TIDMCREI
RNS Number : 3876U
Custodian REIT PLC
24 October 2017
24 October 2017
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 30 September 2017
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company, today reports its unaudited net asset value
("NAV") as at 30 September 2017 and highlights for the period from
1 July 2017 to 30 September 2017 ("the Period").
Financial highlights
-- NAV total return per share(1) for the Period of 2.1%
-- Dividend per share approved for the Period of 1.6125p
-- NAV per share of 104.9p (30 June 2017: 104.3p)
-- NAV of GBP378.6m (30 June 2017: GBP361.3m)
-- Net gearing(2) of 22.4% loan-to-value (30 June 2017: 18.9%)
-- GBP16.4m(3) of new equity raised during the Period at an
average premium of 11.5% to dividend adjusted NAV per share at 30
June 2017
-- Market capitalisation of GBP414.1m (30 June 2017: GBP405.4m)
Portfolio highlights
-- Portfolio value of GBP474.3m (30 June 2017: GBP452.4m)
-- GBP26.3m(4) invested in five property acquisitions
-- GBP1.0m property valuation increase
-- GBP1.0m profit on disposal of investment properties
-- EPRA occupancy(5) 96.4% (30 June 2017: 97.9%)
(1) NAV per share movement including approved dividends payable
relating to the Period.
(2) Gross borrowings less unrestricted cash divided by portfolio
valuation.
(3) Before costs and expenses of GBP0.2m.
(4) Before acquisition costs of GBP1.4m.
(5) Estimated rental value ("ERV") of let property divided by
total portfolio ERV.
Net asset value
The unaudited NAV of the Company at 30 September 2017 was
GBP378.6m, reflecting approximately 104.9p per share, an increase
of 0.6% per share since 30 June 2017:
Pence
per share GBPm
----------------------------------------- --------------- ----------
NAV at 30 June 2017 104.3 361.3
Issue of equity (net of costs) 0.3 16.2
104.6 377.5
Valuation movements relating to:
- Profit on disposal of investment
properties 0.3 1.0
- Other valuation movements 0.3 1.0
----------------------------------------- --------------- ----------
0.6 2.0
Acquisition costs (0.4) (1.4)
Net valuation movement 0.2 0.6
Income earned for the Period 2.6 9.0
Expenses and net finance costs for
the Period (0.9) (2.9)
Dividends paid(6) (1.6) (5.6)
NAV at 30 September 2017 104.9 378.6
----------------------------------------- --------------- ----------
(6) Dividends of 1.6125p per share were paid on shares in issue
throughout the Period.
During the Period the initial costs (primarily stamp duty) of
investing GBP26.3m (before acquisition costs) in new property
acquisitions diluted NAV per share total return by 0.4p, partially
offset by raising new equity of GBP16.2m (net of costs) at an
average 11.5% premium to dividend adjusted NAV, which added 0.3p
per share.
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation as at 30 September
2017 and income for the Period, but does not include any provision
for the approved dividend for the Period, to be paid on 30 November
2017.
During the Period the Company acquired the following properties
with an average net initial yield(7) ("NIY") of 6.77%:
-- A car dealership in Stockport occupied by Williams BMW and
Mini for GBP8.84m, with a NIY of 6.99%;
-- A retail warehouse in Ashton-under-Lyne occupied by B&M for GBP6.6m, with a NIY of 6.0%;
-- A health and fitness centre in Salisbury occupied by Parkwood
Health & Fitness for GBP2.785m, with a NIY of 6.75%;
-- Two retail warehouse units in Plymouth occupied by Magnet and
B&M for GBP5.525m, with a NIY of 6.79%; and
-- A distribution unit in Livingston occupied by SCS for
GBP2.59m, with a NIY of 7.50% (subject to completion of an ongoing
rent review).
(7) Passing rent divided by property valuation plus assumed
purchasers' costs.
Asset management
A key part of effective portfolio management is the disposal of
assets which either no longer meet the long-term investment
strategy of the Company or which can be disposed of significantly
ahead of valuation, often to a special purchaser, such that holding
the asset is no longer appropriate. Following focused pre-sale
asset management, three properties were sold during the Period
realising a profit on disposal of GBP1m, with gross proceeds an
aggregate 19.8% ahead of valuation.
The portfolio's weighted average unexpired lease term ("WAULT")
increased to 5.8 years from 5.7 years at 30 June 2017, primarily
due to completing acquisitions during the Period with a WAULT of
9.4 years. Although we believe long leases are currently being
over-valued by the market and are unwilling to over-pay for long
leases simply to support the WAULT, we will continue to take
advantage of situations where we can find fair value and still
benefit from long leases. Although our target WAULT for the
portfolio is five years we believe that with the current strength
of the occupational market and a portfolio comprising high quality
properties, risk is better managed by pursuing a strategy of buying
high quality properties that are likely to re-let, rather than
highly priced properties with long leases simply to mitigate an
artificial measure of risk.
Property market
Commenting on the commercial property market, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's discretionary investment manager) said:
"Occupational demand remains robust and we are witnessing rental
growth and low vacancy rates across the portfolio, giving us
comfort that there is still an opportunity to invest. With more
buyers than sellers in our target market we have to be ever
vigilant to pay a fair price, which is not always the market price,
and in many instances we are holding back in the face of excessive
competition. However, we believe that with greater liquidity in
property markets and an increased supply of investment
opportunities the market will normalise before a bubble is created.
There are no signs of an oversupply of property in the occupational
market and there continues to be a low level of development. It is
this, rather than excessive demand, that is driving rental growth
so we believe the market should be better insulated from shocks
than it was in previous rental growth cycles."
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"We continue to find opportunities that fit our investment
strategy, investing GBP26.3m over the Period. We have terms agreed
on a further GBP1.7m of properties and are considering an active
and growing pipeline of new acquisition opportunities as vendors
prepare to conclude sales prior to the year end. We have
consciously targeted out of town retail (retail warehousing) over
the last 18 months and this sector now accounts for 16% of
portfolio income. The sector is showing record low vacancy rates
and rental growth. We believe retail warehousing is the sector of
the physical retail market that is either complementary to online
retailing or not correlated to the growth of online retailing,
which when combined with a restricted planning regime explains
tenants' behavior and the rental growth we are witnessing."
Financing
Equity
The Company issued 14.3m new ordinary shares of 1p each in the
capital of the Company during the Period ("the New Shares") raising
GBP16.4m (before costs and expenses). The New Shares were issued at
an average premium of 11.5% to the unaudited NAV per share at 30
June 2017, adjusted to exclude the dividend paid on 31 August
2017.
Debt
The Company entered into an agreement with Aviva Investors Real
Estate Finance ("Aviva") on 5 April 2017 for Aviva to provide the
Company with a new 15 year GBP50m term loan facility comprising two
tranches of GBP35m ("Tranche 1") and GBP15m ("Tranche 2")
respectively, resulting in the Company now having the following
agreed debt facilities:
-- A GBP35m revolving credit facility ("RCF") with Lloyds Bank
plc, which attracts interest of 2.45% above three month LIBOR and
expires on 13 November 2020;
-- A GBP20m term loan with Scottish Widows plc, which attracts
interest fixed at 3.935% and is repayable on 13 August 2025;
-- A GBP45m term loan facility with Scottish Widows plc which
attracts interest fixed at 2.987% and is repayable on 5 June 2028;
and
-- A GBP50m term loan facility with Aviva comprising:
i) GBP35m Tranche 1 repayable on 6 April 2032, attracting fixed annual interest of 3.02%; and
ii) GBP15m Tranche 2 repayable 15 years from drawdown attracting
fixed annual interest of 1.6% over the prevailing 2032 swap rate on
the date of drawdown.
Tranche 2 is expected to be drawn down by the end of this
month.
At the Period end the Company had circa GBP57m of available
funds to deploy on property acquisition opportunities, comprising
GBP7m uncommitted cash, GBP35m undrawn RCF and GBP15m Tranche
2.
Portfolio analysis
At 30 September 2017 the Company's property portfolio comprised
141 assets and 255 contractual tenants with a NIY of 6.7% and
current passing rent of GBP33.9m per annum.
The portfolio is split between the main commercial property
sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio, with a relatively low
exposure to office and a relatively high exposure to the industrial
and alternative sectors, often referred to as 'other' in property
market analysis, compared to its peers. Sector weightings are shown
below:
Valuation Period Weighting Weighting
30 Sep valuation by income(8) by income(8)
2017 movement 30 Sep 30 Jun
Sector GBPm GBPm 2017 2017
------------------------ -------------- --------------- ------------------ ------------------
Industrial 202.1 1.9 42% 44%
Retail warehousing 80.2 0.3 16% 16%
Other(9) 73.3 (0.1) 15% 13%
High street
retail 66.2 (0.7) 14% 14%
Office 52.5 (0.4) 13% 13%
Total 474.3 1.0 100% 100%
-------------------------- -------------- --------------- ------------------ ------------------
(8) Current passing rent plus ERV of vacant properties.
(9) Includes car showrooms, petrol filling stations, children's
day nurseries, restaurants, gymnasiums, hotels and healthcare
units.
Industrial property remains a very good fit with the Company's
strategy although investment demand is creating price inflation and
limiting our opportunity to acquire properties that meet our
investment mandate.
Retail represents 30% of portfolio income comprising 14% high
street and 16% out-of-town retail (retail warehousing). Retail
warehousing is witnessing close to record low vacancy rates as a
restricted planning policy and lack of development combine with
retailers' requirements to offer large format stores, free parking
and 'click and collect' to consumers. These factors made retail
warehousing a target sector for acquisitions throughout the
Period.
While deemed to be outside the core sectors of office, retail
and industrial the 'other' sector offers diversification of income
without adding to portfolio risk, containing assets considered
mainstream but which typically have not been owned by institutional
investors. The 'other' sector has proved to be an out-performer
over the long-term and continues to be a target for
acquisitions.
Office rents in regional markets are growing strongly and supply
is constrained by a lack of development and the extensive
conversion of secondary offices to residential making returns very
attractive. However, we are conscious that obsolescence and lease
incentives can be a real cost of office ownership, which can hit
cash flow and be at odds with the Company's relatively high target
dividend.
The Company operates a geographically diversified portfolio
across the UK, seeking to ensure that no one area represents the
majority of the portfolio. The geographic analysis of the Company's
portfolio at 30 September 2017 was as follows:
Weighting
Valuation by income(10) Weighting
Period valuation
30 Sep 2017 movement 30 Sep by income(10)
Location 30 Jun
GBPm GBPm 2017 2017
---------------- -------- -------- ------------------ --------------------- ---------------------- --------------------
West Midlands 91.2 (0.5) 19% 20%
South-East 83.0 0.3 18% 16%
North-West 77.9 0.6 16% 14%
South-West 60.6 0.8 13% 12%
East Midlands 46.6 (0.2) 10% 11%
Scotland 41.5 0.5 9% 9%
North-East 40.1 (0.1) 8% 9%
Eastern 28.3 (0.4) 6% 8%
Wales 5.1 - 1% 1%
Total 474.3 1.0 100% 100%
------------------------------------ ------------------ --------------------- ---------------------- --------------------
(10) Current passing rent plus ERV of vacant properties.
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio.
Dividends
An interim dividend of 1.6125p per share for the quarter ended
30 June 2017 was paid on 31 August 2017. The Board has approved an
interim dividend relating to the Period of 1.6125p per share
payable on 30 November 2017 to shareholders on the register on 27
October 2017.
In the absence of unforeseen circumstances, the Board intends to
pay quarterly dividends to achieve a target dividend(11) per share
for FY18 of 6.45p (FY17: 6.35p). The Board's objective is to grow
the dividend on a sustainable basis, at a rate which is fully
covered by projected net rental income and does not inhibit the
flexibility of the Company's investment strategy.
(11) This is a target only and not a profit forecast. There can
be no assurance that the target can or will be met and it should
not be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
Activity since the Period end
Equity
Since the Period end the Company has issued 5.0m new ordinary
shares of 1p each in the capital of the Company raising GBP5.7m
(before costs and expenses), issued at an average premium of 11.3%
to the unaudited NAV per share at 30 June 2017, adjusted to exclude
the dividend paid on 31 August 2017.
Acquisitions
On 4 October 2017 the Company acquired two further
properties:
-- A high street retail unit in Cardiff for GBP5.16m let to Card
Factory and Specsavers with a NIY of 7.46%; and
-- A retail park in Burton upon Trent for GBP8.45m, comprising
three units let to Wickes, The Range and HSS Hire with a NIY of
6.45%.
- Ends -
Further information:
Further information regarding the Company can be found at the
Company's website www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240
Imlach / Ian Mattioli MBE 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260
1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757
4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which
listed on the main market of the London Stock Exchange on 26 March
2014. Its portfolio comprises properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
characterised by properties with individual values of less than
GBP10m at acquisition.
The Company offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. By targeting sub GBP10m lot size, regional
properties, the Company intends to provide investors with an
attractive level of income with the potential for capital
growth.
Custodian Capital Limited is the discretionary investment
manager of the Company.
For more information visit www.custodianreit.com and
www.custodiancapital.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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