DJ Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2017
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Custodian REIT plc (CREI)
Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2017
23-Jan-2018 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
23 January 2018
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 December 2017
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31
December 2017 and highlights for the period from 1 October 2017 to 31
December 2017 ("the Period").
Financial highlights
· NAV total return per share1 for the Period of 2.6%
· Dividend per share approved for the Period of 1.6125p
· NAV per share of 106.0p (30 September 2017: 104.9p)
· NAV of GBP401.0m (30 September 2017: GBP378.6m)
· Net gearing2 of 22.3% loan-to-value (30 September 2017: 19.7%)
· GBP20.1m3 of new equity raised during the Period at an average premium of
11.8% to dividend adjusted NAV per share at 30 September 2017
· Market capitalisation of GBP443.6m (30 September 2017: GBP414.1m)
Portfolio highlights
· Portfolio value of GBP518.7m (30 September 2017: GBP474.3m)
· GBP43.0m4 invested in six property acquisitions, GBP0.8m capital expenditure
on office refurbishment
· GBP4.2m property valuation increase, including GBP2.6m from successful asset
management initiatives
· GBP0.7m profit on disposal of investment properties
· EPRA occupancy5 97.2% (30 September 2017: 96.7%)
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 GBP0.3m.
4 Before acquisition costs of GBP2.5m.
5 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 31 December 2017 was GBP401.0m, reflecting
approximately 106.0p per share, an increase of 1.0% per share since 30
September 2017:
Pence per GBPm
share
NAV at 30 September 2017 104.9 378.6
Issue of equity (net of costs) 0.4 19.8
105.3 398.4
Valuation movements relating to:
- Profit on disposal of investment 0.2 0.7
properties
- Asset management activity 0.7 2.6
- Other valuation movements 0.4 1.6
1.3 4.9
Acquisition costs (0.6) (2.5)
Net valuation movement 0.7 2.4
Income earned for the Period 2.3 8.7
Expenses and net finance costs for the (0.7) (2.6)
Period
Dividends paid6 (1.6) (5.9)
NAV at 31 December 2017 106.0 401.0
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
GBP43.0m (before acquisition costs) in new property acquisitions diluted NAV
per share total return by 0.6p, partially offset by raising new equity of
GBP19.8m (net of costs) at an average 11.8% premium to dividend adjusted NAV,
which added 0.4p 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 December 2017 and income for the
Period, but does not include any provision for the approved dividend for the
Period, to be paid on 28 February 2018.
During the Period the Company acquired the following properties with a
weighted average unexpired lease term ("WAULT") to first break of 9.2 years
and an average net initial yield7 ("NIY") of 6.74%:
· A high street retail unit in Cardiff occupied by Specsavers and Card
Factory for GBP5.16m, with a NIY of 7.46%;
· A retail warehouse park in Burton upon Trent occupied by Wickes, The
Range and HSS for GBP8.45m, with a NIY of 6.45%;
· A high street retail unit in Worcester occupied by Superdrug for GBP5.54m,
with a NIY of 6.50%;
· A car dealership in Derby occupied by Volkswagen for GBP5.12m, with a NIY
of 6.28%;
· A retail warehouse park in Carlisle, comprising six retail warehouse
units and the reversionary interest in a supermarket, occupied by Asda,
Halfords, Oak Furniture Land, Iceland, B&M and Poundland for GBP12.1m, with
a NIY of 6.89%; and
· A retail warehouse in Leicester occupied by Matalan for GBP6.66m, with a
NIY of 7.36%.
7 Passing rent divided by property valuation plus assumed purchasers' costs.
Asset management
A key element of effective portfolio management is identifying opportunities
to dispose of assets significantly ahead of valuation such that holding the
asset is no longer appropriate. An industrial property in Chepstow was sold
for gross proceeds of GBP4.6m during the Period, realising a profit on
disposal of GBP0.7m, following pro-active asset management which crystallised
15% rental growth since acquisition. The current significant demand for
industrial property due to a lack of available investment stock meant we
felt this was the optimum time to sell the asset, allowing us to crystallise
a significant valuation gain.
Our continued focus on active asset management resulted in a GBP2.6m valuation
increase. The key asset management initiative completed during the Period
was finalising a rent review in Southwark, increasing annual rent by 87%
from GBP200k pa (GBP9 per sq ft) to GBP374k pa (GBP16.25 per sq ft), exceeding ERV
of GBP267k pa (GBP12 per sq ft) and resulting in a GBP2.5m valuation increase.
Rental increases have been secured on another two properties since the
Period end, both resulting in a 20% increase, demonstrating that rental
growth is now taking hold. Further asset management initiatives are expected
to complete in the coming months.
The portfolio's WAULT increased to 5.9 years from 5.8 years at 30 September
2017, primarily due to the acquisitions completed during the Period having a
WAULT of 9.2 years, but also through the active management of the portfolio.
We believe long leases remain over-valued by the market and are unwilling to
over-pay for long leases simply to support the WAULT, although we continue
to take advantage of situations where we can find fair value and still
benefit from long leases. We believe that with the current strength of the
occupational market and a portfolio comprising high quality properties, 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 a 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:
"We had a busy final quarter of 2017, completing GBP43.0m of new acquisitions
and as we start 2018, we find the market seasonally and typically quiet. We
expect to see the market 'wake up' in February and with robust occupational
demand, demonstrable rental growth and low vacancy rates across the
portfolio, we expect to continue deploying available funds on assets that
will further enhance the portfolio."
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"Since IPO we have averaged deployment of GBP10m per month and we are
considering an active pipeline of new acquisition opportunities that fit our
investment strategy and will further diversify the portfolio."
Financing
Equity
The Company issued 17.5m new ordinary shares of 1p each in the capital of
the Company during the Period ("the New Shares") raising GBP20.1m (before
costs and expenses). The New Shares were issued at an average premium of
11.8% to the unaudited NAV per share at 30 September 2017, adjusted to
exclude the dividend paid on 30 November 2017.
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 comprising:
(i) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual
interest of 3.02%; and
(ii) A GBP15m tranche repayable on 2 November 2032, attracting fixed annual
interest of 3.26%.
At the Period end the Company had circa GBP34m of funds available to deploy.
Portfolio analysis
(MORE TO FOLLOW) Dow Jones Newswires
January 23, 2018 02:03 ET (07:03 GMT)
At 31 December 2017 the Company's property portfolio comprised 146 assets
with a NIY of 6.7% and current passing rent of GBP37.0m pa.
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 income8 31 income8 30
movement Dec 2017 Sep 2017
31 Dec 2017
GBPm
GBPm
Sector
Industrial 203.5 4.8 39% 42%
Retail 107.4 (0.2) 20% 16%
warehousing
Other9 78.9 0.4 15% 15%
High street 76.6 (0.1) 15% 14%
retail
Office 52.3 (0.7) 11% 13%
Total 518.7 4.2 100% 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 35% of portfolio income, comprising 15% high street and
20% 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 31 December 2017 was
as follows:
Valuation Period Weighting Weighting
valuation by income10 by income10
movement 31 Dec 30 Sep 2017
2017
31 Dec 2017
GBPm
GBPm
Location
West Midlands 106.3 0.5 20% 19%
North-West 90.5 0.5 17% 16%
South-East 86.5 3.2 15% 18%
South-West 60.8 0.1 12% 13%
East Midlands 57.6 (0.7) 12% 10%
Scotland 41.7 0.2 8% 9%
North-East 40.4 0.2 8% 8%
Eastern 28.4 0.1 6% 6%
Wales 6.5 0.1 2% 1%
Total 518.7 4.2 100% 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 [1].
Dividends
An interim dividend of 1.6125p per share for the quarter ended 30 September
2017 was paid on 30 November 2017. The Board has approved an interim
dividend relating to the Period of 1.6125p per share payable on 28 February
2018 to shareholders on the register on 26 January 2018.
In the absence of unforeseen circumstances, the Board intends to pay a
further quarterly dividend to achieve a target dividend11 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.
- 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
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 [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.: 5127
End of Announcement EQS News Service
647539 23-Jan-2018
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