemption from
applying IFRS 9
-- Amendments to IAS 12 - Pillar two model Rules
-- IAS 7 / IFRS 7 - Supplier finance arrangements 5. Significant
accounting policies
The principal accounting policies adopted by the Group and
Company and applied to these financial statements are set out
below.
Going concern
The Directors believe the Company is well placed to manage its
business risks successfully and the Company's projections show that
it should be able to operate within the level of its current
financing arrangements for at least the 12 months from the date of
approval of these financial statements, set out in more detail in
the Directors' report and Principal risks and uncertainties section
of the Strategic report. Accordingly, the Directors continue to
adopt the going concern basis for the preparation of the financial
statements.
Income recognition
Contractual revenues are allocated to each performance
obligation of a contract and revenue is recognised on a basis
consistent with the transfer of control of goods or services.
Revenue is measured at the fair value of the consideration
received, excluding discounts, rebates, VAT and other sales taxes
or duties.
Rental income from operating leases on properties owned by the
Company is accounted for on a straight-line basis over the term of
the lease. Rental income excludes service charges and other costs
directly recoverable from tenants. Rental income excludes service
charges and other costs directly recoverable from tenants which are
recognised within 'income from recharges to tenants'.
Lease incentives are recognised on a straight-line basis over
the lease term.
Revenue and profits on the sale of properties are recognised on
the completion of contracts. The amount of profit recognised is the
difference between the sale proceeds and the carrying amount.
Finance income relates to bank interest receivable and amounts
receivable on ongoing development funding contracts.
Taxation
The Group operates as a REIT and hence profits and gains from
the property rental business are normally expected to be exempt
from corporation tax. The tax expense represents the sum of the tax
currently payable and deferred tax relating to the residual
(non-property rental) business. The tax currently payable is based
on taxable profit for the year. Taxable profit differs from net
profit as reported in the statement of comprehensive income because
it excludes items of income and expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Company's liability for current
tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Investment property
Investment property is held to earn rentals and/or for capital
appreciation and is initially recognised at cost including direct
transaction costs. Investment property is subsequently valued
externally on a market basis at the reporting date and recorded at
valuation. Any surplus or deficit arising on revaluing investment
property is recognised in profit or loss in the year in which it
arises. Dilapidations receipts are held in the statement of
financial position and offset against subsequent associated
expenditure. Any ultimate gains or shortfalls are measured by
reference to previously published valuations and recognised in
profit or loss, offset against any directly corresponding movement
in fair value of the investment properties to which they
relate.
Group undertakings
Investments are included in the Company only statement of
financial position at cost less any provision for impairment. The
hive up of the trade and assets of DRUM REIT during the year was
undertaken at their carrying value on the date of hive-up. Trade
since the date of the hive-up has been included in the parent
company results, whilst trade before hive-up has been excluded.
Prior year comparatives have not been amended.
Non-listed equity investments
Non-listed equity investments are classified at fair value
through profit and loss and are subsequently measured using level 3
inputs, meaning valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
Property, plant and equipment
Plant, machinery, fixtures and fittings are stated at cost less
accumulated depreciation and accumulated impairment loss.
Depreciation is recognised so as to write off the cost of assets
(less their residual values) over their useful lives, using the
straight-line method, on the following bases:
EV chargers 10 years
Photovoltaic cells 20 years
The estimated useful lives, residual values and depreciation
method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective
basis.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and on-demand
deposits, and other short-term highly liquid investments that are
held for the purpose of meeting short-term cash commitments rather
than for investment or other purposes and are readily convertible
into a known amount of cash and are subject to an insignificant
risk of changes in value.
Other financial assets
Financial assets and financial liabilities are recognised in the
balance sheet when the Company becomes a party to the contractual
terms of the instrument.
The Company's financial assets include cash and cash equivalents
and trade and other receivables. Interest resulting from holding
financial assets is recognised in profit or loss on an accruals
basis.
Trade receivables are initially recognised at their transaction
price and subsequently measured at amortised cost as the business
model is to collect the contractual cash flows due from tenants. An
impairment provision is created based on expected credit losses,
which reflect the Company's historical credit loss experience and
an assessment of current and forecast economic conditions at the
reporting date.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Company after deducting all
of its liabilities. Equity instruments issued by the Company are
recorded at the proceeds received, net of direct issue costs.
Share capital represents the nominal value of equity shares
issued. Share premium represents the excess over nominal value of
the fair value of the consideration received for equity shares, net
of direct issue costs.
Retained earnings include all current and prior year results as
disclosed in profit or loss. Retained earnings include realised and
unrealised profits. Profits are considered unrealised where they
arise from movements in the fair value of investment properties
that are considered to be temporary rather than permanent.
Borrowings
Interest-bearing bank loans and overdrafts are recorded at the
fair value of proceeds received, net of direct issue costs. Finance
charges, including premiums payable on settlements or redemption
and direct issue costs, are accounted for on an accruals basis in
profit or loss using the effective interest rate method and are
included in accruals to the extent that they are not settled in the
period in which they arise.
Trade payables
Trade payables are initially measured at fair value and are
subsequently measured at amortised cost, using the effective
interest rate method.
Leases
Where an investment property is held under a leasehold interest,
the headlease is initially recognised as an asset at cost plus the
present value of minimum ground rent payments. The corresponding
rental liability to the head leaseholder is included in the balance
sheet as a liability. Lease payments are apportioned between the
finance charge and the reduction of the outstanding liability so as
to produce a constant periodic rate of interest on the remaining
lease liability.
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 (the
Board) 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 properties as a portfolio, the Directors have
identified a single operating segment, that of investment in
commercial properties. 6. Key sources of judgements and estimation
uncertainty
The preparation of the financial statements requires the Company
to make estimates and assumptions that affect the reported amount
of revenues, expenses, assets and liabilities and the disclosure of
contingent liabilities. If in the future such estimates and
assumptions, which are based on the Directors' best judgement at
the date of preparation of the financial statements, deviate from
actual circumstances, the original estimates and assumptions will
be modified as appropriate in the period in which the circumstances
change.
Judgements
No significant judgements have been made in the process of
applying the Group's and parent company's accounting policies,
other than those involving estimations, that have had a significant
effect on the amounts recognised within the financial
statements.
Estimates
The accounting estimates with a significant risk of a material
change to the carrying values of assets and liabilities within the
next year are:
-- Valuation of investment property - Investment property is
valued at the reporting date at fair value. Where an investment
property is being redeveloped the property continues to be treated
as an investment property. Surpluses and deficits attributable to
the Company arising from revaluation are recognised in profit or
loss. Valuation surpluses reflected in retained earnings are not
distributable until realised on sale. In making itsjudgement over
the valuation of properties, the Company considers valuations
performed by the independent valuersin determining the fair value
of its investment properties. The valuers make reference to market
evidence oftransaction prices for similar properties. The
valuations are based upon assumptions including future
rentalincome, anticipated capital expenditure and maintenance costs
(particularly in the context of mitigating the impactof climate
change) and appropriate discount rates (ie property yields). The
key sources of estimation uncertaintywithin these inputs above are
future rental income and property yields. Reasonably possible
changes to theseinputs across the portfolio would have a material
impact on its valuation. 3. Earnings per ordinary share
Basic EPS amounts are calculated by dividing net profit for the
year attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
year.
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
year 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 in
issue. Any shares issued after the year end are disclosed in Note
21.
The Company is a FTSE EPRA/NAREIT index series constituent and
EPRA performance measures have been disclosed to facilitate
comparability with the Company's peers through consistent reporting
of key performance measures. EPRA has issued recommended bases for
the calculation of EPS as alternative indicators of
performance.
Year Year
ended ended
31 March 31 March
2023 2022
Group
Net (loss)/profit and diluted net profit attributable to equity holders of the Company (GBP000)
(65,821) 122,325
Net loss/(profit) on investment property (GBP000) 90,609 (97,073)
EPRA net profit attributable to equity holders of the Company (GBP000) 24,788 25,252
Weighted average number of ordinary shares:
Issued ordinary shares at start of the year (thousands) 440,850 420,053
Effect of shares issued during the year (thousands) - 8,649
Basic and diluted weighted average number of shares (thousands) 440,850 428,702
Basic and diluted EPS (p) (14.9) 28.5
EPRA EPS (p) 5.6 5.9 4. Revenue
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Gross rental income from investment property 40,558 39,039 39,758 37,638
Income from recharges to tenants 3,526 852 3,526 852
Other income 63 - 63 -
44,147 39,891 43,347 38,490 5. Operating profit
Operating profit is stated after (crediting)/charging:
Group Company
Year Year Year Year
ended ended ended ended
31 31 March 31 31 March
March March
2022 2022
2023 2023
GBP000 GBP000
GBP000 GBP000
Profit on disposal of investment property (4,368) (5,369) (4,368) (5,369)
Investment property valuation decrease/(increase) 94,977 (91,704) 95,266 (84,383)
Fees payable to the Company's auditor and its associates for the audit of the
Company's annual financial statements
154 138 154 138
Fees payable to the Company's auditor and its associates for other services 35 25 35 25
Administrative fee payable to the Investment Manager 581 459 581 459
Directly incurred operating expenses of vacant rental property 1,857 1,826 1,857 1,611
Directly incurred operating expenses of let rental property 1,286 1,444 1,286 1,418
Amortisation of right-of-use asset 8 7 8 7
Fees payable to the Company's auditor, Deloitte LLP, are further
detailed in the Audit and Risk Committee report. 6. Finance
income
Group Company
Year Year Year Year
ended ended
ended ended
31 March 31 March
31 March 31 March
2023 2023
2022 2022
GBP000 GBP000
GBP000 GBP000
Bank interest 22 - 22 -
Finance income - - - -
22 - 22 - 7. Finance costs
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Amortisation of arrangement fees on debt facilities 220 364 187 337
Other finance costs 375 307 375 302
Bank interest 5,687 4,156 5,543 3,976
6,282 4,827 6,105 4,615 8. Income tax
The tax charge assessed for the year is lower than the standard
rate of corporation tax in the UK during the year of 19.0%. The
differences are explained below:
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Profit before income tax (65,821) 122,325 (57,671) 114,175
Tax charge on profit at a standard rate of 19.0% (2022: 19.0%) (12,506) 23,242 (10,957) 21,693
Effects of:
REIT tax exempt rental profits and gains 12,506 (23,242) 10,957 (21,693)
Income tax expense - - - -
Effective income tax rate 0.0% 0.0% 0.0% 0.0%
The standard rate of UK corporation tax increased to 25% on 1
April 2023.
The Company operates as a REIT and hence profits and gains from
the property investment business are normally exempt from
corporation tax. 9. Dividends
Year Year
ended ended
31 March 31 March
2023 2022
GBP000 GBP000
Group and Company
Interim dividends paid on ordinary shares relating to the quarter ended:
Prior year
- 31 March 2022: 1.375p (2021: 1.25p) 6,065 5,257
- 31 March 2022: nil (2021: 0.5p) - 2,102
Current year
- 30 June 2022: 1.375p (2021: 1.25p) 6,062 5,257
- 30 September 2022: 1.375p (2021: 1.25p) 6,062 5,511
- 31 December 2022: 1.375p (2021: 1.375p) 6,061 6,062
24,250 24,191
The Company paid a fourth interim dividend relating to the
quarter ended 31 March 2023 of 1.375p per ordinary share (totalling
GBP6.1m) on 31 May 2023 to shareholders on the register at the
close of business on 12 May 2023 which has not been included as
liabilities in these financial statements. 10. Investment
property
Group Company
GBP000 GBP000
At 31 March 2021 551,922 551,922
Impact of lease incentives 1,112 1,157
Additions 65,495 23,801
Amortisation of right-of-use asset (7) (7)
Capital expenditure and development 3,515 3,510
Disposals (48,555) (48,555)
Valuation increase before acquisition costs 93,977 86,656
Acquisition costs (2,273) (2,273)
Valuation increase including acquisition costs 91,704 84,383
At 31 March 2022 665,186 616,211
Impact of lease incentives 1,677 1,690
Additions 56,033 56,033
Transfers from group companies - 49,251
Amortisation of right-of-use asset (8) (8)
Capital expenditure and development 9,954 9,954
Disposals (24,278) (24,278)
Valuation decrease before acquisition costs (91,551) (91,840)
Acquisition costs (3,426) (3,426)
Valuation decrease including acquisition costs (94,977) (95,266)
At 31 March 2023 613,587 613,587
GBP447.3m (2022: GBP458.0m) of investment property was charged
as security against the Company's borrowings at the year end.
GBP0.6m (2022: GBP0.6m) of investment property comprises
right-of-use assets.
The carrying value of investment property at 31 March 2023
comprises GBP526.1m freehold (2022: GBP444.1m) and GBP87.5m
leasehold property (2022: GBP107.4m).
Company only investment property additions during the year of
GBP105.3m include GBP49.3m transferred from Custodian Real Estate
(DROP) Limited, a subsidiary, as part of the hive-up of the trade
and assets of DRUM REIT.
Investment property is stated at the Directors' estimate of its
31 March 2023 fair value. Savills (UK) Limited ("Savills") and
Knight Frank LLP ("KF"), professionally qualified independent
valuers, each valued approximately half of the property portfolio
as at 31 March 2023 in accordance with the Appraisal and Valuation
Standards published by the Royal Institution of Chartered Surveyors
("RICS"). Savills and KF have recent experience in the relevant
locations and categories of the property 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 year end valuation,
the following inputs were used:
Weighted
Valuation Weighted
average passing rent Topped-up NIY
31 March 2023 average ERV range Equivalent yield
Sector (GBP per sq ft)
GBP000 (GBP per sq ft)
Industrial 295.1 6.7 4.8 - 18.0 6.6% 5.1%
Retail warehouse 131.8 14.3 7.0 - 17.5 7.3% 7.2%
Other 78.6 19.5 2.9 - 71.2* 8.0% 6.8%
Office 71.7 18.7 8.5 - 35.8 8.9% 6.4%
High street retail 36.4 30.7 3.8 - 57.4 8.6% 9.6%
*Drive-through restaurants' ERV per sq ft are based on building
floor area rather than area inclusive of drive-through lanes.
Valuation reports are based on both information provided by the
Company eg 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, expected capital
expenditure and yields. These assumptions are based on market
observation and the valuers' professional judgement. In estimating
the fair value of each property, the highest and best use of the
properties is their current use.
All other factors being equal, a higher equivalent yield would
lead to a decrease in the valuation of investment property, and an
increase in the current or estimated future rental stream would
have the effect of increasing capital value, and vice versa.
However, there are interrelationships between unobservable inputs
which are partially determined by market conditions, which could
impact on these changes. 11. Property, plant and equipment
EV chargers and PV cells
At 31 March 2023 At 31 March 2022 At 31 March 2021
GBP000 GBP000 GBP000
Group and Company
Cost
Balance at the start of the year - - -
Additions 1,225 - -
1,225 - -
Depreciation
At the start of the year - - -
During the year (112) - -
(112) - -
Net book value at the end of the year 1,113 - - 12. Investments
Shares in subsidiaries
Company
31 31
Country of registration Principal Ordinary March March
and incorporation activity shares held 2023 2022
Company
number GBP000 GBP000
Name
Custodian REIT Limited 08882372 England and Wales Non-trading 100% - -
Custodian Real Estate (Beaumont Leys) Limited* 04364589 England and Wales Dissolved 100% - 4
Custodian Real Estate (Leicester) Limited*
04312180 England and Wales Dissolved 100% - 497
Custodian Real Estate (JMP4) Limited 11187952 England and Wales Dissolved 100% - 2,904
Custodian Real Estate (DROP Holdings) Limited 9511797 England and Wales In 100% - 19,133
(formerly DRUM Income Plus REIT plc) Liquidation
Custodian Real Estate (DROP) Limited (formerly 9515513 England and Wales In 100% - -
DRUM Income Plus Limited)* Liquidation
- 22,538
* Held indirectly
The trade and assets of Custodian Real Estate (DROP Holdings)
Limited and Custodian Real Estate (DROP) Limited were hived up into
the Company in June 2022 via an intercompany transfer. In November
2022 Custodian Real Estate (DROP Holdings) Limited and Custodian
Real Estate (DROP) Limited went through a 'pre-liquidation'
exercise which culminated in a non-cash dividend of GBP28.0m being
declared from Custodian Real Estate (DROP Holdings) Limited to the
Company to clear the associated intercompany balance. The
declaration of this dividend resulted in a corresponding impairment
to the Company's investment in Custodian Real Estate (DROP
Holdings) Limited of GBP19.1m. Custodian Real Estate (DROP
Holdings) Limited and Custodian Real Estate (DROP) Limited were
then entered into a solvent liquidation process in December
2022.
Custodian Real Estate (Beaumont Leys) Limited, Custodian Real
Estate (Leicester) Limited and Custodian Real Estate (JMP4) Limited
have made distributions totalling GBP3.4m in advance of completing
their liquidations during the year which resulted in a
corresponding impairment to the Company's investments in those
companies.
The Company's non-trading UK subsidiaries have claimed the audit
exemption available under Section 479A of the Companies Act 2006.
The Company's registered office is also the registered office of
each UK subsidiary.
Non-listed equity investments
Group and
Company
31 March 31 March
Country of registration and Principal Ordinary shares 2023 2022
incorporation activity held
Company GBP000 GBP000
number
Name
AGO Hotels 12747566 England and Wales Operator of 4.5% - -
Limited hotels
- -
The Company was allotted 4.5% of the ordinary share capital of
AGO Hotels Limited on 31 January 2021 as part of a new letting of
its hotel asset in Portishead. 13. Trade and other receivables
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Falling due in less than one year:
Trade receivables 1,355 3,094 1,355 2,642
Other receivables 2,100 1,960 2,100 576
Prepayments and accrued income 293 147 293 147
3,748 5,201 3,748 3,365
The Company regularly monitors the effectiveness of the criteria
used to identify whether there has been a significant increase in
credit risk, for example a deterioration in a tenant's or sector's
outlook or rent payment performance, and revises them as
appropriate to ensure that the criteria are capable of identifying
significant increases in credit risk before amounts become past
due.
Tenant rent deposits of GBP1.5m (2022: GBP1.1m) are held as
collateral against certain trade receivable balances.
The Company considers the following as constituting an event of
default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
-- When there is a breach of financial covenants by the debtor;
or
-- Available information indicates the debtor is unlikely to pay
its creditors.
Such balances are provided for in full. For remaining balances
the Company has applied an expected credit loss ("ECL") matrix
based on its experience of collecting rent arrears.
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
Expected credit loss provision GBP000 GBP000 GBP000 GBP000
Opening balance 2,739 3,030 2,739 3,030
Increase/(decrease) in provision relating to trade receivables that are 453 (291) 453 (291)
credit-impaired
Utilisation of provisions (2,049) - (2,049) -
Closing balance 1,143 2,739 1,143 2,739
The significant utilisation of the expected credit loss
provision during the year was a result of clearing down a large
proportion of provisions made during FY21 as a result of the
COVID-19 pandemic. Remaining provisions against these historical
arrears are expected to be utilised during FY24. 14. Trade and
other payables
Group Company
31 March 31 March
31 March 2023 31 March 2023
2022 2022
GBP000 GBP000
GBP000 GBP000
Falling due in less than one year:
Trade and other payables 972 3,960 972 1,973
Social security and other taxes 498 456 498 366
Accruals 4,693 4,226 4,693 4,100
Rental deposits 1,503 1,141 1,503 1,141
Amounts due to subsidiary undertakings - - - 3,405
7,666 9,783 7,666 10,985
The Directors consider that the carrying amount of trade and
other payables approximates to 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.
Amounts payable to subsidiary undertakings are due on demand.
15. Cash and cash equivalents
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Cash and cash equivalents 6,880 11,624 6,880 9,217
Group and Company cash and cash equivalents at 31 March 2023
include GBP1.6m (2022: GBP1.7m) of restricted cash comprising:
GBP1.5m (2022: GBP1.1m) rental deposits held on behalf of tenants,
GBPnil (2022: GBP0.3) exchange deposits on pipeline acquisitions
and GBP0.1m (2022: GBP0.3m) retentions held in respect of
development fundings. 16. Borrowings
The table below sets out changes in liabilities arising from
financing activities during the year.
Group Company
Costs incurred in the Costs incurred in the
arrangement of borrowings arrangement of borrowings
GBP000 GBP000
Borrowings Total Borrowings Total
GBP000 GBP000
GBP000 GBP000
Falling due within one year:
At 31 March 2021 - - - - - -
Borrowings arising from the 22,760 (60) 22,700 - - -
acquisition of DRUM REIT
Amortisation of arrangement - 27 27 - - -
fees
At 31 March 2022 22,760 (33) 22,727 - - -
Repayment of borrowings (22,760) (22,760) - - -
Amortisation of arrangement - 33 33 - - -
fees
At 31 March 2023 - - - - - -
Falling due in more than one year:
At 31 March 2021 140,000 (1,396) 138,604 140,000 (1,396) 138,604
Repayment of borrowings (25,000) - (25,000) (25,000) - (25,000)
Arrangement fees incurred - (57) (57) - (57) (57)
Amortisation of arrangement fees - 336 336 - 336 336
115,000 (1,117) 113,883 115,000 (1,117) 113,883
At 31 March 2022
Additional borrowings 58,500 - 58,500 58,500 - 58,500
Arrangement fees incurred - (468) (468) - (454) (454)
Amortisation of arrangement fees - 187 187 - 173 173
At 31 March 2023 173,500 (1,398) 172,102 173,500 (1,398) 172,102
Total borrowings:
At 31 March 2023 173,500 (1,398) 172,102 173,500 (1,398) 172,102
In June 2022 the Company arranged a GBP25m tranche of 10 year
debt with Aviva at a fixed rate of interest of 4.10% per annum to
refinance a GBP25m variable rate revolving credit facility with
Royal Bank of Scotland ("RBS") which was due to expire in September
2022.
At the year end the Company has the following facilities
available:
-- A GBP40m RCF with Lloyds with interest of between 1.5% and
1.8% above SONIA and is repayable on 17 September 2024. The RCF
limit can be increased to GBP50m with Lloyds' consent, with
GBP33.5m drawn at the year end;
-- A GBP20m term loan with Scottish Widows plc with interest
fixed at 3.935% and is repayable on 13 August 2025;
-- A GBP45m term loan with Scottish Widows plc with interest
fixed at 2.987% and is repayable on 5 June 2028;and
-- A GBP75m term loan facility with Aviva comprising:
-- A GBP35m tranche repayable on 6 April 2032, with fixed annual
interest of 3.02%;
-- A GBP15m tranche repayable on 3 November 2032 with fixed
annual interest of 3.26%; and
-- A GBP25m tranche repayable on 3 November 2032 with fixed
annual interest of 4.10%.
Each facility has a discrete security pool, comprising a number
of the Company's individual properties, over which the relevant
lender has security and covenants:
-- The maximum LTV of the discrete security pool is between 45%
and 50%, with an overarching covenant on theCompany's property
portfolio of a maximum 35% LTV; and
-- Historical interest cover, requiring net rental income from
each discrete security pool, over thepreceding three months, to
exceed 250% of the facility's quarterly interest liability.
The Company's debt facilities contain market-standard
cross-guarantees such that a default on an individual facility will
result in all facilities falling into default. 17. Share
capital
Group and Company
Ordinary shares
of 1p
Issued and fully paid share capital GBP000
At 1 April 2021 420,053,344 4,201
Issue of share capital 20,797,054 208
At 31 March 2022 440,850,398 4,409
Issue of share capital - -
At 31 March 2023 440,850,398 4,409
During the year ending 31 March 2022, the Company issued 550,000
shares for cash consideration of 101.5p per share and issued
20,247,040 shares as consideration for the acquisition of DRUM
Property Income REIT plc at their market value of 94.5p per
share.
Rights, preferences and restrictions on shares
All ordinary shares carry equal rights and no privileges are
attached to any shares in the Company. All the shares are freely
transferable, except as otherwise provided by law. The holders of
ordinary shares are entitled to receive dividends as declared from
time to time and are entitled to one vote per share at meetings of
the Company. All shares rank equally with regard to the Company's
residual assets.
At the AGM of the Company held on 31 August 2022, the Board was
given authority to issue up to 146,950,133 shares, pursuant to
section 551 of the Companies Act 2006 ("the Authority"). The
Authority is intended to satisfy market demand for the ordinary
shares and raise further monies for investment in accordance with
the Company's investment policy. No ordinary shares have been
issued under the Authority since 31 August 2022. The Authority
expires on the earlier of 15 months from 31 August 2022 and the
subsequent AGM, due to take place on 8 August 2023.
In addition, the Company was granted authority to make market
purchases of up to 44,085,039 ordinary shares under section 701 of
the Companies Act 2006. No market purchases of ordinary shares have
been made.
Company Group Group and Company
Retained earnings
Retained earnings Share premium account GBP000 Merger reserve
GBP000
Other reserves GBP000 GBP000
At 1 April 2021 155,196 155,196 250,469 -
Shares issued during the year - - 552 18,931
Costs of share issue - - (51) -
Profit for the year 114,175 122,325 - -
Dividends paid (24,191) (24,191) - -
At 31 March 2022 245,180 253,330 250,970 18,931
Shares issued during the year - - - -
Costs of share issue - - - -
Loss for the year (57,671) (65,821) - -
Dividends paid (24,250) (24,250) - -
At 31 March 2023 163,259 163,259 250,970 18,931
The nature and purpose of each reserve within equity are:
-- Share premium - Amounts subscribed for share capital in
excess of nominal value less any associated issuecosts that have
been capitalised.
-- Retained earnings - All other net gains and losses and
transactions with owners (e.g. dividends) notrecognised
elsewhere.
-- Merger reserve - A non-statutory reserve that is credited
instead of a company's share premium account incircumstances where
merger relief under section 612 of the Companies Act 2006 is
obtained. 18. Commitments and contingencies
Company as lessor
Operating leases, in which the Company is the lessor, relate to
investment property owned by the Company with lease terms of
between 0 to 15 years. The aggregated future minimum rentals
receivable under all non-cancellable operating leases are:
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Not later than one year 37,930 36,512 37,930 33,565
Year 2 33,519 32,830 33,519 30,332
Year 3 28,669 27,986 28,669 25,819
Year 4 25,193 23,367 25,193 21,975
Year 5 19,839 19,764 19,839 18,546
Later than five years 71,446 67,843 71,446 62,418
216,596 208,302 216,596 192,655
The following table presents rent amounts reported in
revenue:
Group Company
31 31 31 31
March March March March
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
Lease income on operating leases 40,371 38,884 39,571 37,483
Therein lease income relating to variable lease payments that do not depend on an 187 155 187 155
index or rate
40,558 39,039 39,758 37,638 19. Related party transactions
Save for transactions described below, the Company is not a
party to, nor had any interest in, any other related party
transaction during the year.
Transactions with directors
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, 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.
Compensation paid to the directors, who are also considered 'key
management personnel' in addition to the key Investment Manager
personnel, is disclosed in the Remuneration report. The directors'
remuneration report also satisfies the disclosure requirements of
paragraph 1 of Schedule 5 to the Accounting Regulations.
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.
Annual management fees payable to the Investment Manager under
the IMA are:
-- 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.
In June 2023 the rates applicable to each NAV hurdle for
calculating the Administrative fees payable to the Investment
Manager under the IMA were amended, with effect from 1 April 2022,
to:
-- 0.125% of the NAV of the Company as at the relevant quarter
day which is less than or equal to GBP200mdivided by 4;
-- 0.115% (2022: 0.08%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP200mbut below GBP500m
divided by 4;
-- 0.02% (2022: 0.05%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP500mbut below GBP750m
divided by 4; plus
-- 0.015% (2022: 0.03%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP750mdivided by 4.
The IMA is terminable by either party by giving not less than 12
months' prior written notice to the other. 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% (2022:
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 year the Investment Manager charged the Company
GBP4.46m (2022: GBP4.41m) comprising GBP3.88m (2022: GBP3.86m) in
respect of annual management fees, GBP0.58m (2022: GBP0.46m) in
respect of administrative fees and GBPnil (2022: GBPnil) in respect
of marketing fees. During the prior year the Investment Manager
charged the Company a transaction fee of GBP0.09m relating to work
carried out on the acquisition of DRUM REIT.
Mattioli Woods arranges insurance on behalf of the Company's
tenants through an insurance broker and the Investment Manager is
paid a commission by the Company's tenants for administering the
policy. 20. Financial risk management
Capital risk management
The Company manages its capital to ensure it can continue as a
going concern while maximising the return to stakeholders through
the optimisation of the debt and equity balance within the
parameters of its investment policy. The capital structure of the
Company consists of debt, which includes the borrowings disclosed
below, cash and cash equivalents and equity attributable to equity
holders of the parent, comprising issued ordinary share capital,
share premium and retained earnings.
Net gearing
The Board reviews the capital structure of the Company on a
regular basis. As part of this review, the Board considers the cost
of capital and the risks associated with it. The Company has a
medium-term target net gearing ratio of 25% determined as the
proportion of debt (net of unrestricted cash) to investment
property. The net gearing ratio at the year-end was 27.4% (2022:
19.1%).
Externally imposed capital requirements
The Company is not subject to externally imposed capital
requirements, although there are restrictions on the level of
interest that can be paid due to conditions imposed on REITs.
Financial risk management
The Company seeks to minimise the effects of interest rate risk,
credit risk, liquidity risk and cash flow risk by using fixed and
floating rate debt instruments with varying maturity profiles, at
low levels of net gearing.
Interest rate risk management
The Company's activities expose it primarily to the financial
risks of increases in interest rates, as it borrows funds at
floating interest rates. The risk is managed by maintaining:
-- An appropriate balance between fixed and floating rate
borrowings;
-- A low level of net gearing; and
-- An RCF whose flexibility allows the Company to manage the
risk of changes in interest rates by payingdown variable borrowings
using the proceeds of equity issuance, property sales or arranging
fixed-rate debt.
The Board periodically considers the availability and cost of
hedging instruments to assess whether their use is appropriate and
also considers the maturity profile of the Company's
borrowings.
Interest rate sensitivity analysis
Interest rate risk arises on interest payable on the RCF only,
as interest on all other debt facilities is payable on a fixed rate
basis. At 31 March 2023, the RCF was drawn at GBP33.5m. Assuming
this amount was outstanding for the whole year and based on the
exposure to interest rates at the reporting date, if SONIA had been
1.0% higher/lower and all other variables were constant, the
Company's profit for the year ended 31 March 2023 would
decrease/increase by GBP0.3m.
Market risk management
The Company manages its exposure to market risk by holding a
portfolio of investment property diversified by sector, location
and tenant.
Market risk sensitivity
Market risk arises on the valuation of the Company's property
portfolio in complying with its bank loan covenants (Note 16). The
Company would breach its overall borrowing covenant if the
valuation of its property portfolio fell by 19% (2022: 45%).
Credit risk management
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company. The Company's credit risk is primarily attributable to its
trade receivables and cash balances. The amounts included in the
statement of financial position are net of allowances for bad and
doubtful debts. An allowance for impairment is made where a debtor
is in breach of its financial covenants, available information
indicates a debtor can't pay or where balances are significantly
past due.
The Company has adopted a policy of only dealing with
creditworthy counterparties as a means of mitigating the risk of
financial loss from defaults. The maximum credit risk on financial
assets at 31 March 2023, which comprise trade receivables plus
unrestricted cash, was GBP6.6m (2022: Group - GBP13.0m, Company -
GBP10.1m).
The Company has no significant concentration of credit risk,
with exposure spread over a large number of tenants covering a wide
variety of business types. Further detail on the Company's credit
risk management process is included within the Strategic
report.
Cash of GBP6.9m (2022: GBP11.6m) is held with Lloyds Bank plc
which has a credit rating of A1[41].
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board, which has built an appropriate liquidity risk management
framework for the management of the Company's short, medium and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves,
banking facilities and reserve borrowing facilities, by
continuously monitoring forecast and actual cash flows and matching
the maturity profile of financial assets and liabilities.
The following tables detail the Company's contractual maturity
for its financial liabilities. The table has been drawn up based on
undiscounted cash flows of financial liabilities based on the
earliest date on which the Company can be required to pay. The
table includes both interest and principal cash flows.
31 March 2023
31 March 2023 31 March 2023
Group and Company Interest rate % 0-3 months 3 months - 1 year 31 March 2023 5 years +
1-5 years
GBP000 GBP000 GBP000
GBP000
Trade and other payables N/a 7,168 - 151 420
Borrowings:
Variable rate 5.98 501 1,502 34,439 -
Fixed rate 3.935 197 590 21,082 -
Fixed rate 2.987 336 1,008 5,377 45,250
Fixed rate 3.020 264 793 4,228 39,248
Fixed rate 3.260 122 367 1,956 17,249
Fixed rate 4.100 154 461 2,462 25,367
8,742 4,722 69,694 127,535
31 March 2022
31 March 2022 31 March 2022
31 March 2022 (as restated)
Group Interest rate % (as restated) (as restated)
0-3 months 3 months - 1 year (as restated) 5 years +
1-5 years
GBP000 GBP000 GBP000
GBP000
Trade and other payables N/a 9,327 - 151 420
Borrowings:
Variable rate 2.441 139 22,839 - -
Fixed rate 3.935 197 590 22,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
10,385 25,597 34,368 107,948
31 March 2022 31 March 2022 31 March 2022
31 March 2022
Company Interest rate % (as restated) (as restated) (as restated)
0-3 months 3 months - 1 year (as restated) 5 years +
1-5 years
GBP000 GBP000 GBP000
GBP000
Trade and other payables N/a 10,619 - 151 420
Borrowings:
Fixed rate 3.935 197 590 22,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
11,538 2,758 34,368 107,948
The tables relating to the year ended 31 March 2022 above have
been restated due to a reclassification of certain current
liabilities as financial instruments included in error (social
security and other tax payables of GBP456k and GBP366k for group
and company respectively), and the correction of loan amounts
(removal of average value of RCF of GBP16,948k, inclusion of
repayment amounts of GBP20,000k in both group and company only
relating to the fixed rate loan at 3.395%, and GBP22,700k
additionally in the group relating to the variable rate loan at
2.441%).
Fair values
The fair values of financial assets and liabilities are not
materially different from their carrying values in the financial
statements. The 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 assets or liabilities that are not
based on observable market data (unobservableinputs).
There have been no transfers between Levels 1, 2 and 3 during
the year. 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, which uses the
inputs set out in Note 10. These values were determined after
having taken into consideration recent market transactions for
similar properties in similar locations to the investment
properties held by the Company. The fair value hierarchy of
investment property is level 3. At 31 March 2023, the fair value of
the Company's investment properties was GBP613.6m (2022:
GBP665.2m).
Interest bearing loans and borrowings - level 3
At 31 March 2023 the gross value of the Company's loans with
Lloyds, SWIP and Aviva all held at amortised cost was GBP173.5m
(2022: GBP137.8m). The difference between the carrying value of
Company's loans and their fair value is detailed in Note 22.
Trade and other receivables/payables - level 3
The carrying amount of all receivables and payables deemed to be
due within one year are considered to reflect their fair value. 21.
Events after the reporting date
Property transactions
Since the year end the Company has sold a retail unit in
Cirencester at valuation for GBP0.7m. 22. Alternative performance
measures
NAV per share total return
An alternative 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 year.
Year ended Year ended
31 March 31 March
2023 2022
Group
Net assets (GBP000) 437,569 527,640
Shares in issue at 31 March (thousands) 440,850 440,850
NAV per share at the start of the year (p) 119.7 97.6
Dividends per share paid during the year (p) 5.5 5.625
NAV per share at the end of the year (p) 99.3 119.7
(12.5%)
NAV per share total return 28.4%
Share price total return
An alternative 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 year.
Year ended Year ended
31 March 31 March
2023 2022
Group
Share price at the start of the year (p) 101.8 91.8
Dividends per share paid during the year (p) 5.5 5.625
Share price at the end of the year (p) 89.2 101.8
(7.0%)
Share price total return 17.0%
Dividend cover
The extent to which dividends relating to the year are supported
by recurring net income, indicating whether the level of dividends
is sustainable.
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Group
Dividends paid relating to the year 18,185 16,830
Dividends approved relating to the year 6,062 6,062
24,247 22,892
(Loss)/profit after tax (65,821) 122,325
One-off costs - -
Net loss/(profit) on investment property 90,609 (97,073)
24,788 25,252
Dividend cover 102.2% 110.3%
Weighted average cost of debt
The interest rate payable on bank borrowings at the year end
weighted by the amount of borrowings at that rate as a proportion
of total borrowings.
Amount drawn
31 March 2023
GBPm Interest rate
Weighting
RCF 33.5 5.830% 1.13%
Total variable rate 33.5
SWIP GBP20m loan 20.0 3.935% 0.45%
SWIP GBP45m loan 45.0 2.987% 0.78%
Aviva
-- GBP35m tranche 35.0 3.020% 0.61%
-- GBP15m tranche 15.0 3.260% 0.28%
-- GBP25m tranche 25.0 4.100% 0.59%
Total fixed rate 140.0
Weighted average drawn facilities 173.5 3.84%
Amount drawn
31 March 2022
GBPm Interest rate
Weighting
RCF 23.0 2.441% 0.40%
Total variable rate 23.0
SWIP GBP20m loan 20.0 3.935% 0.56%
SWIP GBP45m loan 45.0 2.987% 0.96%
Aviva
-- GBP35m tranche 35.0 3.020% 0.76%
-- GBP15m tranche 15.0 3.260% 0.35%
Total fixed rate 115.0
Weighted average rate on drawn facilities 138.0 3.02%
Net gearing
Gross borrowings less cash (excluding rent deposits), divided by
property portfolio value. This ratio indicates whether the Company
is meeting its investment objective to target 25% loan-to-value in
the medium-term to balance enhancing shareholder returns without
facing excessive financial risk.
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Group
Gross borrowings 173,500 137,760
Cash (6,880) (11,624)
Cash held on behalf of tenants 1,503 1,141
Net borrowings 168,123 127,277
Investment property 613,587 665,186
Net gearing 27.4% 19.1%
Ongoing charges
A measure of the regular, recurring costs of running an
investment company expressed as a percentage of average NAV, and
indicates how effectively costs are controlled in comparison to
other property investment companies.
Year ended Year ended
31 March 31 March
2023 2022
Group GBP000 GBP000
Average quarterly NAV during the year 489,075 462,501
Expenses 13,099 9,812
Operating expenses of rental property rechargeable to tenants (3,526) (852)
9,573 8,960
Operating expenses of rental property directly incurred (3,530) (3,422)
One-off costs - -
6,043 5,538
OCR 1.96% 1.94%
OCR excluding direct property expenses 1.23% 1.20%
EPRA performance measures
The Company uses EPRA alternative performance measures based on
its Best Practice Recommendations to supplement IFRS measures, in
line with best practice in the sector. The measures defined by EPRA
are designed to enhance transparency and comparability across the
European real estate sector. The Board supports EPRA's drive to
bring parity to the comparability and quality of information
provided in this report to investors and other key stakeholders.
EPRA alternative performance measures are adopted throughout this
report and are considered by the directors to be key business
metrics.
EPRA earnings per share
A measure of the Company's operating results excluding gains or
losses on investment property, giving an alternative indication of
performance compared to basic EPS which sets out the extent to
which dividends relating to the year are supported by recurring net
income.
Year ended Year ended
31 March 31 March
2023 2022
GBP000 GBP000
Group
(Loss)/profit for the year after taxation (65,821) 122,325
Net (profit)/loss on investment property 90,609 (97,073)
EPRA earnings 24,788 25,252
Weighted average number of shares in issue (thousands) 440,850 428,702
EPRA earnings per share (p) 5.6 5.9
EPRA NAV per share metrics
EPRA NAV metrics make adjustments to the IFRS NAV to provide
stakeholders with additional information on the fair value of the
assets and liabilities of a real estate investment company, under
different scenarios.
EPRA Net Reinstatement Value ("NRV")
NRV assumes the Company never sells its assets and aims to
represent the value required to rebuild the entity.
31 March 31 March
2023 2022
Group GBP000 GBP000
IFRS NAV 437,569 527,640
Fair value of financial instruments - -
Deferred tax - -
EPRA NRV 437,569 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NRV per share (p) 99.3 119.7
EPRA Net Tangible Assets ("NTA")
Assumes that the Company buys and sells assets for short-term
capital gains, thereby crystallising certain deferred tax
balances.
31 March 31 March
2023 2022
Group GBP000 GBP000
IFRS NAV 437,569 527,640
Fair value of financial instruments - -
Deferred tax - -
Intangibles - -
EPRA NTA 437,569 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NTA per share (p) 99.3 119.7
EPRA Net Disposal Value ("NDV")
Represents the shareholders' value under a disposal scenario,
where deferred tax, financial instruments and certain other
adjustments are calculated to the full extent of their liability,
net of any resulting tax.
31 March 31 March
2023 2022
Group GBP000 GBP000
IFRS NAV 437,569 527,640
Fair value of fixed rate debt below book value 7,636 -
Deferred tax - -
EPRA NDV 445,205 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NDV per share (p) 101.0 119.7
At 31 March 2023 the Company's gross fixed-rate debt included in
the balance sheet at amortised cost was GBP173.5m (2022: GBP137.8m)
and its fair value is considered to be GBP163.9m. This fair value
has been calculated based on prevailing mark-to-market valuations
provided by the Company's lenders, and excludes 'break' costs
chargeable should the Company settle loans ahead of their
contractual expiry. These mark-to-market values were not available
in the prior year so the fair value in excess of book value is
shown as GBPnil in the table above.
EPRA NIY and EPRA 'topped-up' NIY
EPRA NIY represents annualised rental income based on cash rents
passing at the balance sheet date, less non-recoverable property
operating expenses, divided by the property valuation plus
estimated purchaser's costs. The EPRA 'topped-up' NIY is calculated
by making an adjustment to the EPRA NIY in respect of the
expiration of rent free periods (or other unexpired lease
incentives such as discounted rent periods and stepped rents).
These measures offer comparability between the rent generating
capacity of portfolios.
31 March 31 March
2023 2022
Group GBP000 GBP000
Investment property 613,587 665,186
Allowance for estimated purchasers' costs[42] 39,883 43,237
Gross-up property portfolio valuation 653,470 708,423
Annualised cash passing rental income[43] 39,908 37,367
Property outgoings[44] (1,875) (1,719)
Annualised net rental income 38,033 35,648
Impact of expiry of current lease incentives[45] 2,144 3,126
Annualised net rental income on expiry of lease incentives 40,177 38,773
EPRA NIY 5.8% 5.0%
EPRA 'topped-up' NIY 6.2% 5.5%
EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of
the ERV of the whole property portfolio and offers insight into the
additional rent generating capacity of the portfolio.
31 March 31 March
2023 2022
Group GBP000 GBP000
Annualised potential rental value of vacant premises 4,743 4,643
Annualised potential rental value for the property portfolio 48,976 45,580
EPRA vacancy rate 9.7% 10.2%
EPRA cost ratios
EPRA cost ratios reflect overheads and operating costs as a
percentage of gross rental income and indicate how effectively
costs are controlled in comparison to other property investment
companies.
Year ended Year ended
31 March 31 March
2023 2022
Group GBP000 GBP000
Directly incurred operating expenses and other expenses 9,461 8,960
Ground rent costs (37) (37)
EPRA costs (including direct vacancy costs) 9,424 8,923
Property void costs (1,828) (1,525)
EPRA costs (excluding direct vacancy costs) 7,596 7,398
Gross rental income 40,558 39,039
Ground rent costs (37) (37)
Rental income net of ground rent costs 40,521 39,002
EPRA cost ratio (including direct vacancy costs) 23.3% 22.9%
EPRA cost ratio (excluding direct vacancy costs) 18.7% 19.0%
EPRA LTV
An alternative measure of gearing including all payables and
receivables. This ratio indicates whether the Company is complying
with its investment objective to target 25% loan-to-value in the
medium-term to balance enhancing shareholder returns without facing
excessive financial risk.
Year ended Year ended
31 March 31 March
2023 2022
Group GBP000 GBP000
Gross borrowings 173,500 137,760
Trade and other receivables 3,748 5,201
Trade and other payables (7,666) (9,783)
Deferred income (7,421) (7,408)
Cash 6,880 11,624
Cash held on behalf of tenants (1,503) (1,141)
Net borrowings 167,538 136,253
Investment property 613,587 665,186
EPRA LTV 27.3% 20.5%
EPRA capital expenditure
Capital expenditure incurred on the Company's property portfolio
during the year. This ratio offers insight into the proportion of
cash deployment relating to acquisitions compared to the
like-for-like portfolio.
31 March 31 March
2023 2022
Group GBP000 GBP000
Acquisitions 56,033 65,495
Development 3,580 -
Like-for-like portfolio 4,066 3,515
Total capital expenditure 63,679 69,010
EPRA like-for-like rental growth
Like-for-like rental growth of the property portfolio by sector
which offers an alternative view on the 'run-rate' of revenues at
the year end.
31 March 2023
Retail warehouse
Industrial Retail Other Office Total
GBP000
Group GBP000 GBP000 GBP000 GBP000 GBP000
Like-for-like rent 14,377 8,074 3,405 5,184 5,597 36,637
Acquired properties 824 1,377 217 139 - 2,557
Sold properties 583 - 34 57 690 1,364
15,784 9,451 3,656 5,380 6,287 40,558
31 March 2022
Retail warehouse
Industrial Retail Other Office Total
GBP000
Group GBP000 GBP000 GBP000 GBP000 GBP000
Like-for-like rent 14,637 7,887 3,167 5,397 4,168 35,256
Acquired properties 218 182 538 - 1,074 2,012
Sold properties 976 100 149 546 - 1,771
15,831 8,169 3,854 5,943 5,242 39,039
Investment policy
The Company's investment objective is to provide Shareholders
with an attractive level of income together with the potential for
capital growth from investing in a diversified portfolio of
commercial real estate properties in the UK.
The Company's investment policy is:
a) To invest in a diversified portfolio of UK commercial real
estate properties principally characterised by individual values of
less than GBP15m at acquisition[46].
b) The property portfolio should not exceed a maximum weighting
to any one property sector, or to any geographic region, of greater
than 50%.
c) To focus on areas with high residual values, strong local
economies and an imbalance between supply and demand. Within these
locations the objective is to acquire modern buildings or those
that are considered fit for purpose by occupiers.
d) No one tenant or property should account for more than 10% of
the total rent roll of the Company's portfolio at the time of
purchase, except:
(i) in the case of a single tenant which is a governmental body
or department for which no percentage limit to proportion of the
total rent roll shall apply; or
(ii) in the case of a single tenant rated by Dun &
Bradstreet with a credit risk score higher than 2, in which case
the exposure to such single tenant may not exceed 5% of the total
rent roll (a risk score of 2 represents "lower than average
risk").
e) The Company will not undertake speculative development (that
is, development of property which has not been leased or
pre-leased), save for redevelopment and refurbishment of existing
holdings, but may invest in forward funding agreements or forward
commitments (these being, arrangements by which the Company may
acquire pre-development land under a structure designed to provide
the Company with investment rather than development risk) of
pre-let developments where the Company intends to own the completed
development. Substantial redevelopments and refurbishments of
existing properties which expose the Company to development risk
would not exceed 10% of the Company's gross assets.
f) The Company may use gearing, including to fund the
acquisition of property and cash flow requirements, provided that
the maximum gearing shall not exceed 35% of the Company's total
assets at the time of borrowing aggregate market value of all the
properties of the Company. Over the medium-term the Company is
expected to target borrowings of 25% of the Company's total assets
aggregate market value of all the properties of the Company at the
time of borrowing.
g) The Company reserves the right to use efficient portfolio
management techniques, such as interest rate hedging and credit
default swaps, to mitigate market volatility.
h) Uninvested cash or surplus capital or assets may be invested
on a temporary basis in:
(i) cash or cash equivalents, money market instruments, bonds,
commercial paper or other debt obligations with banks or other
counterparties having a single-A (or equivalent) or higher credit
rating as determined by an internationally recognised rating
agency; or
(ii) any "government and public securities" as defined for the
purposes of the FCA rules.
i) Gearing, calculated as borrowings as a percentage of the
aggregate market value of all the properties of the Company and its
subsidiaries, may not exceed 35% at the time such borrowings are
incurred.
Glossary of terms
Explanation
Term
2019 AIC Corporate The AIC Code addresses the Principles and Provisions set out in the UK Corporate Governance
Governance Code for Code, as well as setting out additional provisions on issues that are of specific relevance to
Investment Companies the Company and provide more relevant information to shareholders.
(AIC Code)
External investment manager with appropriate FCA permissions to manage an 'alternative
Alternative Investment investment fund'
Fund Manager (AIFM)
Alternative performance
measures (APMs) Assess Company performance alongside IFRS measures
Building Research
Establishment
Environmental A set of assessment methods and tools designed to help understand and mitigate the
Assessment Method environmental impacts of developments
(BREEAM)
A project focused on carbon risk assessment for the European real estate industry's push to
decarbonise, building a methodology to empirically quantify the different scenarios and their
impact on the investor portfolios and identify which properties will be at risk of stranding
Carbon Risk Real Estate due to the expected increase in the stringent building codes, regulation, and carbon prices. It
Monitor (CRREM) also enables an analysis of the effects of refurbishing single properties on the total carbon
performance of a company
Core real estate Generally offer the lowest risk and target returns, requiring little asset management and fully
let on long leases.
Core-plus real estate Generally offer low-to-moderate risk and target returns, typically high-quality and
well-occupied properties but also providing asset management opportunities.
EPRA earnings divided by dividends paid and approved for the year
Dividend cover
Earnings per share
(EPS) Profit before tax dividend by number of shares in issue
Required certificate whenever a property is built, sold or rented. An EPC gives a property an
energy efficiency rating from A (most efficient) to G (least efficient). An EPC contains
Energy performance information about a property's energy use and typical energy costs, and recommendations about
certificate (EPC) how to reduce energy use and save money
ERV of occupied space as a percentage of the ERV of the whole property portfolio
EPRA occupancy
EPRA BPR and sBPR facilitate comparison with the Company's peers through consistent reporting
EPRA (Sustainability) of key real estate specific and environmental performance measures
Best Practice
Recommendations (BPR),
(sBPR)
Annualised cash rents at the year-end date, adjusted for the expiration of lease incentives
(rent free periods or other lease incentives such as discounted rent periods and stepped
EPRA topped-up net rents), less estimated non-recoverable property operating expenses, divided by property
initial yield valuation plus estimated purchaser's costs
The external valuers' opinion of the open market rent which, on the date of valuation, could
Estimated rental value reasonably be expected to be obtained on a new letting or rent review of a property
(ERV)
Weighted average of annualised cash rents at the year-end date and ERV, less estimated
non-recoverable property operating expenses, divided by property valuation plus estimated
Equivalent yield purchaser's costs
Unbiased, probability-weighted amount of doubtful debt provision, using reasonable and
Expected credit loss supportable information that is available without undue cost or effort at the reporting date
(ECL)
Global Real Estate GRESB independently benchmarks ESG data to provide financial markets with actionable insights,
Sustainability ESG data and benchmarks
Benchmark (GRESB)
Gasses in the earth's atmosphere which trap heat and lead directly to climate change
Greenhouse gas (GHG)
Investment management
agreement (IMA) The Investment Manager is engaged under an IMA to manage the Company's assets, subject to the
overall supervision of the Directors
Published, FCA approved policy that contains information about the policies which the Company
will follow relating to asset allocation, risk diversification, and gearing, and that includes
Investment policy maximum exposures. This is a requirement of Listing Rule 15
The Company's environmental and performance targets are measured by KPIs which provide a
Key performance strategic way to assess its success towards achieving its objectives
indicator (KPI)
Comparisons adjusted to exclude assets bought or sold during the current or prior year
Like-for-like
Market Abuse Regulation
(MAR) Regulations to which the Company's code for directors' share dealings is aligned
Minimum Energy
Efficiency Standards
(MEES) MEES regulations set a minimum energy efficiency level for rented properties.
Equity attributable to owners of the Company
Net asset value (NAV)
The movement in EPRA Net Tangible Assets per share plus the dividend paid during the period
NAV per share total expressed as a percentage of the EPRA net tangible assets per share at the beginning of the
return period
Net gearing / Gross borrowings less cash (excluding rent deposits), divided by property portfolio value
loan-to-value (LTV)
Annualised cash rents at the year-end date, adjusted for the expiration of lease incentives,
Net initial yield (NIY) divided by property valuation plus estimated purchaser's costs
Annualised cash rents at the year-end date, adjusted for the expiration of lease incentives,
less estimated non-recoverable property operating expenses including void costs and net service
Net rental income charge expenses
NAV adjusted to reflect the fair value of trading properties and derivatives and to exclude
Net tangible assets deferred taxation on revaluations
(NTA)
Expenses (excluding operating expenses of rental property recharged to tenants) divided by
Ongoing charges ratio average quarterly NAV, representing the Annual running costs of the Company
(OCR)
Annualised cash rents at the year-end date, adjusted for the expiration of lease incentives
Passing rent
A property company which qualifies for and has elected into a tax regime which is exempt from
Real Estate Investment corporation tax on profits from property rental income and UK capital gains on the sale of
Trust (REIT) investment properties
Variable rate loan which can be drawn down or repaid periodically during the term of the
Revolving credit facility
facility (RCF)
Expected future increase in rents once reset to market rate
Reversionary potential
Share price total Share price movement including dividends paid during the year
return
Sterling Overnight
Index Average ("SONIA") Base rate payable on variable rate bank borrowings before the bank's margin
SECR requirements aim to put green credentials into the public domain and help organisations
Streamlined Energy and achieve the benefits of environmental reporting
Carbon Report (SECR)
Generally moderate-to-higher risk and target returns, often representing properties requiring
Value add real estate significant levels of asset management to improve the building and secure new lettings.
Weighted average cost The total loan interest cost per annum, based on prevailing rates on variable rate debt,
of drawn debt divided by the total debt in issue
facilities
Weighted average
unexpired lease term to
first break or expiry Average unexpired lease term across the investment portfolio weighted by contracted rent
(WAULT)
Distribution of the Annual Report and accounts to members
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 March 2023 or
2022, but is derived from those accounts. Statutory accounts for
2022 have been delivered to the Registrar of Companies and those
for 2023 will be delivered following the Company's AGM. The auditor
has reported on the 2023 accounts: their report was unqualified,
did not draw attention to any matters by way of emphasis and did
not contain statements under s498(2) or (3) of the Companies Act
2006. The Annual Report and accounts will be posted to shareholders
in due course, and will be available on our website
(custodianreit.com) and for inspection by the public at the
Company's registered office address: 1 New Walk Place, Leicester
LE1 6RU during normal business hours on any weekday. Further copies
will be available on request.
- Ends -
-----------------------------------------------------------------------------------------------------------------------
[1] Before acquisition costs of GBP3.4m.
[2] Before acquisition costs of GBP3.4m.
[3] Net of disposal costs of GBP0.2m.
[4] The European Public Real Estate Association ("EPRA").
[5] Profit after tax, excluding net gains or losses on
investment property, divided by weighted average number of shares
in issue.
[6] Profit after tax divided by weighted average number of
shares in issue.
[7] Dividends paid and approved for the year.
[8] Profit after tax, excluding net gains or losses on
investment property, divided by dividends paid and approved for the
year.
[9] Net Asset Value ("NAV") movement including dividends paid
during the year on shares in issue at 31 March 2022.
[10] Share price movement including dividends paid during the
year.
[11] EPRA net tangible assets ("NTA") does not differ from the
Company's IFRS NAV or EPRA NAV.
[12] Gross borrowings less cash (excluding rent deposits)
divided by property portfolio value.
[13] Expenses (excluding operating expenses of rental property
recharged to tenants) divided by average quarterly NAV.
[14] Expenses (excluding operating expenses of rental property)
divided by average quarterly NAV.
[15] Weighted by passing rent or ERV if vacant. For properties
in Scotland, English equivalent EPC ratings have been obtained.
[16] A full version of the Company's Investment Policy is shown
in the Investment Policy section of this Annual Report and
available at
custodianreit.com/wp-content/uploads/2022/09/CREIT-Investment-policy-updated-31_8_22.pdf.
[17] The Board proposes removing this upper lot-size limit at
the Company's forthcoming AGM, subject to FCA approval.
[18] A risk score of two represents "lower than average
risk".
[19] Source: Knight Frank LLP.
[20] Source: Numis Securities Limited.
[21] Dividends totalling 5.5p per share (1.375p relating to the
prior year and 4.125p relating to the year) were paid on shares in
issue throughout the year.
[22] Annualised cash rents at the year-end, less estimated
non-recoverable property operating expenses, divided by the gross
property valuation plus estimated purchaser's costs. Considered an
APM.
[23] Weighted average of annualised cash rents at the year-end
date and ERV, less estimated non-recoverable property operating
expenses, divided by property valuation plus estimated purchaser's
costs. Considered an APM.
[24] Annualised cash rents at the year-end date, adjusted for
the expiration of lease incentives, less estimated non-recoverable
property operating expenses, divided by property valuation plus
estimated purchaser's costs. Considered an APM.
[25] As defined by the Social Mobility Commission.
[26] Weighted average of annualised cash rents at the year-end
date and ERV, less estimated non-recoverable property operating
expenses, divided by property valuation plus estimated purchaser's
costs. Source: Knight Frank.
[27] Annualised cash rents at the year -end date, adjusted for
the expiration of lease incentives, less estimated non-recoverable
property operating expenses, divided by property valuation plus
estimated purchaser's costs.
[28] Annualised cash rents at the year-end, less estimated
non-recoverable property operating expenses, divided by the
property valuation plus estimated purchaser's costs.
[29] Current passing rent plus ERV of vacant properties.
[30] Passing rent divided by property valuation plus purchaser's
costs.
[31] Reversionary rent divided by purchase price plus assumed
purchasers' costs.
[32] Excluding assets with no car parking facilities.
[33] Equating to 56 x 75kW 'Rapid' Chargers.
[34] Equating to 140 x 7kW 'Fast' Chargers.
[35] Utilities and waste directly related to the Company's
operations.
[36] For properties owned for the years ending 31 March 2022 and
2023.
[37] Utilities and waste directly related to tenant
operations.
[38] One EPC letter represents 25 energy performance asset
rating points.
[39] As defined by the Committee on Climate Change.
[40] As defined by the Corporation Tax Act 2010.
[41] Source: Moody's.
[42] Assumed at 6.5% of investment property valuation.
[43] Annualised cash rents at the year date
[44] Non-recoverable directly incurred operating expenses of
rental property, excluding letting and rent review fees.
[45] Adjustment for the expiration of lease incentives.
[46] The Board proposes removing this upper lot-size limit at
the Company's forthcoming AGM, subject to FCA approval.
-----------------------------------------------------------------------------------------------------------------------
Dissemination of a Regulatory Announcement that contains inside
information in accordance with the Market Abuse Regulation (MAR),
transmitted by EQS Group. The issuer is solely responsible for the
content of this announcement.
-----------------------------------------------------------------------------------------------------------------------
ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 250970
EQS News ID: 1657409
End of Announcement EQS News Service
=------------------------------------------------------------------------------------
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