Custodian REIT plc (CREI)
Custodian REIT plc: Unaudited Net Asset Value as at 31 March 2020 and
COVID-19 update
29-Apr-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.
29 April 2020
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 March 2020 and COVID-19 update
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its unaudited net asset value ("NAV") as at 31 March
2020, highlights for the period from 1 January 2020 to 31 March 2020 ("the
Period") and an update on the impact of the COVID-19 pandemic.
The Company's focus is on managing liquidity to mitigate the risks
associated with COVID-19 disruption and maintaining a level of income for
investors broadly linked to net rental receipts.
Financial highlights
· NAV total return per share1 for the year ended 31 March 2020 ("FY20") of
1.1% (year ended 31 March 2019 ("FY19"): 5.9%), comprising 6.2% income
(FY19: 6.1%) and a 5.1% capital decrease (FY19: 0.2% capital decrease)
· NAV per share of 101.6p (31 December 2019: 104.4p)
· NAV of GBP426.7m (31 December 2019: GBP430.2m)
· FY20 EPRA earnings per share2 7.0p (FY19: 7.3p)
· Dividend per share approved for the Period of 1.6625p payable on 29 May
2020
· FY20 dividends paid and approved of 6.65p (FY19: 6.55p)
· Net gearing3 of 22.4% loan-to-value (31 December 2019: 23.2%) comprising
cash of GBP25m and borrowings of GBP150m
· GBP9.1m of new equity raised during the Period at an average premium of
10.6% to dividend adjusted NAV per share
· Market capitalisation of GBP415.9m (31 December 2019: GBP469.7m)
Portfolio highlights
· Property value of GBP559.8m (31 December 2019: GBP571.2m), subject to a
'material uncertainty' clause in line with prevailing RICS guidance
· GBP12.5m aggregate valuation decrease (2.2% of property portfolio) for the
Period, comprising a GBP2.9m valuation increase from successful asset
management initiatives and GBP15.4m decreases due primarily to the impact of
COVID-19 on retail and alternative sectors
· EPRA occupancy4 95.9% (31 December 2019: 95.6%)
1 NAV per share movement including dividends paid and approved for the
period.
2 Profit after tax excluding net gains on investment property divided by
weighted average number of shares in issue.
3 Gross borrowings less cash (excluding rent deposits) divided by portfolio
valuation.
4 Estimated rental value ("ERV") of let property divided by total portfolio
ERV.
Net asset value
The unaudited NAV of the Company at 31 March 2020 was GBP426.7m, reflecting
approximately 101.6p per share, a decrease of 2.8p (2.7%) since 31 December
2019:
Pence per GBPm
share
NAV at 31 December 2019 104.4 430.2
Issue of equity (net of costs) 0.2 9.0
Valuation movements relating to:
- Asset management activity 0.7 2.9
- Other valuation movements (3.7) (15.4)
Net valuation movement (3.0) (12.5)
Income earned for the Period 2.3 10.0
Expenses and net finance costs for the (0.7) (3.1)
Period
Dividends paid5 (1.6) (6.9)
NAV at 31 March 2020 101.6 426.7
5 Dividends of 1.6625p per share relating to the quarter ended 31 December
2019 were 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 portfolio valuation as at 31 March 2020, which is subject to a
'material uncertainty' clause in line with RICS guidance, 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 29 May 2020.
COVID-19 impact
Commenting on the impact of COVID-19, Richard Shepherd-Cross, Managing
Director of Custodian Capital Limited (the Company's discretionary
investment manager) said:
"The Period started with increased confidence in commercial property
investment following the General Election and reduced uncertainty around
Brexit. Sadly, all talk of confidence has now been eclipsed by the COVID-19
pandemic and the widespread impact on the economy in this country and
globally.
"Our response has been to prioritise protecting cash flow and to secure the
balance sheet. As a result the Company has withdrawn from two acquisitions
of regional offices on which terms had been agreed. In addition, to address
the impact of the statutory protections for commercial tenants introduced by
the UK Government, the Company has agreement in principle from its lenders
to put in place pre-emptive covenant waivers on interest cover6 to provide
the flexibility to collect rent in the most advantageous way for
medium/long-term income security, while supporting tenants and minimising
vacancies.
"It is too early to assess the long-term impact of COVID-19 on the
commercial property market but we believe it may accelerate pre-existing
trends in the use of, and investment in, commercial property. We expect to
see a further deterioration in secondary retail, an increase in demand for
flexible office space (both traditional offices, fitted out and leased
flexibly, as well as serviced offices) and a continuation of the growth of
logistics and distribution. As always, we would expect location to be a key
determinant of the future success of commercial property assets.
"In the near-term, of even more importance than the NAV derived from current
valuations is the absolute focus on rent collection, future cash flow,
ongoing asset management and the affordability of future dividends which are
all underpinned by the Company's low ongoing charges ratio7 of 1.12% and low
cost of debt of 3.0% (circa GBP4.7m interest per annum in aggregate)."
6 Historical rental income received less certain property expenses divided
by interest payable must be greater than 250%.
7 Expenses (excluding operating expenses of rental property recharged to
tenants) divided by average quarterly NAV.
Rent collection
The Investment Manager directly manages the Custodian REIT portfolio,
including rent collection, and continues to hold direct conversations with
tenants regarding the payment of rent. Some of these conversations have led
to positive asset management outcomes, including extending leases in return
for rent concessions, providing short-term cash flow relief for occupiers
and longer term income security for the Company. Importantly, at this stage,
the Company has not waived or cancelled any contractual rent and all
contractual rent remains due.
The Company's rent invoicing profile comprises quarterly in advance (on both
English and Scottish quarter days) and monthly in advance. Following
negotiations regarding the March quarter rent, the Company has agreed that a
number of tenants move from quarterly in advance to monthly in advance rent
payments, or a deferral of the March quarter's rent with a full recovery
over the next 12-18 months. Some tenants have yet to agree a payment profile
but the Investment Manager remains in active discussion with these tenants
to agree payment plans for the balance of outstanding rent.
Given the varied profile of the Company's rental invoicing, the Board
believes reporting rent collected relating to the month of April best
reflects the prevailing level of income generation from the Company's
property portfolio. To date, 74% of rent contractually due relating to the
month of April8 has been collected and 14% has been deferred by agreement
(and is therefore no longer due in April) to be paid either monthly in
arrears or to be recovered through a payment plan over the next 12-18
months.
8 Comprising payments received relating to April 2020 from: Scottish
quarterly invoicing in advance in February 2020, English quarterly invoicing
in advance in March 2020 and monthly invoicing in advance in April 2020.
Asset management
Despite the uncertainty caused by COVID-19, the Investment Manager has
remained focused on active asset management including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their
contractual break clauses during the Period, completing:
· An outstanding rent review with JTF Wholesale on a trade counter in
Warrington, increasing passing rent by 20% to GBP586k, adding GBP0.9m to
valuation;
· A 10 year reversionary lease with five year break option with VP
Packaging on an industrial unit at Venture Park, Kettering, with fixed
rental increases which over time will increase passing rent by more than
20%, increasing valuation by GBP0.5m;
· A five year reversionary lease with Vertiv Infrastructure on an
industrial unit at Priory Business Park, Bedford, extending the lease to
August 2027 and increasing the valuation by GBP0.4m;
· A new 10 year reversionary lease with Arkote on an industrial unit in
Sheffield, extending the lease to February 2034 and increasing the
valuation by GBP0.2m;
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