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
(MAR), transmitted by EQS Group.
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.
Significant economic uncertainty remains regarding the impact of
the withdrawal of government financial COVID-19 support for
businesses, but the Board believes the Company is well placed to
weather any medium-term impact because the Company has a diverse
portfolio by sector and location with an institutional grade tenant
base and low gearing.
Dividends
An interim dividend of 1.25p per share for the quarter ended 31
December 2020 was paid on 26 February 2021.
The Board is pleased to approve an interim dividend per share of
1.25p for the Period, resulting in dividends per share of 4.5p for
the year ended 31 March 2021, fully covered by net cash receipts
and 125% covered by EPRA earnings, in line with the Board's current
policy of paying dividends at a level broadly linked to net rental
receipts.
The Board has set a target dividend6 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. 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.
The quarterly interim dividend for the Period of 1.25p per share
is payable on 28 May 2021 to shareholders on the register on 14 May
2021 and will be designated as a property income distribution
("PID").
6 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.
Asset management
Despite the ongoing economic uncertainty caused by the COVID-19
pandemic, the Investment Manager has remained focused on active
asset management during the Period, undertaking the following
initiatives: ? Commencing a letting with Nationwide Building
Society on a high street retail unit in Shrewsbury for a term of
10
years without break, at an annual rental of GBP100k, increasing
valuation by GBP0.6m; ? Completing a five year reversionary lease
with Worthington Armstrong on an industrial unit in Gateshead at
an
increased annual rent of GBP285k, increasing valuation by
GBP0.4m; ? Completing a 10 year lease renewal with Silgan Closures
at an industrial unit in Doncaster, with tenant break
options in years three and five at an increased annual rent of
GBP400k, increasing valuation by GBP0.3m; ? Completing a 10 year
lease renewal with a break in year five to Royal Mail at an
industrial unit in Kilmarnock,
maintaining the current passing rent of GBP95k with an open
market rent review in year five, increasing valuation by
GBP0.3m; ? Completing a lease assignment for a car showroom in
Stockport from Benham Specialist Cars to the stronger covenant
of Williams Motor Company, and rebasing the annual rent from
GBP740k to GBP640k with a fixed uplift to GBP669k in August
2022, increasing valuation by GBP0.3m; ? Varying the lease with
Elma Electronics at an industrial unit in Bedford to remove the
September 2022 break option,
moving lease expiry out to September 2027, increasing valuation
by GBP0.2m; ? Settling an outstanding rent review with Unilin
Distribution at a logistics unit in Manchester, securing an
uplift
in annual passing rent from GBP220k to GBP254k, increasing
valuation by GBP0.2m; ? Completing an open market rent review with
Yodel at a logistics unit in Bellshill, securing an uplift from
GBP275k to
GBP310k, increasing valuation by GBP0.2m; ? Completing lease
renewal with Rexel at an industrial unit in Gateshead on a 10 year
term with a tenant break option
in year five and open market rent reviews and annual passing
rent increasing from GBP50k to GBP55k, increasing
valuation by GBP0.1m; ? Exchanging an agreement for lease with
Just for Pets on a retail warehouse unit in Evesham for a term of
10 years
with a break in year six, at an annual rent of GBP95k, with no
impact on valuation; ? Completing a deed of variation to remove the
September 2021 break option with Felldale Group at a retail unit
in
Chester, extending the lease expiry to September 2026 with no
impact on valuation; and ? Completing a lease assignment from JB
Global to Oak Furniture Land Group at a retail warehouse unit in
Plymouth,
rebasing the passing rent from GBP250k to GBP150k and including
mutual break options in years two and four, with no
impact on valuation.
The positive impact of these asset management outcomes on
earnings has been partially offset by the liquidation of The Human
Office, the Administration of Paperchase and the CVA of Total
Fitness, which resulted in an aggregate reduction in annual passing
rent of GBP146k (c.0.4% of the Company's rent roll).
Tenant business failures have contributed to occupancy levels
decreasing to 91.5% from 95.9% at 31 March 2020, but letting
activity is increasing across most sectors. We have a strong
pipeline of potential new tenants and in April completed a new five
year letting to Green Retreats at a recently refurbished industrial
unit in Farnborough with annual rent of GBP185k, which increased
occupancy by 0.6%. Without further significant tenant failures, we
expect occupancy levels across the portfolio to continue to recover
over the next 3-6 months as we complete more new lettings.
The portfolio's weighted average unexpired lease term to first
break or expiry decreased from 5.1 years at 31 December 2020 to 5.0
years, with the impact of lease re-gears, new lettings and
disposals partially offsetting the natural elapse of a quarter of a
year due to the passage of time.
Borrowings
The Company operates the following loan facilities: ? A GBP35m
revolving credit facility ("RCF") with Lloyds Bank plc ("Lloyds")
expiring on 17 September 2023 with
interest of between 1.5% and 1.8% above three-month LIBOR,
determined by reference to the prevailing LTV ratio of a
discrete security pool. The RCF facility limit can be increased
to a maximum of GBP50m with Lloyds' approval; ? A GBP20m term loan
with Scottish Widows plc ("SWIP") repayable on 13 August 2025 with
interest fixed at 3.935%; ? A GBP45m term loan with SWIP repayable
on 5 June 2028 with interest fixed at 2.987%; and ? A GBP50m term
loan with Aviva Investors Real Estate Finance comprising:
a. A GBP35m tranche repayable on 6 April 2032 with fixed annual
interest of 3.02%; and
b. A GBP15m tranche repayable on 3 November 2032 with fixed
annual interest of 3.26%.
Each facility has a discrete security pool, comprising a number
of the Company's individual properties, over which the relevant
lender has security and covenants: ? The maximum LTV of the
discrete security pool is between 45% and 50%, with an overarching
covenant on the Company's
property portfolio of a maximum 35% LTV; and ? Historical
interest cover, requiring net rental receipts from each discrete
security pool, over the preceding three
months, to exceed 250% of the facility's quarterly interest
liability.
The Company complied with all loan covenants during the Period.
During the previous quarter the Company charged five unencumbered
properties valued at GBP21.1m to add additional headroom to certain
facilities.
Portfolio analysis
At 31 March 2021 the Company's property portfolio comprised 159
assets with a net initial yield7 of 6.6% (31 December 2020: 6.7%).
The portfolio is split between the main commercial property
sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio. Sector weightings are shown
below:
Valuation
Period valuation Weighting by
31 Mar movement Weighting by income8
Weighting by value 31 Period valuation income8 31 Dec
2021 Mar 2021 GBPm movement 31 Mar 2021 2020
Sector GBPm
Industrial 270.2 49% 6.9 2.6% 41% 41%
Retail 99.7 18% (1.2) (1.2%) 21% 21%
warehouse
Other9 84.4 15% 0.9 1.0% 16% 16%
Office 54.8 10% (1.1) (1.9%) 12% 12%
High street 42.8 8% (1.9) (4.3%) 10% 10%
retail
Total 551.9 100% 3.6 0.7% 100% 100%
7 Passing rent divided by property valuation plus purchaser's
costs.
8 Current passing rent plus ERV of vacant properties.
9 Includes car showrooms, petrol filling stations, children's
day nurseries, restaurants, gymnasiums, hotels and healthcare
units.
The Company operates a geographically diversified property
portfolio across the UK, seeking to ensure that no one region
represents more than 50% of portfolio income. The geographic
analysis of the Company's portfolio at 31 March 2021 was as
follows:
Valuation Period valuation Weighting Weighting
Weighting by value 31 Mar movement by income by income
31 Mar 2021 31 Mar 31 Dec
2021 GBPm Period valuation 2021 2020
movement
GBPm
Location
West Midlands 117.0 20% - - 20% 20%
North-West 93.3 17% 1.6 1.7% 17% 17%
South-East 71.6 13% (0.2) (0.3%) 14% 14%
East Midlands 70.7 13% 0.9 1.4% 14% 13%
South-West 60.9 11% - - 10% 10%
North-East 53.4 10% 1.0 2.0% 10% 10%
Scotland 48.8 8% 0.6 1.3% 9% 8%
Eastern 30.8 6% (0.3) (1.0%) 5% 6%
Wales 5.4 2% - - 1% 2%
Total 551.9 100% 3.6 0.7% 100% 100%
For details of all properties in the portfolio please see
custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the
Company's website www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
www.custodiancapital.com
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 GBP10m 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 GBP10m lot-size, regional
properties, the Company seeks 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 and
www.custodiancapital.com.
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ISIN: GB00BJFLFT45
Category Code: MSCU
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 102735
EQS News ID: 1191982
End of Announcement EQS News Service
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