Custodian REIT plc: Unaudited net asset value as at 30 June 2020 and dividend update

Custodian REIT plc (CREI) 
Custodian REIT plc: Unaudited net asset value as at 30 June 2020 and 
dividend update 
 
30-Jul-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. 
 
           30 July 2020 
 
     Custodian REIT plc 
 
     ("Custodian REIT" or "the Company") 
 
     Unaudited net asset value as at 30 June 2020 and dividend update 
 
        Custodian REIT (LSE: CREI), the UK commercial real estate investment 
  company, today reports its unaudited net asset value ("NAV") as at 30 June 
     2020, highlights for the period from 1 April 2020 to 30 June 2020 ("the 
           Period") and the dividend payable for the Period. 
 
           Financial highlights 
 
  · Continued impact of the COVID-19 pandemic resulting in: 
 
  · A GBP24.2m (4.2% of property portfolio) valuation decrease during the 
  Period; 
 
  · 92% of rent collected relating to the Period, adjusted for contractual 
  rent deferrals; and 
 
  · To date, 80% of rent due collected relating to the quarter ending 30 
  September 2020 ("FY21 Q2"), adjusted for contractual rent deferrals 
 
  · NAV total return per share1 for the Period of -4.9%, comprising 0.9% 
  dividends less a 5.8% capital decrease 
 
  · Dividend per share approved for the Period of 0.95p, 27% ahead of the 
  0.75p minimum dividend for the Period announced in April 2020, facilitated 
  by robust rent collection levels 
 
  · NAV per share of 95.7p (31 March 2020: 101.6p) 
 
  · NAV of GBP402.1m (31 March 2020: GBP426.7m) 
 
  · Net gearing2 of 23.5% loan-to-value (31 March 2020: 22.4%) 
 
Portfolio highlights 
 
  · Property portfolio value of GBP533.7m (31 March 2020: GBP559.8m), subject to 
  a 'material uncertainty' clause for all properties (excluding industrial 
  and logistics) in line with prevailing RICS guidance: 
 
  · GBP24.2m aggregate valuation decrease for the Period due primarily to the 
  impact of COVID-19 on all investment market and property sectors 
 
  · Disposal of an industrial property in Westerham for consideration of 
  GBP2.8m, 23% ahead of 31 March 2020 valuation 
 
  · EPRA occupancy3 93.8% (31 March 2020: 95.6%) 
 
  · Since the Period end GBP0.9m invested in the acquisition of land for the 
  development of a Starbucks drive-through restaurant in Nottingham 
 
1 NAV per share movement including dividends approved for the Period. 
 
2 Gross borrowings less cash (excluding rent deposits) divided by portfolio 
valuation. 
 
3 Estimated rental value ("ERV") of let property divided by total portfolio 
ERV. 
 
           Net asset value 
 
    The unaudited NAV of the Company at 30 June 2020 was GBP402.1m, reflecting 
     approximately 95.7p per share, a decrease of 5.9p (5.8%) since 31 March 
           2020: 
 
                                          Pence per share     GBPm 
 
NAV at 31 March 2020                                101.6  426.7 
 
Profit on disposal of investment                      0.1    0.5 
properties (net of disposal costs) 
Valuation movements                                 (5.7) (24.2) 
 
Income earned for the Period                          2.3    9.8 
Expenses, receivable provisioning and net           (0.9)  (3.7) 
finance costs for the Period 
Dividends paid4 relating to the previous            (1.7)  (7.0) 
quarter 
 
NAV at 30 June 2020                                  95.7  402.1 
 
4 Dividends of 1.6625p per share relating to the quarter ended 31 March 2020 
were paid on 29 May 2020. 
 
    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 30 June 2020, which is subject to a 
         'material uncertainty' clause for certain sectors in line with RICS 
       guidance, and income for the Period. The movement in NAV reflects the 
    payment of a 1.6625p per share dividend relating to the quarter ended 31 
   March 2020 during the Period, which was fully covered by cash collections 
    and earnings in that quarter, but does not include any provision for the 
 approved dividend of 0.95p per share for the Period to be paid on 28 August 
           2020. 
 
Market commentary 
 
      Commenting on the market, Richard Shepherd-Cross, Managing Director of 
  Custodian Capital Limited (the Company's discretionary investment manager) 
           said: 
 
"A full quarter of lockdown has seen occupational and investment activity in 
      marked contrast to the buoyant market at the start of 2020. Investment 
volumes during the Period were only 20% of the previous quarter's levels and 
     many office and retail occupiers deserted their premises in late March. 
           While we are starting to see occupiers returning to offices and 
    non-essential shops have been open for a few weeks, we have yet to fully 
 recover from the occupational void caused by lockdown. The principal impact 
    of this void has been the challenge of rent collection, discussed below. 
 
      "While greater clarity is emerging on the medium-term picture for rent 
    collection, there has been limited transactional evidence in the market, 
   creating a difficult environment in which to provide valuations. The RICS 
    continues to recommend the imposition of a 'material uncertainty' caveat 
     against the valuation of all but industrial and logistics properties to 
reflect the limited evidence available. With limited transactional evidence, 
the valuation profession is trying to reflect market sentiment in valuations 
   by applying a risk factor to the collection of deferred rent or rents due 
       from tenants which may be disproportionately affected by the COVID-19 
pandemic. The consequential decline in NAV is perhaps inevitable but not, we 
          believe, an irrecoverable structural shift. As improvements in the 
 prevention of COVID-19 (and care for those who catch it) continue we expect 
     that demand from occupiers for commercial real estate will improve from 
       occupiers and the risk factor applied to rents within valuations will 
           dissipate. 
 
  "As we see increasing confidence in the collection of contractual rent and 
landlords recover their ability to formally pursue non-payers is re-instated 
 by Government, positive sentiment towards commercial real estate investment 
  is likely to return. The low return environment, where dividends are under 
      pressure across all investment markets, should put the relatively high 
  dividends from real estate, even if at subdued levels compared to previous 
           years, in focus for income-driven investors. 
 
  "Income (and therefore earnings per share) is a more important metric than 
 NAV per share in delivering long-term and sustainable returns. As a result, 
our focus has understandably been centred on rent collection. For many years 
   Custodian REIT has enjoyed a near 100% rent collection record and despite 
           the headwinds of lockdown and legislation rendering this target 
   unattainable, much progress has been made on collecting contractual rents 
           due." 
 
Rent collection 
 
As Investment Manager Custodian Capital invoices and collects rent directly, 
 thereby allowing it to hold direct conversations promptly with most tenants 
    regarding the payment of rent. This direct contact has proved invaluable 
     through the early and current stages of the COVID-19 pandemic, enabling 
    better outcomes for the Company. Some of these conversations have led to 
    positive asset management outcomes, including the extension of leases in 
      return for rent concessions, providing short-term cash flow relief for 
           occupiers and longer-term income security for the Company. 
 
    The process of collecting rent arrears continues and to date 92% of rent 
      relating for the quarter, net of contractual rent deferrals5, has been 
collected. The balance of rent arrears for the Period remains the subject of 
       discussion with various tenants, although a proportion of arrears are 
     potentially at risk of non-recovery from Company Voluntary Arrangements 
           ("CVAs") or Pre-pack Administrations. 
 
 To date 80% of rent expected for FY21 Q2 has been collected, net of amounts 
 contractually deferred6 to be recovered through payment plans over the next 
           12-18 months. 
 
5 The proportion of rent collected relating to the Period (adjusted for the 
agreed deferral of 11% of invoiced rents). 
 
6 The proportion of rent collected relating to FY21 Q2 invoiced rents now 
due (adjusted for the agreed deferral of 5% of FY21 Q2 invoiced rents) and 
the rents now due having been deferred from the Period. 
 
           Dividends 
 
An interim dividend of 1.6625p per share for the quarter ended 31 March 2020 
       was paid on 29 May 2020, reflecting the 100% rent collection for that 
           period. 
 
      In April, before the full impact of lockdown could be ascertained, but 
         acknowledging the importance of income to shareholders, the Company 
         announced its intention to pay each of the subsequent two quarterly 
   dividends at a minimum of 0.75p per share regardless of the level of rent 
   collection, with the support of previous year's undistributed reserves if 
required. Furthermore, the Company undertook to pay a more generous dividend 
           if rent collection rates allowed. 
 
  While still short of the Company's long-term dividend target the Board has 
 approved an interim dividend relating to the Period of 0.95p per share, 27% 
     ahead of the minimum 0.75p previously indicated. This improved level of 
      dividend is fully covered by net cash receipts for the Period and 140% 
  covered by earnings meaning that no historical reserves have been utilised 
           for this dividend. 
 

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