Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2018
24 April 2018 - 5:56PM
UK Regulatory
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Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2018
24-Apr-2018 / 08:53 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
24 April 2018
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 March 2018
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31 March
2018 and highlights for the period from 1 January 2018 to 31 March 2018
("the Period").
Financial highlights
· NAV total return per share1 for the year ended 31 March 2018 ("FY18") of
9.6% (year ended 31 March 2017 ("FY17"): 8.5%)
· NAV per share of 107.3p (31 December 2017: 106.0p)
· NAV of GBP415.2m (31 December 2017: GBP401.0m)
· FY18 EPRA earnings per share2 6.9p (FY17: 6.6p)
· Target dividend per share3 for the year ending 31 March 2019 ("FY19")
increased to 6.55p (FY18: 6.45p, FY17: 6.35p)
· Net gearing4 of 21.0% loan-to-value (31 December 2017: 22.3%)
· GBP9.8m5 of new equity raised during the Period (FY18: GBP54.7m) at an
average premium of 10.0% to dividend adjusted NAV per share (FY18: 11.1%)
Portfolio highlights
· Portfolio value of GBP528.9m (31 December 2017: GBP518.7m)
· GBP4.5m valuation increase from successful asset management initiatives
· GBP4.9m6 invested in two property acquisitions, GBP1.6m capital expenditure
· EPRA occupancy7 96.5% (31 December 2017: 97.2%)
· GBP9.3m committed pipeline of property acquisitions
1 NAV per share movement including dividends paid and approved relating to
the Period.
2 Profit after tax excluding net gains on investment properties and one-off
costs divided by weighted average number of shares in issue.
3 Dividends paid and approved relating to the year.
4 Gross borrowings less unrestricted cash divided by portfolio valuation.
5 Before costs and expenses of GBP0.2m.
6 Before acquisition costs of GBP0.3m.
7 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 31 March 2018 was GBP415.2m, reflecting
approximately 107.3p per share, an increase of 1.2% per share since 31
December 2017:
Pence per share GBPm
NAV at 31 December 2017 106.0 401.0
Issue of equity (net of costs) 0.2 9.6
106.2 410.6
Valuation movements relating to:
- Asset management activity 1.2 4.5
- Other valuation movements (0.2) (0.6)
1.0 3.9
Acquisition costs (0.1) (0.3)
Net valuation movement 0.9 3.6
Income earned for the Period 2.3 8.9
Expenses and net finance costs for the (0.6) (2.3)
Period
One-off impact of settling tenant dispute 0.1 0.5
Dividends paid8 (1.6) (6.1)
NAV at 31 March 2018 107.3 415.2
8 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
GBP4.9m (before acquisition costs) in new property acquisitions diluted NAV
per share total return by 0.1p, offset by raising new equity of GBP9.6m (net
of costs) at an average 10.0% premium to dividend adjusted NAV, which added
0.2p 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 31 March 2018 and income for the
Period, but does not include any provision for the approved dividend for the
Period, to be paid on 31 May 2018.
During the Period the Company acquired the following assets:
· Land in Maypole, Birmingham for a pre-let development to be occupied by
Starbucks for GBP1.0m, with a NIY9 of 6.43%; and
· An industrial unit on Team Valley Trading Estate, Gateshead occupied by
Worthington Armstrong for GBP3.9m, reflecting a NIY of 6.73%.
9 Passing rent divided by property valuation plus assumed purchasers' costs.
Asset management
In February 2018 the Company settled a disputed 2015 tenant break at
National Court in Leeds. The Company recovered all rent and insurance due to
the date of settlement, plus all costs associated with the dispute and
dilapidations, resulting in a one-off GBP0.5m release of rent and cost
provisions.
Our continued focus on active asset management which includes rent reviews,
lease extensions and retaining tenants beyond their lease break clauses
resulted in a GBP4.5m valuation increase.
A key asset management initiative completed during the Period was agreement
of a new 10 year lease with Regus in West Malling, increasing annual rent by
14.5% from GBP558k pa (GBP19.20 per sq ft) to GBP639k pa (GBP22.00 per sq ft),
resulting in a GBP2.4m valuation increase.
Other asset management initiatives completed during the Period include:
· Agreeing a five year reversionary lease with YESSS Electrical at
Foxbridge Way, Normanton, increasing valuation by GBP0.6m;
· Settling a rent review with the tenant at Leacroft Road, Warrington and
assigning the lease to a larger group entity with a stronger covenant,
increasing valuation by GBP0.5m;
· Agreeing a new 10 year reversionary lease with Powder Systems at Estuary
Commerce Park, Speke with expiry moving from July 2020 to July 2030 and
annual rent increasing by 7.5% from GBP0.14m to GBP0.15m, increasing valuation
by GBP0.4m;
· Assigning the lease at Ravensbank Drive, Redditch to a larger group
entity with a stronger covenant, increasing valuation by GBP0.3m;
· Completing a new five year reversionary lease at Sainsburys, Torpoint
with expiry moving from December 2022 to December 2027, increasing
valuation by GBP0.2m; and
· Agreeing a five year reversionary lease at West George Street, Glasgow
with Safe Deposits Scotland, increasing valuation by GBP0.1m.
Rental increases of 20% have been secured on another two properties since
the Period end, illustrating that rental growth is taking hold. Further
asset management initiatives in solicitor's hands are expected to complete
over the coming months including new lettings, lease renewals, rent reviews
and re-gears.
The portfolio's WAULT has been maintained at 5.9 years during the Period due
to asset management activity offsetting the natural one quarter's decline
due to the effluxion of time. We believe long leases remain over-valued by
the market and will not over-pay for long leases simply to support the
WAULT. Due to the current strength of the occupational market, we believe
that risk and maintenance of robust income generation 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 the WAULT metric that is of less relevance to a well-diversified
portfolio.
Property market
Commenting on the commercial property market, Richard Shepherd-Cross,
Managing Director of Custodian Capital Limited (the Company's discretionary
investment manager) said:
"The first quarter of 2018 has been characterised by a very tight supply of
investment opportunities and a significant level of demand from a range of
investors. This has led to strong competition, particularly for
industrial/logistics assets and properties let on long leases, particularly
those with rents indexed to inflation. We believe the market is over-pricing
some assets and have taken a cautious approach to acquisitions through the
Period. However, as this price inflation is being caused by a supply side
constraint, rather than fundamental weakness in the property investment
proposition, we are hopeful that an increase in the supply of investment
opportunities will see the market settle back to a more sustainable level of
pricing.
"The occupational market, as witnessed by the rental growth we are
experiencing at lease renewal and rent reviews, remains robust, albeit there
is weakness in secondary high streets. It is this robustness that will
continue to drive performance in the portfolio and maintain occupancy
levels, which in turn will sustain cash flow and support our policy of
paying fully-covered dividends."
Financing
Equity
The Company issued 8.5m new ordinary shares of 1p each in the capital of the
Company during the Period ("the New Shares") raising GBP9.8m (before costs and
expenses). The New Shares were issued at an average premium of 10.0% to the
unaudited NAV per share at 31 December 2017, adjusted to exclude the
dividend paid on 28 February 2018.
Debt
At the Period end the Company operated:
· 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 fixed annual
interest of 3.935% and is repayable on 13 August 2025;
· A GBP45m term loan facility with Scottish Widows plc which attracts fixed
annual interest of 2.987% and is repayable on 5 June 2028; and
· A GBP50m term loan facility with Aviva Investors Real Estate Finance
comprising:
(i) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual
interest of 3.02%; and
(ii) A GBP15m tranche repayable on 3 November 2032, attracting fixed annual
interest of 3.26%.
Portfolio analysis
At 31 March 2018 the Company's property portfolio comprised 147 assets with
a NIY of 6.6% and current passing rent of GBP37.1m 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 by Weighting by
valuation income10 31 income10 31
movement Mar 2018 Dec 2017
31 Mar 2018
GBPm
GBPm
Sector
Industrial 209.8 2.0 39% 39%
Retail 107.5 (0.2) 20% 20%
warehousing
Other11 80.4 0.2 15% 15%
High street 75.3 (0.7) 14% 15%
retail
Office 55.9 2.6 12% 11%
Total 528.9 3.9 100% 100%
10 Current passing rent plus ERV of vacant properties.
11 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 the current price inflation seen in the market is limiting our
opportunity to acquire properties that meet our investment mandate.
There is continued weakness in secondary high street retail locations, with
rental levels still under pressure and a very real threat of vacancy.
However, the high street is a polarised sector where many locations continue
to be in demand by retailers. We will continue to rebalance the portfolio to
focus on strong retail locations while working on an orderly disposal of
those assets we believe are ex-growth. The current well-publicised crop of
company voluntary arrangements ("CVAs") has the potential to increase
vacancy levels in our retail warehousing portfolio, but set against a
backdrop of very low vacancy rates in this sector we do not feel unduly
exposed to long term void risk.
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 continues
to be a target for acquisitions.
Office rents in regional markets are growing and supply remains 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, so while we are experiencing rental growth
in our office portfolio, we remain a cautious investor.
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 31 March 2018 was as
follows:
Valuation Period Weighting Weighting
valuation by income12 by income12
movement 31 Mar 31 Dec 2017
2018
31 Mar 2018
GBPm
GBPm
Location
West Midlands 108.5 0.2 20% 20%
North-West 91.7 1.1 18% 17%
South-East 88.9 2.1 15% 15%
South-West 61.2 (0.1) 12% 12%
East Midlands 56.6 (0.4) 12% 12%
North-East 44.9 0.6 8% 8%
Scotland 41.9 0.1 8% 8%
Eastern 28.7 0.3 6% 6%
Wales 6.5 0.0 1% 2%
Total 528.9 3.9 100% 100%
12 Current passing rent plus ERV of vacant properties.
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio [1].
Dividends
An interim dividend of 1.6125p per share for the quarter ended 31 December
2017 was paid on 28 February 2018. The Board has approved an interim
dividend relating to the Period of 1.6125p per share payable on 31 May 2018
to shareholders on the register on 27 April 2018.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend13 per share for FY19 of
6.55p (FY18: 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.
13 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 is
reasonable or achievable.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's
website www.custodianreit.com [2] or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240 8740
Imlach / Ian Mattioli MBE
www.custodiancapital.com [3]
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which listed on the
main market of the London Stock Exchange on 26 March 2014. Its portfolio
comprises properties predominantly let to institutional grade tenants on
long leases throughout the UK and is principally characterised by properties
with individual values of less than GBP10m at acquisition.
The Company offers investors the opportunity to access a diversified
portfolio of UK commercial real estate through a closed-ended fund. By
principally targeting sub GBP10m lot size, regional properties, the Company
intends to provide investors with an attractive level of income and the
potential for capital growth, becoming the REIT of choice for private and
institutional investors seeking high and stable dividends from
well-diversified UK real estate.
Custodian Capital Limited is the discretionary investment manager of the
Company.
For more information visit www.custodianreit.com [2] and
www.custodiancapital.com [3].
ISIN: GB00BJFLFT45
Category Code: NAV
TIDM: CREI
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 5443
End of Announcement EQS News Service
678041 24-Apr-2018
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