DJ Custodian REIT plc: Unaudited net asset value as at 31 March 2021 and dividend update
Custodian REIT plc (CREI)
Custodian REIT plc: Unaudited net asset value as at 31 March 2021 and dividend update
04-May-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014
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The issuer is solely responsible for the content of this announcement.
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4 May 2021
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 31 March 2021 and dividend update
Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its unaudited net asset
value ("NAV") as at 31 March 2021, highlights for the period from 1 January 2021 to 31 March 2021 ("the Period") and
dividends payable.
Highlights
- 90% of rent collected relating to the Period, adjusted for contractual rent deferrals, resulting in 91% of rent
having been collected for the year ended 31 March 2021 ("FY21"), adjusted for contractual rent deferrals
- EPRA earnings per share1 for FY21 decreased to 5.6p (2020: 7.0p) due to prudent assumptions regarding the
collection of deferred and overdue rent and a 5.0% decrease in the annual rent roll
- Dividend per share approved for the Period of 1.25p (quarter ended 31 December 2020: 1.25p)
- Aggregate dividends per share for FY21 of 4.5p (2020: 6.65p), reflecting the decreases in rent collection rate and
rent roll since the onset of the COVID-19 pandemic
- Aggregate dividends per share for FY21 125% covered by EPRA earnings (2020: 104% covered)
- Target dividend per share of not less than 5.0p for the year ending 31 March 2022, based on rent collection levels
remaining in line with expectations
- Property portfolio value of GBP551.9m (31 December 2020: GBP546.8m):
- GBP3.6m aggregate valuation increase for the Period, comprising GBP2.6m increases from successful asset management
initiatives (0.5% of property portfolio), GBP5.2m general valuation increases in the industrial sector, partially
offset by other aggregate decreases of GBP4.2m primarily in retail and office sectors
- Disposal of a high street retail unit at valuation for GBP0.3m
- NAV per share of 97.6p (31 December 2020: 96.4p)
- NAV of GBP409.9m (31 December 2020: GBP405.0m)
- NAV total return per share2 for FY21 of 0.9% (2020: 1.1%), comprising 5.1% of income (2020: 6.2%) and a 4.2%
capital decrease (2020: 5.1%)
- Net gearing3 of 24.9% loan-to-value (31 December 2020: 24.0%)
- EPRA occupancy4 91.5% (31 December 2020: 92.3%)
1 Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in
issue.
2 NAV per share movement including dividends paid during the period.
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 2021 was GBP409.9m, reflecting approximately 97.6p per share, an increase of
1.2p (1.2%) since 31 December 2020:
Pence per share GBPm
NAV at 31 December 2020 96.4 405.0
Valuation movements relating to:
- Asset management activity 0.6 2.6
- General valuation increases in the industrial sector 1.2 5.2
- General valuation movements in the retail, office and other sectors (0.9) (4.2)
Net valuation movement 0.9 3.6
EPRA earnings for the Period 1.6 6.6
Dividends paid5 relating to the previous quarter (1.3) (5.3)
NAV at 31 March 2021 97.6 409.9
5 Dividends of 1.25p per share relating to the quarter ended 31 December 2020 were paid on 26 February 2021.
The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation at 31 March 2021 and net income for the Period. The movement in NAV reflects the payment of a 1.25p per share dividend relating to the quarter ended 31 December 2020 during the Period, which was fully covered by net cash collections and EPRA earnings in that quarter, but does not include any provision for the approved dividend of 1.25p per share for the Period to be paid on 28 May 2021.
Market commentary
Commenting on the market, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company's discretionary investment manager) said:
"In common with the wider economy the commercial property investment market has experienced a year unlike any other, with office workers deserting their offices, shoppers going online as retailers were obliged to close and pubs and restaurants unable to serve customers for a large part of the year. The government's moratorium on the eviction of tenants for non-payment of rent has left landlords unable to compel tenants to pay rent, but despite these challenges, I believe real estate investment has been remarkably resilient.
"The clear winner in real estate investment has been the industrial and logistics sector which has benefited from the shift from the High Street to 'E-tailing' and from the onshoring of the national supply chain post Brexit. Investment demand and pricing are both at record levels which has been strongly positive for Custodian REIT as this sector makes up 49% of the portfolio, by value, and its valuation increased by 2.6% during the Period.
"The high street retail sector's future is uncertain, but, I believe as part of a combined retail and leisure-based city centre there will still be active demand from occupiers. Some of the crowds and queues witnessed, notably outside Primark, as non-essential retail re-opened, and outside pubs, were testament to the appeal of city centre locations. The trend for fewer shops was well established prior to the pandemic, but, in core locations we still expect to see high occupancy levels albeit at rental levels 25-50% below the peak. High Street retail makes up only 8% of the property portfolio by value and we have sold four small shops in the last six months, with another under offer, where we felt a return to rental growth in the medium term was unlikely.
"By contrast the out of town retail sector, which makes up 18% of the Custodian REIT property portfolio by value, is witnessing investors openly competing for assets. This is a sector where there is confidence that the combination of convenience, lower costs per square foot and the complementary offer to online retail will keep these assets relevant. Through the last year we have seen DIY and discounters (B&Q and B&M for example) trading strongly.
"It is widely believed that after a year of working from home the majority of workers are itching to get back to the office. Without doubt the way we use offices and how frequently we visit them has changed, following the largely successful national experiment of remote working. As always when considering real estate investment the location of offices will be key."
Earnings
EPRA earnings per share for FY21 decreased to 5.6p (2020: 7.0p) due primarily to a GBP2.7m (0.6p per share) increase in the doubtful debt provision, reflecting our prudent assumptions regarding the recovery of overdue and deferred rents, and a GBP2.1m (5.0%) decrease in the annual rent roll since 31 March 2020 due to tenants exiting at lease expiry (2.6%), cessation of rents through Company Voluntary Arrangements ("CVAs") and Administrations (3.2%), partially offset through net property acquisitions (0.8%). Helpfully, rental increases in the industrial sector offset rental decreases seen in other sectors.
Rent collection
As Investment Manager, Custodian Capital invoices and collects rent directly, importantly allowing it to hold direct conversations promptly with most tenants regarding the payment of rent. This direct contact has proved invaluable through the COVID-19 pandemic, facilitating better outcomes for the Company.
90% of rent relating to the Period, net of contractual rent deferrals, has been collected and 91% of rent relating to FY21 has been collected, net of contractual rent deferrals, or 89% before contractual deferrals, as set out below:
Net of contractual rent Before contractual rent
deferrals deferrals
FY21
GBPm
Rental income from investment property (IFRS basis) 38.8
Lease incentives (1.9)
Cash rental income expected, before contractual rent 36.9 100%
deferrals
Contractual rent deferred until subsequent financial (0.9) (3%)
years
Cash rental income expected, net of contractual rent 36.0 100%
deferrals
Outstanding rental income (3.1) (9%) (8%)
Rental income collected 32.9 91% 89%
Outstanding rental income remains the subject of discussion with various tenants, and some arrears are potentially at risk of non-recovery due to disruption caused by the recent national lockdown and from CVAs or Administrations.
To date 66% of rent relating to FY22 Q1 has been collected, net of contractual deferrals, which is in line with the same point in previous quarters.
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