Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2019

Custodian REIT plc (CREI) 
Custodian REIT plc: Unaudited Net Asset Value as at 31 December 2019 
 
28-Jan-2020 / 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. 
 
          28 January 2020 
 
     Custodian REIT plc 
 
     ("Custodian REIT" or "the Company") 
 
     Unaudited Net Asset Value as at 31 December 2019 
 
        Custodian REIT (LSE: CREI), the UK commercial real estate investment 
       company, today reports its unaudited net asset value ("NAV") as at 31 
       December 2019 and highlights for the period from 1 October 2019 to 31 
          December 2019 ("the Period"). 
 
          Financial highlights 
 
  · NAV total return per share1 for the Period of 1.7% 
 
  · Dividend per share approved for the Period of 1.6625p 
 
  · NAV per share of 104.4p (30 September 2019: 104.3p) 
 
  · NAV of GBP430.2m (30 September 2019: GBP428.5 m) 
 
  · Net gearing2 of 23.2% loan-to-value (30 September 2019: 20.5%) 
 
  · GBP1.6m of new equity raised during the Period at an average premium of 
  12.1% to dividend adjusted NAV per share 
 
  · Market capitalisation of GBP469.7m (30 September 2019: GBP483.0m) 
 
          Property highlights 
 
  · Property value of GBP571.2m (30 September 2019: GBP547.2m) 
 
  · Acquisition of a portfolio of eight industrial properties for aggregate 
  headline consideration of GBP24.65m3 
 
  · GBP2.4m valuation increase from successful asset management initiatives 
 
  · GBP0.6m aggregate valuation decrease (0.1% of property portfolio) 
 
  · EPRA occupancy4 95.6% (30 September 2019: 95.5%) 
 
1 NAV per share movement including dividends approved for the Period. 
 
2 Gross borrowings less cash (excluding tenant rental deposits and 
retentions) divided by property valuation. 
 
3 Before acquisition costs and completion balance sheet adjustments. 
 
4 Estimated rental value ("ERV") of let property divided by total property 
ERV. 
 
Net asset value 
 
The unaudited NAV of the Company at 31 December 2019 was GBP430.2m, reflecting 
         approximately 104.4p per share, an increase of 0.1p (0.1%) since 30 
          September 2019: 
 
                                           Pence per share    GBPm 
 
NAV at 30 September 2019                             104.3 428.5 
Issue of equity                                        0.0   1.5 
 
Valuation movements relating to: 
- Asset management activity                            0.6   2.4 
- Other valuation movements                          (0.7) (3.0) 
                                                     (0.1) (0.6) 
Acquisition costs                                    (0.1) (0.3) 
Net valuation movement                               (0.2) (0.9) 
 
Income earned for the Period                           2.5  10.3 
Expenses and net finance costs for the               (0.5) (2.4) 
Period 
Dividends paid5                                      (1.7) (6.8) 
 
NAV at 31 December 2019                              104.4 430.2 
 
5 A dividend of 1.6625p per share was paid on shares in issue throughout the 
Period. 
 
    The NAV attributable to the ordinary shares of the Company is calculated 
      under International Financial Reporting Standards and incorporates the 
        independent property valuation as at 31 December 2019 of GBP571.2m (30 
 September 2019: GBP547.2m) and income for the Period but does not include any 
  provision for the approved dividend of 1.6625p per share for the Period to 
          be paid on 28 February 2020. 
 
Acquisitions and disposals 
 
    On 1 October 2019 the Company acquired the share capital of John Menzies 
          Property 4 Limited to facilitate the purchase of a portfolio of 
       industrial/distribution units ("the Menzies Portfolio") for an agreed 
headline purchase price of GBP24.65m via a sale and leaseback transaction with 
 Menzies Distribution Limited ("MDL"). The Menzies Portfolio comprises eight 
 units across the UK with a passing rent of GBP1.61m, reflecting a net initial 
  yield6 ("NIY") of 6.4%. The Menzies Portfolio's weighted average unexpired 
          lease term to first break or expiry ("WAULT") was 8.8 years. 
 
        6 Passing rent divided by property valuation plus purchaser's costs. 
 
   No disposals were made during the Period although but we will continue to 
    rebalance the portfolio to focus on strong locations while working on an 
          orderly disposal of those assets we believe are ex-growth. 
 
Property market 
 
          Commenting on the regional commercial property market, Richard 
          Shepherd-Cross said: 
 
         "The final quarter of 2019 was dominated by concerns of uncertainty 
     surrounding Brexit and the General Election in December, causing market 
     activity to be reduced significantly. By the end of the year investment 
   activity over the whole year was 25-30% down on 2018, with many investors 
  reducing their exposure to real estate, following the theme of uncertainty 
       that had run through a large part of the year. By early December this 
 disinvestment saw most closed-ended property investment trusts trading at a 
         discount to NAV and led the M&G open-ended property fund to suspend 
redemptions while it rebuilt its cash reserves. Custodian REIT's share price 
        maintained its premium to NAV during the Period, reflecting its high 
   dividend yield and the robustness of its closed-ended structure. Happily, 
     market confidence has picked up strongly following the General Election 
       result and the political stability that a majority government usually 
promises. Closed-ended property investment trusts' share prices have quickly 
   re-rated reflecting increased investor confidence. However, the perennial 
    challenge of open-ended property funds has kept redemptions from the M&G 
          open-ended property fund suspended and, as yet, there is little to 
  demonstrate a turnaround in investor sentiment for the open-ended property 
          fund structure. 
 
 "The defensive quality of income has been shown to protect total returns in 
  the face of weak or falling capital values. While the acquisition costs of 
          the Menzies Portfolio have been largely offset by asset management 
    activities, Custodian REIT's strong income flows have been the principal 
          driver of return, despite continued falls in retail values. 
 
        "It is a telling statistic that Custodian REIT's occupancy level has 
     improved from 95.5% to 95.6% during the Period, demonstrating continued 
occupier demand for the properties in our portfolio in the face of political 
  uncertainty generally and a difficult landscape for retailers. The market, 
excluding retail, moves into 2020 with a strong tailwind of growing occupier 
     confidence and a backlog of delayed investment decisions and historical 
          under-investment. 
 
 "Diversification across the Custodian REIT property portfolio has protected 
  values in aggregate, with continued growth in the industrial and logistics 
     sector of the property portfolio countering further weakness in retail, 
  fuelled by downward pressure on rents. While we should expect some further 
 decline in retail rents we are not predicting a significant increase in the 
 vacancy rate of our property portfolio. In core locations in regional towns 
  and cities, representative of most of Custodian REIT's property portfolio, 
     many retailers still want a physical footprint albeit on revised rental 
terms. Secondary retail locations are likely to experience greater long-term 
          vacancy levels as well as lower rents and capital values. 
 
   "In regional markets smaller lot size industrial and logistics and office 
    buildings remain undersupplied and with latent rental growth. Subject to 
        market pricing we still see value in potential acquisitions in these 
          sectors." 
 
          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 has broadly offset the negative valuation impact 
        of reductions in ERVs in the high street retail and retail warehouse 
          sectors. Initiatives completed during the Period were: 
 
· Completing a new five year lease with Ascott Transport Limited in Burton 
upon Trent with annual passing rent of GBP500k following the surrender of 
the incumbent tenant's lease due to its administration, which increased 
valuation by GBP1.1m; 
 
· Re-gearing a lease with H&M in Winsford by moving the 2020 break option 
to 2022 and increasing rent from GBP400k to GBP625k, which increased valuation 
by GBP0.4m; 
 
· Re-gearing a lease with JB Global (t/a Oak Furniture Land) in Plymouth, 
extending the term by five years and increasing rent from GBP235k to GBP250k, 
increasing valuation by GBP0.4m; 
 
· Completing a lease renewal with H Samuel in Colchester where the tenant 
has taken a five year lease, with annual passing rent falling from GBP77k to 
GBP70k, increasing valuation by GBP0.3m; 
 
· Completing a new lease with Brooks Taverner at Cirencester where the 
tenant has taken a 10 year lease with an annual passing rent of GBP37k, 
increasing valuation by GBP0.1m; and 
 
· Completing a new lease with Mtor Limited (t/a Trugym) at Gateshead where 
the tenant has taken a 10 year lease with annual passing rent of GBP125k, 
increasing valuation by GBP0.1m. 
 
 Further asset management initiatives currently underway on other properties 
         in the portfolio are expected to complete during the coming months. 
 
  The positive asset management outcomes in the Period have been tempered by 
the recent exercise of two tenant only break options which have together put 
 annual aggregate rent of GBP170k at risk. These lease events are reflected in 

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