DJ Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2018
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Custodian REIT plc (CREI)
Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2018
29-Jan-2019 / 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.
29 January 2019
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 December 2018
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31
December 2018 and highlights for the period from 1 October 2018 to 31
December 2018 ("the Period").
Financial highlights
· NAV total return per share1 for the Period of 1.0%
· Dividend per share approved for the Period of 1.6375p
· NAV per share of 108.1p (30 September 2018: 108.6p)
· NAV of GBP426.6m (30 September 2018: GBP 427.5m)
· Net gearing2 of 24.7% loan-to-value (30 September 2018: 20.5%)
· Market capitalisation of GBP460.1m (30 September 2018: GBP478.1m)
Portfolio highlights
· Portfolio value of GBP576.2m (30 September 2018: GBP547.0m)
· GBP29.5m3 invested in four property acquisitions
· GBP1.1m valuation increase from successful asset management initiatives
· GBP1.4m further valuation decreases due to the company voluntary
arrangements ("CVAs") of Staples and Homebase occurring in the previous
quarter
· EPRA occupancy4 96.5% (30 September 2018: 96.9%)
1 NAV per share movement including dividends approved for the Period.
2 Gross borrowings less unrestricted cash divided by portfolio valuation.
3 Before acquisition costs of GBP1.8m.
4 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 31 December 2018 was GBP426.6m, reflecting
approximately 108.1p per share, a decrease of 0.5% since 30 September 2018:
Pence per share GBPm
NAV at 30 September 2018 108.6 427.5
Issue of equity (net of costs) 0.0 0.9
Valuation movements relating to:
- Asset management activity 0.3 1.1
- Other valuation movements (0.5) (1.8)
(0.2) (0.7)
Acquisition costs (0.5) (1.8)
Net valuation movement (0.7) (2.5)
Income earned for the Period 2.5 9.9
Expenses and net finance costs for the (0.7) (2.8)
Period
Dividends paid5 (1.6) (6.4)
NAV at 31 December 2018 108.1 426.6
5 Dividends of 1.6375p per share were paid on shares in issue throughout the
Period.
During the Period the initial costs (primarily stamp duty) of investing
GBP29.5m (before acquisition costs) diluted NAV per share total return by
0.5p.
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 2018 and income for the
Period but does not include any provision for the approved dividend of
1.6375p per share for the Period to be paid on 28 February 2019.
The Company completed the following investments during the Period:
· A mixed-use property in Stratford, East London occupied by Foxton's
Estate Agents and The Incorporated Trustees of the Universal Church of the
Kingdom of God for GBP2.1m, with a net initial yield6 ("NIY") of 6.78% and a
weighted average unexpired lease term to first break or expiry ("WAULT")
of 8.5 years;
· A retail park in Evesham occupied by Next, M&S, Boots, Argos and
Poundstretcher for GBP14.2m, with a NIY of 6.04% and a WAULT of 6.8 years;
· A retail park in Weymouth occupied by B&Q, Halfords and Next for GBP10.8m,
with a NIY of 6.97% and a WAULT of 7.8 years; and
· A Volkswagen car dealership in Loughborough occupied by Lister Group
Limited for GBP2.4m, with a NIY of 6.37% and a WAULT of 9.9 years.
6 Passing rent divided by property valuation plus purchaser's costs.
Asset management
A continued focus on active asset management including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their
contractual break clauses resulted in a GBP1.1m valuation increase in the
Period, primarily due to:
· Agreeing a new 10 year lease with Next plc for an industrial unit on
Eurocentral in Scotland, with annual rent increasing by 10%, which
increased the valuation by GBP0.6m;
· Extending the lease with MTS Logistics for an industrial unit in
Coalville, with annual rent increasing by 30%, which increased valuation
by GBP0.4m; and
· Letting a unit on a retail park in Carlisle to The Gym Group on a 15
year lease without break, which increased the valuation by GBP0.1m.
Further initiatives on other properties currently under review are expected
to complete during the current quarter.
The portfolio's WAULT increased from 5.6 years at 30 September 2018 to 5.8
years, principally due to the positive impact of acquisitions with an
aggregate WAULT of 7.5 years and the agreement of two new long-term leases
in the quarter more than offsetting the natural 0.25 of a year's decline due
to the passage of time.
Property market
Commenting on the commercial property market outside London, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's discretionary investment manager) said:
"Over the Period investor demand slowed as we drew closer to the expected
'meaningful vote' on Brexit. The delay to the meaningful vote and current
uncertainty over our future relationship with the EU is continuing to have
an impact on demand, which appears to be driven more by postponement of
investment decisions rather than the fear of fundamental weakness in the UK
commercial property market. Most investors are waiting for greater political
certainty before settling on their investment strategies for 2019.
Notwithstanding the uncertain backdrop of Brexit there are underlying market
forces that have had an impact on demand and will be likely to influence
returns over the months ahead.
"The changing face of retail has perhaps had the most significant impact on
the market. There has been a sharp sell-off in those property stocks which
are most exposed to retail, particularly shopping centres. Retail property
valuations have also reacted, but with few transactions there has been
limited market pricing evidence to underwrite the reduced valuations. In a
rare move the Royal Institution of Chartered Surveyors ("RICS") has
instructed valuers to be "aware of the potential for significant changes in
value" in retail properties and to take notice of "analysis and commentary"
as well as market prices. However, simultaneously there has been criticism
from some commentators that the Q4 market reaction to retail pricing was
perhaps unscientific. Through 2019 we expect to see contrasting performance
within retail, supported by Savills Research, which in its 2019 forecast
selected retail as one of their two investment picks for the year, but with
the qualification that retail must be either prime or dominant in its
catchment area. In short, there is little consensus in forecasts for retail
with the potential for further polarisation. The challenge for Custodian
REIT is to ensure that its retail assets are part of the future retail
landscape, in demand by retailers and complementary to on-line retailing.
Retailers have yet to strike the perfect balance between physical and
on-line retailing, but we expect that retail stores will still form the
backbone of many retailers' strategies.
"We anticipate that retail warehousing, with low rents per sq ft, 'big box'
formats and free parking will be more robust than the High Street. Following
in the footsteps of the USA, the UK retail landscape is increasingly
polarising, with robust city centre retail in the major conurbations where
the experience of retail and leisure together has remained attractive, and
resilient out of town retail in smaller towns where convenience and choice
are the key attractions.
"Industrial and logistics has continued to be property investors' favoured
asset class, demonstrating strong rental growth prospects. This has
supported further valuation growth through the quarter, with the sector
having the lowest initial yields in regional markets. Occupational demand
has been strong but more crucially a lack of supply is driving rental
growth, particularly for urban logistics units. Perversely, despite the
fears in retail markets, over 40% of new letting demand for logistics space
has come from retailers as they re-position their property estates and
supply chain. Industrial and logistics assets remain a good fit with the
Company's strategy, but recent price inflation is limiting the opportunity
to acquire properties that meet the investment mandate. However, the strong
occupier market has delivered some meaningful asset management
opportunities, increasing rents, extending leases and enhancing values.
"Investment values have held up well in regional office markets as investors
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continue to search for relative value compared to central London offices.
Occupier demand is from a diverse range of occupiers but tends to be focused
on modern or well-refurbished space which provides the flexibility required
by the modern office tenant. We remain 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 we
maintain a very selective investment strategy in the office sector.
"Across the portfolio we settled six rent reviews and agreed two new
lettings during the Period which have shown a weighted average increase in
rents of 12.4% (11.4% simple average). This growth has come from a mix of
open market lettings and rent reviews in industrial, other and retail
warehouse properties."
Portfolio analysis
At 31 December 2018 the Company's property portfolio comprised 155 assets
with a NIY of 6.6%. The portfolio is split between the main commercial
property sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio. Slight swings in sector weightings
are reflective of market pricing at any given time and the desire to
maintain an opportunistic approach to acquisitions. Sector weightings are
shown below:
Valuation Period Weighting by Weighting by
valuation income7 31 income7 30
movement Dec 2018 Sep 2018
31 Dec 2018
GBPm
GBPm
Sector
Industrial 221.9 2.9 37% 39%
Retail 124.5 (1.8) 22% 18%
warehouse
Other8 95.9 0.2 17% 17%
High street 73.5 (1.9) 13% 14%
retail
Office 60.4 (0.1) 11% 12%
Total 576.2 (0.7) 100% 100%
7 Current passing rent plus ERV of vacant properties.
8 Includes car showrooms, petrol filling stations, children's day nurseries,
restaurants, gymnasiums, hotels and healthcare units.
The impact of the CVAs of both Homebase and Staples have had a combined
GBP1.4m negative but potentially temporary impact on the valuation of the
retail warehouse portfolio in the Period. Some of this negative valuation
impact recognised in the Period may be recovered following the conclusion of
lease re-negotiations which are underway or under consideration.
Diversification across sectors helps to remove volatility from the
portfolio, as demonstrated in the last quarter, with the Industrial and
Other sectors of the portfolio largely off-setting the negative impact of
retail on NAV.
The Company also 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
2018 was as follows:
Valuation Period Weighting Weighting
valuation by income9 by income9
movement 31 Dec 30 Sep 2018
2018
31 Dec 2018
GBPm
GBPm
Location
West Midlands 132.7 0.3 22% 21%
North-West 92.0 1.1 17% 17%
South-East 78.9 (2.1) 13% 13%
South-West 72.4 0.1 11% 11%
East Midlands 71.1 (0.6) 13% 14%
North-East 49.8 0.8 10% 9%
Scotland 44.8 0.3 8% 8%
Eastern 28.1 (0.5) 5% 6%
Wales 6.4 (0.1) 1% 1%
Total 576.2 (0.7) 100% 100%
9 Current passing rent plus ERV of vacant properties.
For details of all properties in the portfolio please see
www.custodianreit.com/property-portfolio [1].
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"We are considering a pipeline of opportunities and believe there may be
opportunities to make contra-cyclical acquisitions where we believe that
short-term market weakness can unlock long term value for the Company."
Financing
Equity
The Company issued 0.8m new ordinary shares of 1p each in the capital of the
Company during the Period ("the New Shares") raising GBP0.9m (before costs and
expenses). The New Shares were issued at a premium of 8.5% to the unaudited
NAV per share at 30 September 2018, adjusted to exclude the dividend paid on
30 November 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 interest fixed
at 3.935% and is repayable on 13 August 2025;
· A GBP45m term loan with Scottish Widows plc which attracts interest fixed
at 2.987% and is repayable on 5 June 2028; and
· A GBP50m term loan 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%.
On 14 January 2019, the Company extended the facility limit of the RCF from
GBP35m to GBP45m until 30 June 2019, to provide the Company with additional
capacity for property acquisitions.
Dividends
An interim dividend of 1.6375p per share for the quarter ended 30 September
2018 was paid on 30 November 2018. The Board has approved an interim
dividend relating to the Period of 1.6375p per share payable on 28 February
2019 to shareholders on the register on 25 January 2019.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend10 per share for the year
ending 31 March 2019 of 6.55p (2018: 6.45p). 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.
10 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 GBP10 million 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 GBP10 million 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: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 7277
EQS News ID: 770257
End of Announcement EQS News Service
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January 29, 2019 02:01 ET (07:01 GMT)
