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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Custodian Property Income Reit Plc | LSE:CREI | London | Ordinary Share | GB00BJFLFT45 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.80 | 1.06% | 76.40 | 75.70 | 76.50 | 76.70 | 75.90 | 76.70 | 250,635 | 12:15:01 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Real Estate Investment Trust | 44.15M | -65.82M | -0.1493 | -5.12 | 336.81M |
Dow Jones received a payment from EQS/DGAP to publish this press release.
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Custodian REIT plc (CREI)
Custodian REIT plc : Final Results
05-Jun-2018 / 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.
5 June 2018
Custodian REIT plc
("Custodian REIT" or "the Company")
Final Results
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company, today reports its final results for the year ended 31 March 2018.
Financial highlights and performance summary
· NAV per share total return1 of 9.6% (2017: 8.5%)
· EPRA2 earnings per share3 of 6.9p (2017: 6.6p), basic and diluted
earnings per share of 8.9p (2017: 8.1p)
· Portfolio value of GBP528.9m (2017: GBP418.5m4)
· Profit after tax up 34% to GBP32.4m (2017: GBP24.2m)
· GBP54.7m5 of new equity raised at average premium of 11.1% to dividend
adjusted NAV
· 2019 target dividend per share increased to 6.55p (2018: 6.45p)
· GBP106.3m6 invested in 20 acquisitions, one ongoing pre-let development
and one significant refurbishment
· GBP8.8m valuation uplift from successful asset management initiatives,
GBP5.7m net valuation increase7
· GBP1.6m profit on disposal of five properties for an aggregate
consideration of GBP11.3m
1. Net Asset Value ("NAV") movement including dividends paid and approved
relating to the year on shares in issue at 31 March 2017.
2. The European Public Real Estate Association ("EPRA").
3. Profit after tax excluding net gain on investment property divided by
weighted average number of shares in issue.
4. Restated to reclassify the value of deferred lease incentives from
receivables to investment property.
5. Before costs and expenses of GBP0.8m.
6. Before acquisition costs of GBP6.2m.
7. Comprising GBP8.8m of valuation uplift from successful asset management
initiatives plus GBP3.1m of other valuation increases, less GBP6.2m of
acquisition costs.
2018 2017 change
Return
NAV per share total return 9.6% 8.5% +1.1%
Share price total return8 6.7% 10.3% -3.6%
Dividend cover9 105.5% 101.0% +4.5%
Dividends per share10 (p) 6.45 6.35 +1.6%
Capital values
NAV (GBPm) 415.2 351.9 +18.0%
NAV per share (p) 107.3 103.8 +3.4%
Share price (p) 113.0 112.0 +0.9%
Portfolio value (GBPm) 528.9 418.511 +26.4%
Market capitalisation (GBPm) 437.1 379.7 +15.1%
Premium to NAV per share 5.3% 7.9% -2.6%
Net gearing12 21.0% 14.4% +6.6%
Costs
Ongoing charges ratio13 ("OCR") 1.37% 1.61% -0.24%
OCR excluding direct property 1.15% 1.20% -0.05%
expenses14
EPRA performance measures
EPRA EPS (p) 6.9 6.6 +4.5%
EPRA NAV per share (p) 107.3 103.8 +3.4%
EPRA net initial yield ("NIY") 6.1% 6.3% -0.2%
EPRA 'topped up' NIY 6.5% 6.7% -0.2%
EPRA vacancy rate 3.5% 1.4% +2.1%
EPRA cost ratio (including 15.3% 18.0% -2.7%
direct vacancy costs)
EPRA cost ratio (excluding 14.6% 16.1% -1.5%
direct vacancy costs)
8. Share price movement including dividends paid and approved for the year.
9. Profit after tax, excluding net gain on investment property, divided by
dividends paid and approved for the year.
10. Dividends paid and approved for the year.
11. Restated to reclassify the value of deferred lease incentives from
receivables to investment property.
12. Gross borrowings less unrestricted cash, divided by portfolio value.
13. Expenses (excluding operating expenses of rental property rechargeable
to tenants) divided by average quarterly NAV.
14. Expenses (excluding operating expenses of rental property) divided by
average quarterly NAV.
Alternative performance measures, including EPRA Best Practice
Recommendations, are among the key performance indicators used by the Board
to assess the Company's performance. EPRA performance measures have been
disclosed to facilitate comparison with the Company's peers through
consistent reporting of key performance measures. The Company is a FTSE
EPRA/NAREIT index series constituent.
Commenting on the final results, David Hunter, Chairman of Custodian REIT,
said:
"I am pleased to report that Custodian REIT has continued to deliver strong
shareholder returns with NAV per share total return of 9.6% (2017: 8.5%) for
the year. We invested a total of GBP106.3m on the completion of 20
acquisitions, one ongoing pre-let development and one significant
refurbishment, funded principally by GBP54.7m raised from the issue of new
shares and GBP50.0m of new term debt.
"We believe a well-defined investment strategy that offers secure income and
focuses on long-term goals and deliverable targets will protect shareholders
from market volatility.
"The strength of the occupational market represents an exciting opportunity
and rental growth at lease renewal and rent review remains robust. The
Company met its target of paying an annual dividend per share for the year
of 6.45p (2017: 6.35p, 2016: 6.25p), 105.5% covered by net recurring income,
and we expect proactive asset management that secures rental growth will
continue to drive performance in the portfolio. We are confident we can
maintain occupancy levels, which in turn will sustain our policy of paying a
growing and fully-covered dividend to shareholders."
Further information
Further information regarding the Company can be found at the Company's
website www.custodianreit.com [1] or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Tel: +44 (0)116 240 8740
Imlach / Ian Mattioli MBE
www.custodiancapital.com [2]
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numiscorp.com
Camarco
Hazel Stevenson Tel: +44 (0)20 3757 4989
www.camarco.co.uk
Chairman's statement
I am pleased to report that Custodian REIT has continued to deliver strong
shareholder returns with NAV per share total return of 9.6% (2017: 8.5%) for
the year ended 31 March 2018. During the year we invested a total of GBP106.3m
on the completion of 20 acquisitions, one ongoing pre-let development and
one significant refurbishment, funded principally by GBP54.7m raised from the
issue of new shares and GBP50.0m of new term debt. Increasing the scale of the
Company and a continued focus on controlling costs has reduced the ongoing
charges ratio (excluding direct property expenses) from 1.20% to 1.15%. We
plan to achieve continued growth to realise the further economies of scale
offered by the Company's relatively fixed cost base and the reduced rate of
Investment Manager fees from 1 June 2017, while adhering to the Company's
investment policy and maintaining the quality of both properties and income.
The Company pays one of the highest fully covered dividends amongst its peer
group of listed property investment companies15. During a period of further
growth we have sought to minimise the impact of 'cash drag' following the
issue of new shares by taking advantage of the flexibility offered by the
Company's GBP35.0m revolving credit facility ("RCF"). I am delighted that
proactive asset management of the portfolio to secure rental growth, coupled
with the flexibility of the RCF and prompt deployment of cash as it has been
raised through equity issuance, has allowed us to increase the target
dividend16 for the year ending 31 March 2019 by 1.6% to 6.55p per share.
Through 2017 and into the first quarter of 2018 the market has been
characterised by a very restricted supply of investment opportunities and a
significant level of demand from a range of investors. Market demand has
polarised, moving away from high street retail and focusing on
industrial/logistics assets and properties let on long leases, particularly
those with rents indexed to inflation. We believe the market is over-pricing
some assets and we have taken a cautious approach to acquisitions. Custodian
REIT has stuck firmly to its investment strategy making it more difficult,
but not impossible, to deploy our available resources into the right
property assets. Despite our success in investing more than GBP100m during the
year, these market conditions have restricted our ability to satisfy demand
for new equity issuance which in turn has seen the Company's shares trade at
a premium well ahead of most of our peers. Current market dynamics look
likely to persist and maintain the status quo for the rest of the year.
Custodian REIT remains focused on good quality regional property that might
be considered too small for institutional investors. The Company continues
to maintain a diverse portfolio strategy, allowing enough flexibility to be
contracyclical where appropriate but always with a strong focus on acquiring
assets that support the dividend policy of the Company. Furthermore, we
believe a well-defined investment strategy that offers secure income and
focuses on long-term goals and deliverable targets will protect shareholders
from market volatility.
15. Source: Numis Securities Limited.
16. 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.
Net asset value
The NAV of the Company at 31 March 2018 was GBP415.2m, reflecting
approximately 107.3p per share, an increase of 3.4% since 31 March 2017:
Pence per share GBPm
NAV at 31 March 2017 103.8 351.9
Issue of equity in the year (net of 1.0 53.9
costs)
104.8 405.8
Valuation movements relating to:
- Asset management activity 2.3 8.8
- Other valuation movements 0.8 3.1
Gross valuation increase 3.1 11.9
Impact of acquisition costs (1.6) (6.2)
Net valuation increase 1.5 5.7
Profit on disposal of investment property 0.4 1.6
Net gain on investment property 1.9 7.3
Revenue 9.0 34.8
Expenses and net finance costs (2.5) (9.7)
Dividends paid17 (5.9) (23.0)
NAV at 31 March 2018 107.3 415.2
17. Dividends totalling 6.425p per share (1.5875p relating to the prior year
and 4.8375p relating to the year) were paid on shares in issue throughout
the year. Dividends paid on shares in issue at the year end averaged 5.9p
per share due to new shares being issued after the first ex-dividend date.
The Company delivered NAV per share total return of 9.6% for the year, which
was another period of significant new investment where the initial costs
(primarily stamp duty) of investing GBP106.3m in 20 property acquisitions, one
pre-let development and one significant refurbishment diluted NAV per share
total return by circa 1.6p, largely offset by raising GBP53.9m of new equity
(net of costs) at an average 11.1% premium to dividend adjusted NAV, which
added 1.5p per share18 and fully covered the cost of raising and deploying
the proceeds.
In addition to acquisitions, activity during the year also focused on
pro-active asset management, which generated an GBP8.8m valuation uplift. We
intend to continue our asset management activities and complete the current
acquisition pipeline where we have identified compelling propositions, with
the deployment of existing debt facilities expected to increase net gearing
towards our target level of 25% loan-to-value ("LTV").
18. 1.0p per share through new issuance at a premium to NAV plus 0.5p per
share notional dividend saving due to new shares being issued after the
year's first ex-dividend date.
Share price
Consistent demand for the Company's shares has led to its share price
showing a relatively stable premium to NAV through the year.
This share price performance has been combined with a steadily increasing
level of daily liquidity which now rates Custodian REIT as the second
highest in its peer group in terms of volume of shares traded daily as a
percentage of issued share capital19. This liquidity has done much to reduce
volatility so the few instances of short-term share price volatility have
quickly stabilised.
The Company enjoys the support of a wide range of shareholders with the
majority classified as private client or discretionary wealth management
investors. The Company's investment and dividend strategy is very well
suited to investors looking for a close proxy to direct real estate but in a
managed and liquid structure. The nature of shareholders has, in turn,
helped to reduce volatility as they are typically long-term holders looking
for stable dividend-driven returns.
19. Source: Numis Securities Limited.
Placing of new ordinary shares
The Company raised GBP54.7m of new equity during the year, placing 47.8m new
shares at an average 11.1% (2017: 5.1%) premium to dividend adjusted NAV via
an ongoing programme of tap issuance.
Borrowings
As at 31 March 2018 net gearing equated to 21.0% LTV. The Board's strategy
is to:
· Increase debt facilities in line with portfolio growth, targeting net
gearing of 25% LTV;
· Facilitate expansion of the portfolio to take advantage of expected
rental growth; and
· Reduce shareholders' exposure to risk by:
Taking advantage of low interest rates to secure long-term, fixed rate
borrowing; and
Managing the weighted average maturity ("WAM") of the Company's debt
facilities.
To achieve these objectives, on 5 April 2017, the Company and Aviva
Investors Real Estate Finance ("Aviva") entered into an agreement for Aviva
to provide the Company with a new 15 year GBP50m term loan facility,
comprising two tranches of GBP35m ("Tranche 1") and GBP15m ("Tranche 2")
respectively. The Company drew down Tranche 1 on 6 April 2017, with a fixed
rate of interest of 3.02% per annum, and drew down Tranche 2 on 3 November
2017 with a fixed rate of interest of 3.26% per annum.
The weighted average cost of the Company's agreed debt facilities at 31
March 2018 was 3.1% (2017: 3.1%) with a WAM of 9.1 years (2017: 10.1 years)
and 77% (2017: 77%) of the Company's agreed debt facilities now at a fixed
rate of interest. This removes significant interest rate risk from the
Company and provides shareholders with a wide, beneficial margin between the
fixed cost of debt and income returns from the portfolio.
Investment Manager
Custodian Capital Limited ("the Investment Manager") was appointed at IPO
under an investment management agreement ("IMA") to provide property
management and administrative services to the Company. The performance of
the Investment Manager is reviewed each year by the Management Engagement
Committee ("MEC").
The Board is pleased with the performance of the Investment Manager,
particularly the timely deployment of new monies on high quality assets,
securing the earnings required to fully cover the target dividend, and the
asset management successes.
On 1 June 2017, the Investment Manager was appointed for a further three
years and fees payable to the Investment Manager under the IMA were amended
to include:
· A step down in the property management fee from 0.75% to 0.65% of NAV
applied to NAV in excess of GBP500m; and
· A step down in the administrative fee from 0.125% to 0.08% of NAV
applied to NAV between GBP200m and GBP500m and a further step down to 0.05% of
NAV applied to NAV in excess of GBP500m.
These amendments to the IMA secured an immediate reduction in the
administrative fee rate, increasing cover on target dividends in the current
and future years. Further growth in NAV, particularly above GBP500m, will
further reduce the Company's ongoing charges ratio and increase dividend
capacity.
WAULT
The Investment Manager's report sets out in detail a proposed change to the
Company's investment policy regarding weighted average unexpired lease term
to the earlier of first break or expiry ("WAULT").
With the natural passage of time and the growth in size of the portfolio, as
well as the general market overpricing of many longer lease assets, the
target of maintaining a portfolio WAULT of more than five years is now
inappropriate. It is proposed that this be changed to a more realistic
objective to minimise rental voids and enhance the WAULT of the portfolio by
managing lease expiries and targeting property acquisitions which will in
aggregate be accretive to WAULT at the point of acquisition, on a rolling
12-month basis. The Board fully supports this change which will provide the
Investment Manager with additional flexibility when looking for the best
value properties to add to the portfolio.
Dividends
Income is a major component of total return. The Company paid aggregate
dividends of 6.425p per share during the year (totalling GBP23.0m), comprising
the fourth interim dividend of 1.5875p per share relating to the year ended
31 March 2017 and three interim dividends of 1.6125p per share relating to
the year ended 31 March 2018.
The Company paid an interim dividend of 1.6125p per share for the quarter
ended 31 March 2018 on 31 May 2018, meeting the Company's target of paying
an annual dividend per share relating to the year of 6.45p (2017: 6.35p,
2016: 6.25p), totalling GBP23.8m. Dividends relating to the year are 105.5%
covered by net recurring income of GBP25.2m.
In the absence of unforeseen circumstances, the Board intends to pay
quarterly interim dividends to achieve a target dividend of 6.55p per share
for the year ending 31 March 2019. 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.
Outlook
Notwithstanding our cautious approach to investment in the current market we
believe that value can still be found with a disciplined approach to
deployment with the strength of the occupational market representing an
exciting opportunity which is discussed more fully in the Investment
Manager's report. Rental growth at lease renewal and rent review remains
robust. We expect proactive asset management and rental growth will continue
to drive performance in the portfolio and are confident we can maintain
occupancy levels, which in turn will sustain our policy of paying a growing
and fully-covered dividend to shareholders.
David Hunter
Independent Chairman
4 June 2018
Investment Manager's report
The UK property market
Our review of the UK property market shows demand is outstripping supply in
almost all sectors save for secondary retail. In November 2017 Property Week
reported that allocations to commercial property now exceed 10% in global
institutional portfolios, up from 8.9% in 2013. While a small percentage
increase, the absolute impact has been significant resulting in competition
for acquisitions as most participants in the commercial property market are
targeting net investment across their portfolios. Is this a positive
endorsement of the UK property investment market or is it looking like a
late cycle bubble?
Last year I commented as follows: "We are not unduly concerned by this risk.
The equivalent yield20 of the portfolio has been constant at c. 6.75% since
2014, although the NIY of the portfolio has hardened to reflect rental
growth. This suggests that capital growth has been driven by the prospect of
rental growth and not by underlying yield compression, lessening the risk of
a reversal of gains made in the near future."
A year on we have witnessed some equivalent yield compression in our
valuations, principally driven by market pricing for industrial and
logistics assets, which make up 39% of the portfolio, but we have also seen
softening in pricing for high street retail which makes up only 14% of the
portfolio. The net result has been an increase in the valuation of the
portfolio, which we still believe is robust, showing a NIY of 6.6%.
Furthermore, the aggregate NIY of the GBP103.8m of property acquisitions
during the year was 6.7% which compares favourably to Lambert Smith
Hampton's recently reported all property transaction yield of 5.67% for Q1
2018. This demonstrates that it is still possible to find properties that
support Custodian REIT's attractive, fully covered dividend policy, but it
is safe to say it is somewhat harder than 12 months ago. While we are not
concerned that the Custodian REIT portfolio is in a late cycle bubble, we
are not immune from the market.
The first point to note is that the property market is very different: In
2007/2008 we were at the tail end of a debt driven, development boom which
had left us with an over-supply of vacant property; we were at the end of
rental growth cycle; we had debt fueled investment demand; interest rates
were 5% and we were on the brink of a global banking collapse.
Current market conditions are somewhat different. We have had very low
levels of development for 10 years and still there is very limited banking
support for speculative development, leaving us with low levels of modern
vacant real estate; rental growth may have peaked or even be declining in
central London but in regional markets it is a different picture. Industrial
and office rents have been growing since 2016 and while the rate of growth
may be slowing there remain a large number of regional assets with latent
rental growth. Investment demand is principally driven by equity rather than
debt, although the low cost of finance is enhancing demand; interest rates
are 0.5% and while we believe the Bank of England wishes to raise rates we
envisage a medium term low rate environment, notwithstanding some small
increases; and while we do not fear a banking crisis, we have the
uncertainty of leaving the EU next year instead. The jury may be out on the
outcome for UK plc of leaving the EU but we are hopeful that the impact on
UK commercial property investment might be less than for those invested in
assets directly linked to financial markets. Perhaps the current allocations
to UK property support this view.
So even though the market backdrop is very different to 2007/2008, some
investor activity has some of the hallmarks of a late cycle bubble. There
seems to be a core of investors intent on deploying capital into the UK
property market at any cost and some pricing reflects this. The hope of any
market facing a bursting bubble is for a soft landing. We feel confident
that the current occupational market dynamics and the low return environment
will secure a soft landing for commercial property if one is needed.
20. The weighted average between the NIY and reversionary yield.
Occupational market
Strength in occupational markets has supported much of our asset management
activities throughout the year. We have settled 17 rent reviews showing
increases ranging from 2% to 87% with an 18% average adding GBP0.5m to the
Company's rent roll. While much of the growth has come from the industrial
sector, with 12 rent reviews, there has also been growth in other sectors
with three retail rental uplifts and two alternative assets.
There remain a number of factors that should lead to a continuing period of
rental growth:
· 2008-2016 saw rental levels in many regional markets fall in nominal
terms against a background of annual economic inflation averaging c. 3%
per annum, leading to like-for-like rental declines of 20-25%. As a result
rents are now growing from a low and affordable base in real terms.
· Many regional markets are witnessing rental levels which remain below
the threshold necessary to bring forward new development. This is a
function of the fall in real rental levels against inflation in
construction and labour costs. It would appear that there is a latent pool
of rental growth on which the market must deliver before we see supply
reach equilibrium with demand, thus maintaining pressure on rents to grow.
· Many tenant negotiations remain finely balanced, with tenants keenly
aware of their value to landlords. However tenants are accepting of rental
growth, which they may have avoided for as much as 10 years in many
instances, which combined with limited supply of alternative premises,
should continue to deliver rental growth albeit at a lessening rate.
In addition, 13% of the Company's rent roll benefits from fixed or indexed
rental uplifts, although there is increasingly strong evidence of open
market rental growth matching or exceeding indexation.
However we have seen some weakness in secondary retail locations and expect
to experience one or two rental reductions at lease expiry. Some tenants
have taken matters into their own hands to bring about early rental
reductions with the aggressive use of company voluntary arrangements
("CVAs") to step away from their lease obligations or to reduce rents.
Happily we have been largely unaffected by this. We have no exposure to
House of Fraser or New Look and the lease over our restaurant let to Prezzo
was assigned in advance of its CVA so we were unaffected, but Carpetright's
CVA has resulted in a 25% reduction in rent at our Grantham store (a GBP25k
drop in rent representing 0.07% of the Company's rent roll). This is perhaps
where Custodian REIT has the greatest protection against the impact of CVAs
or other tenant failure, as the Company's largest tenant represents only
3.2% of the total rent roll and with 201 tenants any instance of tenant
default will have only a muted impact on the Company.
Investment objective
The Company's key objective is to provide shareholders with an attractive
level of income by maintaining the high level of dividend, fully covered by
earnings, with a conservative level of net gearing. We are delighted to have
continued to achieve this, with earnings providing 105.5% cover of the
approved total dividend relating to the year of 6.45p per share, with a net
gearing ratio of 21.0% at the year end. As a result of the fund's growth and
consequential reduction in OCR the Board has increased the target dividend
for the next financial year to 6.55p per share.
We continue to pursue a pipeline of new investment opportunities with the
aim of deploying the Company's undrawn debt facilities up to the
conservative net gearing target of 25% LTV. At the current cost of debt, we
believe this strategy can improve dividend cover as net gearing increases
towards the target level.
We remain committed to a strategy principally focused on sub GBP10m lot size
regional property. We expect to see continuing strong asset management
performance as we secure rental increases and extend contractual income.
Portfolio balance
The portfolio is split between the main commercial property sectors, in line
with the Company's objective to maintain a suitably balanced investment
portfolio, with a relatively low exposure to office and a relatively high
exposure to industrial, retail warehouse and alternative sectors, often
referred to as 'other' in property market analysis. The current sector
weightings are:
Valuation Valuation Gross Weighting Weighting
valua by income by income
tion 31 March
incre 2017
31 March 31 March ase21 Net
2018 valua 31 March
tion
movem
2017 GBPm ent
GBPm 2018
Sector GBPm GBPm
Industrial 209.8 188.4 11.4 10.6 39% 45%
Retail 107.5 48.8 1.0 (2.4) 20% 11%
warehouse
Other22 80.4 56.7 0.7 (0.7) 15% 13%
Retail 75.3 72.2 (2.8) (3.4) 14% 17%
Office 55.9 52.4 1.6 1.6 12% 14%
Total 528.9 418.5 11.9 5.7 100% 100%
21. Before the impact of GBP6.2m acquisition costs.
22. Includes car showrooms, petrol filling stations, children's day
nurseries, restaurants, health and fitness units, hotels and healthcare
centres.
Industrial property is a very good fit with the Company's strategy where it
is possible to acquire modern, 'fit-for-purpose' buildings with high
residual values (ie the vacant possession value is closer to the investment
value than in other sectors) and where the real estate is less exposed to
obsolescence. GBP5.9m of the GBP11.4m gross valuation increase in the industrial
sector was driven by asset management initiatives, with occupational demand
driving rental growth and generating positive returns.
There is continued weakness in secondary high street retail locations, with
rental levels still under pressure and a very real threat of vacancy.
However, the high street is a polarised sector where many locations continue
to be in demand by retailers. We will continue to rebalance the portfolio to
focus on strong retail locations while working on an orderly disposal of
those assets we believe are ex-growth. The current well-publicised crop of
CVAs has the potential to increase vacancy levels in our retail warehousing
portfolio, but set against a backdrop of very low vacancy rates in this
sector we do not feel unduly exposed to long-term void risk.
While deemed to be outside the core sectors of office, retail and industrial
the 'other' sector offers diversification of income without adding to
portfolio risk, containing assets considered mainstream but which typically
have not been owned by institutional investors. The 'other' sector continues
to be a target for acquisitions.
Office rents in regional markets are growing and supply remains constrained
by a lack of development and the extensive conversion of secondary offices
to residential making returns very attractive. However, we are conscious
that obsolescence and lease incentives can be a real cost of office
ownership, which can hit cash flow and be at odds with the Company's
relatively high target dividend, so while we are experiencing rental growth
in our office portfolio, we remain a cautious investor.
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio [3].
WAULT
During the year we proactively managed the portfolio, enhancing income and
maintaining the WAULT ahead of the Company's objective of a WAULT of over
five years.
At 31 March 2018 the portfolio's WAULT was 5.9 years (2017: 5.9 years) with
the completion of asset management initiatives and acquisitions with an
aggregate WAULT of 8.5 years offsetting the one year decline due to the
passage of time.
WAULT is a much-quoted statistic and is often considered a proxy for risk.
This perception has encouraged many investors to pursue long-dated income
causing significant price inflation for long lease assets. Although buying
shorter leases puts pressure on the WAULT of the portfolio, we believe that
with the current strength of the occupational market and a portfolio of high
quality properties, risk is better managed by pursuing a strategy of buying
high quality properties that are likely to re-let, rather than highly priced
properties with long leases. This view, combined with the growth in size of
the portfolio means we believe the target of maintaining a portfolio WAULT
of more than five years is inappropriate, and we have recommended to the
Board that shareholders approve amending the Company's investment objective
at the Annual General Meeting ("AGM") on 19 July 2018 as follows:
· Current WAULT policy: The Company will seek to maintain a WAULT of over
five years across the portfolio secured against low risk tenants and to
minimise rental voids.
· Proposed WAULT policy: The Company will seek to minimise rental voids
and enhance the WAULT of the portfolio by managing lease expiries and
targeting property acquisitions which will in aggregate be accretive to
WAULT at the point of acquisition, on a rolling 12-month basis.
Asset management
Successful asset management strategies including rent reviews, new lettings,
lease extensions and the retention of tenants beyond their contractual break
clauses have more than offset the impact on NAV of acquisition costs. In
aggregate asset management activities increased NAV by GBP8.8m delivering the
largest component of NAV performance through the year. This element of NAV
growth underlines the importance of pro-active, strategic asset management
of the portfolio. As a fund manager who collects rent and has direct
relationships with all the tenants in the portfolio, we have been able to
deliver mutually beneficial outcomes for both the Company and its tenants.
Key asset management initiatives completed during the year included:
· Finalising a rent review in Southwark, increasing annual rent by 87%
from GBP0.20m pa (GBP9 per sq ft) to GBP0.37m pa (GBP16.25 per sq ft), exceeding
ERV of GBP0.27m pa (GBP12 per sq ft) and increasing valuation by GBP2.5m;
· Agreeing a new 10-year lease with Regus in West Malling, increasing
annual rent by 14.5% from GBP0.56m pa (GBP19.20 per sq ft) to GBP0.64m pa (GBP22
per sq ft) and increasing valuation by GBP2.4m;
· Agreeing a rent review at GBP0.33m per annum and a five-year reversionary
lease with YESSS Electrical at Foxbridge Way, Normanton, increasing
valuation by GBP1.0m;
· Finalising a rent review with DHL in Warrington at GBP0.31m per annum,
increasing valuation by GBP0.6m;
· Settling a rent review with the tenant at Leacroft Road, Warrington and
assigning the lease to a larger group entity with a stronger covenant,
increasing valuation by GBP0.5m;
· Letting a vacant unit in Gateshead to WH Partnership on a 10-year lease
at GBP0.14m per annum, increasing valuation by GBP0.4m;
· Agreeing a new 10-year reversionary lease with Powder Systems at Estuary
Commerce Park, Speke with expiry moving from July 2020 to July 2030 and
annual rent increasing by 7% from GBP0.14m to GBP0.15m, increasing valuation
by GBP0.4m;
· Assigning the lease at Ravensbank Drive, Redditch to a larger group
entity with a stronger covenant, increasing valuation by GBP0.3m;
· Removing an August 2018 break clause in Bunzl's lease in Castleford
increasing WAULT from 1.2 years to 6.2 years, increasing valuation by
GBP0.2m;
· Completing a new five-year reversionary lease at Sainsburys, Torpoint
with expiry moving from December 2022 to December 2027, increasing
valuation by GBP0.2m; and
· Agreeing a five-year reversionary lease at West George Street, Glasgow
with Safe Deposits Scotland, increasing valuation by GBP0.1m.
Rental increases of 20% have been secured on another two properties since
the year end, illustrating that rental growth is taking hold. Further asset
management initiatives in solicitor's hands are expected to complete over
the coming months including new lettings, lease renewals, rent reviews and
lease re-gears.
Activity
We were delighted to make the 20 acquisitions shown below. NAV has increased
and the portfolio profile has strengthened in terms of diversification of
tenant, sector and lease break/expiry. In addition, the portfolio's rental
growth potential has been enhanced because of these acquisitions.
Tenant NIY Agreed
purchase
price (GBPm)
WAULT
Location (Years)
Gloucester Magnet and Smyths 3.0 7.41% 4.7
York Pendragon 12.8 5.75% 3.9
Galashiels B&Q 7.6 8.24% 3.2
Plymouth Oak Furniture, 9.6 6.74% 7.5
SCS and
McDonald's
Langley Mill Warburtons 5.5 6.29% 2.1
Glasgow Eurocentral 1.7 6.91% 4.7
Sheldon Dreams and Pets 6.3 6.64% 5.1
at Home
Stockport Williams 10.1 6.99% 8.8
Ashton Under Lyne B&M 14.5 6.00% 6.6
Salisbury Parkwood Health 13.6 6.75% 2.8
Plymouth Magnet and B&M 7.5 6.79% 5.6
Livingston SCS 5.0 7.50% 2.8
Cardiff Card Factory and 9.6 7.46% 5.2
Specsavers
Burton upon Trent Wickes, The Range 11.3 6.45% 8.4
and HSS Hire
Maypole Starbucks 15.0 6.43% 1.0
Worcester Superdrug 9.3 6.50% 5.6
Derby VW Group 7.9 6.28% 5.1
Carlisle Halfords, Oak 9.5 6.89% 12.1
Furniture Land,
Iceland, B&M and
Poundland
Leicester Matalan 10.8 7.36% 6.7
Gateshead Worthington 8.4 6.73% 3.9
Armstrong (UK)
Limited
105.823
23. Agreed purchase price before rent free top-ups of GBP1.9m and acquisition
costs of GBP6.2m.
A key part of effective portfolio management is the disposal of assets which
either no longer meet the long-term investment strategy of the Company or
which can be disposed of significantly ahead of valuation, often to a
special purchaser, such that holding the asset is no longer appropriate.
After focused pre-sale asset management, the following properties were sold
during the Period for a total of GBP11.3m, realising a profit on disposal of
GBP1.6m24 at an aggregate NIY of 5.7%, with gross proceeds 20% ahead of
aggregate valuation:
· An 82,081 sq ft multi-let industrial property in Chepstow for GBP4.6m,
GBP0.9m ahead of valuation;
· An 8,326 sq ft retail unit in Colchester for GBP4.25m, GBP0.7m ahead of
valuation;
· A 15,330 sq ft multi-tenanted industrial estate in Hinckley for GBP1.2m,
GBP0.2m ahead of valuation;
· A 9,332 sq ft multi-tenanted retail parade in Redcar for GBP0.6m, GBP0.1m
ahead of valuation; and
· A 10,736 sq ft retail unit in Hinckley for GBP0.6m, in line with
valuation.
The gains made on these disposals were primarily the result of a sale to a
special purchaser and the current strong market demand for regional
industrial units. We intend to use the proceeds from these disposals to fund
acquisitions better aligned to the Company's long-term investment strategy.
24. Net of disposal costs of GBP0.1m.
Portfolio risk
We have managed the portfolio's income expiry profile through successful
asset management activities with only 48% of income expiring within five
years at 31 March 2018 (2017: 53%). Short-term income at risk is a
relatively low proportion of the portfolio's income, with only 28% expiring
in the next three years (2017: 28%).
31 March 31 March
Income expiry 2018 2017
0-1 years 8% 13%
1-3 years 20% 15%
3-5 years 20% 25%
5-10 years 36% 33%
10+ years 16% 14%
Total 100% 100%
Outlook and pipeline
Looking ahead, income is likely to provide the majority of total return in
the next 12-24 months. I would be disappointed if we saw further yield
compression, in part because I do not think it is warranted and in larger
part because I fear it may further inflate pricing bubbles in certain
sectors. I believe Custodian REIT's portfolio is insulated from the worst
excesses of market pricing and I would expect Custodian REIT to have a
softer landing than most should a correction occur.
The growth in the portfolio enjoyed from 2014-2017 is now showing very
positive benefits to shareholders, as rental growth feeds in, ongoing
charges continue to fall through economies of scale and asset management
delivers further growth in NAV. The spread of income and diversification of
property by sector and location that has resulted from portfolio growth
stands the Company in good stead to deliver increases in fully covered
dividends and to support strong shareholder total returns.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
4 June 2018
Portfolio
31 March 2018 31 March 2017
Portfolio value GBP528.9m GBP418.5m
Separate tenancies 254 265
EPRA occupancy rate 96.5% 98.6%
Assets 147 131
WAULT 5.9 years 5.9 years
NIY25 6.6% 6.9%
25. Portfolio passing rent divided by portfolio valuation plus estimated
purchasers' costs of 6.5%.
Principal risks and uncertainties
The Board has overall responsibility for reviewing the effectiveness of the
system of risk management and internal control which is operated by the
Investment Manager. The Company's risk management process is designed to
identify, evaluate and mitigate the significant risks the Company faces. At
least annually, the Board undertakes a risk review, with the assistance of
the Audit Committee, to assess the effectiveness of the Investment Manager's
risk management and internal control systems. During this review, no
significant failings or weaknesses have been identified in respect of risk
management, internal control and related financial and business reporting.
There are a number of potential risks and uncertainties which could have a
material impact on the Company's performance over the forthcoming financial
year and could cause actual results to differ materially from expected and
historical results.
The Directors have assessed the principal risks facing the Company,
including those that would threaten the business model, future performance,
solvency or liquidity. The table below outlines the risk factors identified,
but does not purport to be exhaustive as there may be additional risks that
materialise over time that the Company has not yet identified or has deemed
not likely to have a potentially material adverse effect on the business.
Risk Assessment Mitigating factors
Loss of revenue
· Tenant default. Likelihood: · Company's
largest tenant
· Expiries or breaks account for 3.2%
concentrated in a of the rent roll
specific year. Moderate.
· Investment
· Unable to re-let policy limits the
void units. Company's rent
roll to no more
· Low UK economic than 10% from a
growth impacting the single tenant.
commercial property
market. · Target
institutional
grade tenants.
· Focused on
established
business
locations for
Impact: Moderate. investment.
· Active
management of
lease expiry
profile and
impact on WAULT
considered in
forming
acquisition
decisions.
· Building
specifications
typically not
tailored to one
user.
Decreases in portfolio
valuation
· Market pricing
affecting value.
· Change in demand Likelihood: · Active
for space. Moderate. portfolio
diversification
· Properties between office,
concentrated in a industrial
specific (distribution,
geographical manufacturing and
location or sector. warehousing),
retail and other.
· Low general
property market · Investment
sentiment and policy limits the
investor demand. Company's
portfolio to no
more than 50% in
any specific
sector or
Impact: Moderate. geographical
region.
Financial
· Reduced Likelihood: Low. · Target net
availability or gearing of 25%
increased cost of LTV on property
arranging or portfolio.
servicing debt.
· 77% of agreed
· Breach of debt facilities
borrowing covenants. at a fixed rate
of interest.
· Significant
increases in · Existing
interest rates. facilities
Impact: High. sufficient for
spending
commitments and
agreed until
2020.
· Ongoing
monitoring and
management of the
forecast
liquidity and
covenant
position.
Operational
· Inadequate Likelihood: Low. · Ongoing review
performance, of performance by
controls or systems independent Board
operated by the of Directors.
Investment Manager.
· Internal audit
function operated
by the Investment
Manager reporting
directly to the
Audit Committee.
Impact: High.
Regulatory and legal
· Adverse impact of Likelihood: Low. · Strong
new or revised compliance
legislation or culture.
regulations, or by
changes in the · External
interpretation or professional
enforcement of advisers are
existing government engaged to review
policy, laws and and advise upon
regulations. control
environment and
· Non-compliance ensure regulatory
with the real estate Impact: High. compliance.
investment trust
("REIT") regime26 or · Business model
changes to the and culture
Company's tax embraces FCA
status. principles.
· REIT regime
compliance is
considered by the
Board in
assessing the
Company's
financial
position and by
the Investment
Manager in making
operational
decisions.
Acquisitions
· Unidentified Likelihood: Low. · Comprehensive
liabilities due diligence is
associated with the undertaken in
acquisition of new conjunction with
properties (whether professional
acquired directly or advisors and the
via a corporate provision of
structure). insured
warranties and
indemnities are
sought from
vendors where
Impact: High. appropriate.
26. As defined by the Corporation Tax Act 2010.
The Board considers it is too early to understand the full impact of
'Brexit' on revenues and portfolio valuation, but this political risk is not
considered likely to have a material impact on the Company's performance due
to the mitigating factors.
Longer-term viability statement
In accordance with provision C2.2 of the UK Corporate Governance Code issued
by the Financial Reporting Council ("the Code"), the Directors have assessed
the prospects of the Company over a period longer than the 12 months
required by the 'Going Concern' provision. The Board resolved to conduct
this review for a period of three years, because:
· The Company's business plan covers a three-year period; and
· The Board believes a three-year horizon maintains a reasonable level of
accuracy regarding projected rental income and costs, allowing robust
sensitivity analysis to be conducted.
The Board's three-year business plan considered the Company's profit, cash
flows, dividend cover, REIT regime compliance, borrowing covenant compliance
and other key financial ratios over the period. These metrics are subject to
sensitivity analysis, which involves flexing a number of key assumptions
underlying the projections, including:
· Tenant default;
· Length of potential void period following lease break or expiry;
· Acquisition NIY and the timing of deployment of cash;
· Interest rate changes; and
· Property portfolio valuation movements.
This analysis also evaluates the potential impact of the principal risks and
uncertainties set out above should they occur.
Current debt and associated covenants are summarised in Note 15, with no
covenant breaches during the year. The Company's dividend policy is set out
in Business Model and Strategy. The principal risks and uncertainties faced
by the Company, together with the steps taken to mitigate them, are
highlighted above and in the Audit Committee report. The Board seeks to
ensure that risks are mitigated appropriately and managed within its risk
appetite all times.
Based on the results of this analysis, the Directors expect that the Company
will be able to continue in operation and meet its liabilities as they fall
due over the three-year period of their assessment.
Business model and strategy
Investment objective and policy
The Company seeks to provide shareholders with an attractive level of income
together with the potential for capital growth from investing in a
diversified portfolio of commercial real estate properties in the UK. The
Company principally targets individual properties with a value of less than
GBP10m at acquisition, seeking to benefit from a significant NIY advantage as
a result.
The Company's current investment objectives are:
· To not exceed a maximum weighting to any one property sector or to any
one geographic region of greater than 50%;
· To hold a portfolio of UK commercial property, diversified by sector,
location, tenant and lease term;
· To focus on areas with high residual values, strong local economies and
an imbalance between supply and demand. Within these locations, the
objective is to acquire modern buildings or those that are considered fit
for purpose by occupiers;
· To have no one tenant or property accounting for more than 10% of the
total rent roll of the portfolio at the time of purchase, except:
a) In the case of a single tenant which is a governmental body or
department, where no limit shall apply; or
b) In the case of a single tenant rated by Dun & Bradstreet ("D&B") as
having a credit risk score higher than two, where the exposure to such
single tenant may not exceed 5% of the total rent roll (a risk score of two
represents "lower than average risk").
· To target borrowings of 25% of the aggregate market value of all the
properties of the Company at the time of borrowing;
· Not to undertake speculative development (that is, development of
property which has not been leased or pre-leased), save for refurbishment
of existing holdings, but may (provided that it shall not exceed 20% of
the gross assets of the Company) invest in forward funding agreements or
forward commitments (these being arrangements by which the Company may
acquire pre-development land under a structure designed to provide the
Company with investment rather than development risk) of pre-let
developments, where the Company intends to own the completed development;
and
· To maintain a WAULT of over five years across the portfolio secured
against low risk tenants and to minimise rental voids.
The Board keeps the Company's investment objectives under review to ensure
they remain appropriate to the market in which the Company operates and in
the best interests of shareholders. The Board proposes amending the
Company's WAULT investment objective at the AGM as set out in the Investment
Manager's report.
Key performance indicators
The Board meets quarterly and at each meeting reviews performance against a
number of key measures:
· NAV per share total return - reflects both the NAV growth of the Company
and dividends paid to shareholders. The Board regards this as the best
overall measure of value delivered to shareholders. The Board assesses NAV
total return over various time periods and compares the Company's returns
to those of its peer group of listed, closed-ended property investment
funds;
· EPRA EPS - reflects the Company's ability to generate earnings from the
portfolio which underpin dividends;
· Net gearing - measures the prudence of the Company's financing strategy,
balancing the additional returns available from employing debt with the
need to effectively manage risk;
· Dividends per share and dividend cover - a key objective is to provide
an attractive, sustainable level of income to shareholders, fully covered
from net rental income. The Board reviews target dividends in conjunction
with detailed financial forecasts to ensure that target dividends are
being met and are sustainable;
· EPRA vacancy - the Board reviews the level of property voids within the
Company's portfolio on a quarterly basis and compares this to its peer
group average. The Board seeks to ensure that the Investment Manager is
giving proper consideration to replacing the Company's income;
· OCR - measures the annual running costs of the Company and indicates the
Board's ability to operate the Company efficiently, keeping costs low to
maximise earnings from which to pay fully covered dividends; and
· Premium or discount of the share price to NAV - the Board closely
monitors the premium or discount of the share price to the NAV and
believes a key driver of this is the Company's long-term investment
performance. However, there can be short-term volatility in the premium or
discount and the Board therefore seeks limited authority at each AGM to
issue or buy back shares with a view to trying to limit this volatility.
The Board considers the key performance measures over various time periods
and against similar funds. A record of these measures is disclosed in the
Financial highlights and performance summary, the Chairman's statement and
the Investment Manager's report.
Financing
The Company operates with a conservative level of net gearing, with target
borrowings over the medium-term of 25% of the aggregate market value of all
properties at the time of drawdown.
Debt
The Company has the following facilities available:
· A GBP35m RCF with Lloyds Bank plc attracting annual interest of 2.45%
above three-month LIBOR on advances drawn down under the agreement from
time to time;
· A GBP20m term loan facility with Scottish Widows Limited ("SWIP")
repayable in August 2025, attracting fixed annual interest of 3.935%;
· A GBP45m term loan facility with SWIP repayable in June 2028, attracting
fixed annual interest of 2.987%; and
· A GBP50m term loan facility with Aviva comprising:
a) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual
interest of 3.02%; and
b) A GBP15m tranche repayable on 3 November 2032 attracting fixed annual
interest of 3.26%.
The Company's borrowing facilities all require minimum interest cover of
250% of the net rental income of the security pool. The maximum LTV of the
Company combining the value of all property interests (including the
properties secured against the facilities) must be no more than 35%.
Equity
During the year the Company raised GBP54.7m (before costs and expenses)
through the placing of 47,839,999 new ordinary shares.
Dividends
The Company paid dividends totalling 6.425p per share during the year,
comprising the fourth interim dividend of 1.5875p per share relating to the
year ended 31 March 2017 and three interim dividends of 1.6125p per share
relating to the year ended 31 March 2018.
The Company paid an interim dividend of 1.6125p per share for the quarter
ended 31 March 2018 on 31 May 2018, meeting its target of paying an annual
dividend per share for the financial year of 6.45p (2017: 6.35p, 2016:
6.25p).
In the absence of unforeseen circumstances, the Board intends to pay
quarterly dividends to achieve a target dividend of 6.55p per share for the
year ending 31 March 2019. 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.
Employees
The Company has four non-executive directors and no employees. Non-executive
directors are paid fixed salaries set by the Remuneration Committee and
participate in the performance of the Company through their shareholdings.
All non-executive directors are white males. The Board is conscious of the
increased focus on diversity in the boardroom, and has constituted a
Nominations Committee to ensure that for any future appointment the best
person for the role is selected, while recognising the benefits of diversity
when considering an appointment. The Board recognises the value and
importance of diversity in the boardroom, but does not consider it
appropriate or in the interests of the Company and its shareholders to set
prescriptive diversity targets for the Board.
Corporate social responsibility
The Company is committed to delivering its strategic objectives in an
ethical and responsible manner. The Company's environmental and social
policies address the importance of these issues in the day-to-day running of
the business, as detailed below.
Environmental policy
The four key elements of the Company's environmental policy are:
· An independent environmental report is required for all potential
acquisitions, which considers, amongst other matters, the historical and
current usage of the site and the extent of any contamination present;
· An ongoing examination of existing and new tenants' business activities
is carried out to assess the risk of pollution occurring. The Company
monitors all incoming tenants through its insurance programme to identify
potential risks and activities deemed to be high-risk are avoided. As part
of the active management of the portfolio, any change in tenant business
practices considered to be an environmental hazard is reported and
suitably dealt with;
· Sites are visited periodically and any obvious environmental issues are
reported to the Board; and
· All leases prepared after the adoption of the policy commit occupiers to
observe any environmental regulations. Any problems are referred to the
Board.
Social policy
The activities of the Company are carried out in a responsible manner,
taking into account the social impact.
Approval of Strategic report
The Strategic report, (incorporating the Chairman's statement, Investment
Manager's report, Portfolio, Principal risks and uncertainties and Business
model and strategy) was approved by the Board of Directors and signed on its
behalf by:
David Hunter
Independent Chairman
4 June 2018
Independent auditor's report to the members of Custodian REIT plc
For the year ended 31 March 2018
We confirm that we have issued an unqualified opinion on the full financial
statements of Custodian REIT plc. Our audit report on the full financial
statements sets out the following key audit matters which had the greatest
effect on our audit strategy; the allocation of resources in our audit; and
directing the efforts of the engagement team, together with how our audit
responded to those key audit matters and the key observations arising from
our work:
Valuation of the property portfolio
Key audit matter description As disclosed in Note 10, the
Group's investment property
portfolio is valued at GBP528.9m
(31 March 2017: GBP415.8m). The
Group's accounting policy in
Note 2 states that investment
property is held at fair value
and Note 2.5 describes key
judgements made in valuation of
investment properties. In
determining the fair value, the
external valuer make a number
of key estimates and
assumptions, in particular
assumptions in relation to
market comparable yields and
estimates in relation to future
rental income increases or
decreases, void periods and
purchaser costs. Certain of
these estimates and assumptions
require input from management.
Some of these estimates and
assumptions are subject to
market forces and will change
over time.
Valuation of investment
property is an area of
judgement which could
materially affect the financial
statements.
The Audit Committee report
discloses this as a primary
area of judgement.
How the scope of our audit Together with our real estate
responded to the key audit experts, who are Chartered
matter Surveyors, we met with the
third party valuer appointed by
those charged with governance
with the aim of understanding
the valuation methodology
adopted. We assessed the
competence, capabilities and
objectivity of the external
valuer. We selected a sample of
investment properties for
further investigation (based on
value, absolute and percentage
movement, and some randomly
selected properties). For this
sample, we assessed and
challenged the reasonableness
of the significant judgments
and assumptions applied in the
valuation model for each
property in our sample,
focusing in particular on the
yields assumed and assessing
sensitivity of the valuation to
changes in assumptions. We
assessed the completeness and
accuracy of the data provided
by the Group to the valuer for
the purposes of their valuation
exercise.
With the assistance of expert
members of our audit team who
are Chartered Surveyors, we
reviewed the significant
assumptions in the valuation
process, tested a sample of
properties by benchmarking
against external appropriate
property indices and understood
the valuation methodology and
the wider market analysis. We
reviewed the information
provided by the valuer both in
the meeting and contained in
the detailed valuation reports;
and we undertook our own
research into the relevant
markets to evaluate the
reasonableness of the valuation
inputs and the resulting fair
values.
Key observations The results of our tests were
satisfactory and we concluded
that the key assumptions
applied in determining the
property valuations by the
external valuer were
appropriate. The testing
performed in relation to the
final property valuations
proved satisfactory.
Revenue recognition cut-off and accounting for lease
incentives
Key audit matter description As disclosed in Note 4, the
Company recognised GBP34.8m of
gross income from investment
properties (2017: GBP27.2m),
where GBP7.7m (2017: GBP6.2m)
related to the last quarterly
billing which is exposed to
revenue cut-off risk. GBP1.5m
related to revenue recognised
during the year from lease
incentives (2017: GBP1.2m). As
set out in Note 2.4 to the
financial statements, the
Company's accounting policy is
to account for the rental
income from properties owned by
the Company on a straight line
basis over the term of the
lease. Lease incentives are
amortised on a straight-line
basis over the lease term.
There is a risk that lease
incentives such as rent free
periods or stepped rent
agreements may not be treated
appropriately to ensure rental
income is recognised in each
accounting period on straight
line basis over the lease
agreement. We have also defined
revenue recognition risk as
arising from revenue cut-off
errors in rental income near
the period-end. Due to
complexities involved in the
calculations, we have
determined that there was a
potential for fraud through
possible manipulation of this
balance.
How the scope of our audit To respond to the key audit
responded to the key audit matter we tested new tenancy
matter agreements entered into in the
period (on a sample basis);
tested cut off for a sample of
revenue recognised near either
side of year end to ensure the
transactions have been
recognised in the correct
period; and performed
substantive testing of a
selection of tenancy rental
revenue recognised to signed
rental agreements ensuring
lease incentives have been
recognised over the correct
period.
Key observations The results of our tests were
satisfactory and we concluded
revenue had been appropriately
recognised. The Group's
accounting policies in relation
to revenue recognition were
found to be in line with IFRS
and industry peers.
Compliance with REIT regime
Key audit matter description The UK REIT regime affords the
Company a beneficial tax
treatment for income and
capital gains, provided certain
criteria are met. As a REIT,
the Company must ensure that it
monitors its compliance with
the requirements of the regime.
If the Company breaches one or
more of the REIT regime
conditions, the penalty can
range from automatic expulsion
from the regime to additional
tax liabilities for the REIT.
The Audit Committee report
discloses this as a primary
area of judgement.
How the scope of our audit We obtained copies of the
responded to the key audit Investment Manager's
matter calculations to support
compliance with these
conditions which we
recalculated. We also agreed
compliance with these
conditions by reference to the
REIT requirements at the
balance sheet date, and in the
forecast period of 12 months
from the balance sheet date.
Key observations The results of our tests were
satisfactory and we found no
instances of breaches or
forecast breaches of compliance
with the REIT regime.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Our liability for this report, and for our full audit report on the
financial statements is to the Company's members as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as
a body, for our audit work, for our audit report or this report, or for the
opinions we have formed.
Deloitte LLP
Statutory Auditor
Consolidated and Company statements of comprehensive income
For the year ended 31 March 2018
Year ended Year ended
31 March 31 March
2018 2017
Group and Company Note GBP000 GBP000
Revenue 4 34,813 27,610
Investment management (3,124) (2,671)
Operating expenses of rental property
- rechargeable to tenants (758) (630)
- directly incurred (852) (1,239)
Professional fees (433) (337)
Directors' fees (167) (160)
Administrative expenses (653) (475)
Expenses (5,987) (5,512)
Operating profit before financing and
revaluation of investment property
28,826 22,098
Unrealised gains/(losses) on
revaluation of investment property:
- relating to property revaluations
10 11,859 9,016
- relating to costs of acquisition 10 (6,212) (6,103)
Net valuation increase 5,647 2,913
Profit on disposal of investment 1,606 1,599
property
Net gain on investment property 7,253 4,512
Operating profit before financing 36,079 26,610
Finance income 6 99 186
Finance costs 7 (3,758) (2,591)
Net finance costs (3,659) (2,405)
Profit before tax 32,420 24,205
Income tax expense 8 - -
Profit for the year and total
comprehensive income for the year,
net of tax
32,420 24,205
Attributable to:
Owners of the Company 32,420 24,205
Earnings per ordinary share:
Basic and diluted (p per share) 3 8.9 8.1
EPRA (p per share) 3 6.9 6.6
The profit for the year arises from the Company's continuing operations.
Consolidated and Company statements of financial position
As at 31 March 2018
Registered number: 08863271
Group Company
31 March 31 March 2017
31 March 2017 31 March
2018 GBP000 2018 GBP000
Note GBP000 (restated) GBP000 (restated)
Non-current
assets
Investment 10 528,943 418,548 528,943 418,548
property
Investments 11 - - 7,610 7,109
Total 528,943 418,548 536,553 425,657
non-current
assets
Trade and other 12 7,883 4,453 7,883 4,453
receivables
Cash and cash 14 5,059 5,807 5,059 5,807
equivalents
Total current 12,942 10,260 12,942 10,260
assets
Total assets 541,885 428,808 549,495 435,917
Equity
Issued capital 16 3,869 3,390 3,869 3,390
Share premium 16 212,534 159,101 212,534 159,101
Retained 16 198,799 189,386 198,799 189,386
earnings
Total equity
attributable to
equity holders
of the Company
415,202 351,877 415,202 351,877
Non-current
liabilities
Borrowings 15 113,357 63,788 113,357 63,788
Other payables 571 571 571 571
Total 113,928 64,359 113,928 64,359
non-current
liabilities
Current
liabilities
Trade and other 13 5,870 7,014 13,480 14,123
payables
Deferred income 6,885 5,558 6,885 5,558
Total current 12,755 12,572 20,365 19,681
liabilities
Total 126,683 76,931 134,293 84,040
liabilities
Total equity and 541,885 428,808 549,495 435,917
liabilities
These consolidated and Company financial statements of Custodian REIT plc
were approved and authorised for issue by the Board of Directors on 4 June
2018 and are signed on its behalf by:
David Hunter
Independent Chairman
Consolidated and Company statements of cash flows
For the year ended 31 March 2018
Group and Company Year ended Year
31 March ended
2018 31 March
2017
Note GBP000 GBP000
Operating activities
Profit for the year 32,420 24,205
Net finance costs 3,659 2,405
Net valuation increase of investment 10 (5,647) (2,913)
property
Impact of rent free 10 (1,547) (1,202)
Profit on disposal of investment
property (excluding costs of disposal)
(1,732) (1,807)
Cash flows from operating activities
before changes in working capital and
provisions
27,153 20,688
Increase/(decrease) in trade and other 985 (2,023)
receivables
Decrease in trade and other payables 250 4,401
and deferred income
Cash generated from operations 28,388 23,066
Interest and other finance charges (3,553) (2,233)
Net cash flows from operating 24,835 20,833
activities
Investing activities
Purchase of investment property (103,796) (101,734)
Capital expenditure and development (2,498) (3,234)
Acquisition costs (6,212) (6,103)
Disposal of investment property
(excluding proceeds held in charged
bank accounts)
6,622 18,945
Interest received 6 32 33
Net cash used in investing activities (105,852) (92,093)
Financing activities
Proceeds from the issue of share 16 54,670 92,425
capital
Payment of costs of share issue (758) (1,320)
New borrowings/(repayment of 15 49,364 (1,000)
borrowings) net of costs
Dividends paid 9 (23,007) (18,493)
Net cash from financing activities 80,269 71,612
Net (decrease)/increase in cash and (748) 352
cash equivalents
Cash and cash equivalents at start of 5,807 5,455
the year
Cash and cash equivalents at end of 5,059 5,807
the year
Consolidated and Company statements of changes in equity
For the year ended 31 March 2018
Issued Share Retained Total
capital premium earnings equity
Note GBP000 GBP000 GBP000 GBP000
As at 1 April 2016 2,512 68,874 183,674 255,060
Profit for the year - - 24,205 24,205
Total comprehensive - - 24,205 24,205
income for year
Transactions with owners
of the Company,
recognised directly in
equity
Dividends 9 - - (18,493) (18,493)
Issue of share capital 16 878 90,227 - 91,105
As at 31 March 2017 3,390 159,101 189,386 351,877
Profit for the year - - 32,420 32,420
Total comprehensive - - 32,420 32,420
income for year
Transactions with owners
of the Company,
recognised directly in
equity
Dividends 9 - - (23,007) (23,007)
Issue of share capital 16 479 53,433 - 53,912
As at 31 March 2018 3,869 212,534 198,799 415,202
Notes to the financial statements for the year ended 31 March 2018
1 Corporate information
The Company is a public limited company incorporated and domiciled in
England and Wales, whose shares are publicly traded on the London Stock
Exchange plc's main market for listed securities. The consolidated financial
statements have been prepared on a historical cost basis, except for the
revaluation of investment property, and are presented in pounds sterling
with all values rounded to the nearest thousand pounds (GBP000), except when
otherwise indicated. The consolidated financial statements were authorised
for issue in accordance with a resolution of the Directors on 4 June 2018.
2 Basis of preparation and accounting policies
2.1. Basis of preparation
The consolidated financial statements and the separate financial statements
of the parent company have been prepared in accordance with International
Financial Reporting Standards adopted by the International Accounting
Standards Board ("IASB") and interpretations issued by the International
Financial Reporting Interpretations Committee ("IFRIC") of the IASB
(together "IFRS") as adopted by the European Union, and in accordance with
the requirements of the Companies Act applicable to companies reporting
under IFRS, and therefore they comply with Article 4 of the EU IAS
Regulation.
Certain statements in this report are forward looking statements. By their
nature, forward looking statements involve a number of risks, uncertainties
or assumptions that could cause actual results or events to differ
materially from those expressed or implied by those statements. Forward
looking statements regarding past trends or activities should not be taken
as representation that such trends or activities will continue in the
future. Accordingly, undue reliance should not be placed on forward looking
statements.
2.2. Basis of consolidation
The consolidated financial statements consolidate those of the parent
company and its subsidiaries. The parent controls a subsidiary if it is
exposed, or has rights, to variable returns from its involvement with the
subsidiary and has the ability to affect those returns through its power
over the subsidiary. Custodian Real Estate Limited has a reporting date in
line with the Company. Other subsidiaries have a December or June accounting
reference date which has not been amended since their acquisition as those
companies are expected to be liquidated during the next financial year. All
transactions and balances between group companies are eliminated on
consolidation, including unrealised gains and losses on transactions between
group companies. Where unrealised losses on intra-group asset sales are
reversed on consolidation, the underlying asset is also tested for
impairment from a group perspective. Amounts reported in the financial
statements of the subsidiary are adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group. Profit or
loss and other comprehensive income of subsidiaries acquired or disposed of
during the year are recognised from the effective date of acquisition, or up
to the effective date of disposal, as applicable.
2.3. Application of new and revised International Financial Reporting
Standards
During the year the Company has applied a number of amendments to IFRSs and
a new interpretation issued by the International Accounting Standards Board
(IASB) that are mandatorily effective for accounting periods beginning on or
after 1 April 2017:
· Annual Improvements to IFRSs 2014-2016 Cycle and;
· Amendments to IAS 7 'Disclosure initiative'.
The Company adopted the amendments to IAS 7 for the first time during the
year which require disclosure to enable the users of the financial
statements to evaluate changes in liabilities arising from financing
activities. Borrowings are the Company's only liabilities arising from
financing activities and a reconciliation between opening and closing
balances is shown in Note 15. The application of these new standards has
otherwise had no impact on the disclosures or on the amounts recognised in
the Company's financial statements.
At the date of authorisation of these financial statements, the following
new and revised IFRSs which have not been applied in these financial
statements were in issue but not yet effective:
· Annual Improvements to IFRSs 2015-2017 Cycle;
· IFRS 9 'Financial Instruments';
· IFRS 15 'Revenue from Contracts with Customers';
· IFRS 16 'Leases'; and
· IFRS 17 'Insurance Contracts'
IFRS 9
IFRS 9 'Financial instruments' was issued in July 2014, and the new standard
is effective for accounting periods beginning on or after 1 January 2018 and
will be adopted by the Company on 1 April 2018. IFRS 9 was adopted by the EU
in November 2016.
IFRS 9 introduces changes to the classification of financial assets and a
new impairment model for financial assets, which could impact the timing of
recognition of impairment losses. Under the 'simplified approach' to the
expected credit loss model, loss allowances equal to the lifetime expected
credit losses are recognised on initial recognition of financial assets,
depending on assessed credit risk. Additional requirements include both
quantitative and qualitative disclosures supporting the basis and
recognition of loss allowances, and the recognition of the loss allowance
within provisions.
The Company is assessing the impact of the following accounting changes that
will arise under IFRS 9:
· Classification of financial assets held by the Company is not expected
to change.
· Provisions for impairment losses against financial assets could be
recognised sooner as lifetime expected credit losses are recognised on
initial recognition of those financial assets.
· The Company's trade receivables, other receivables and accrued income
are short-term and do not include a financing component, therefore the
Company expects to apply the simplified approach and reflect lifetime
credit losses.
The Company will apply IFRS 9 from 1 April 2018 and has elected not to
restate comparatives on initial application of IFRS 9. The full impact of
adopting IFRS 9 on the Company's financial statements will depend on the
financial instruments that the Company has during 2018 as well as on
economic conditions and judgements made as at the year end.
Based on the Company's credit losses incurred in the current and preceding
financial years, the expected additional provision to be recognised is GBPnil.
IFRS 15
IFRS 15 'Revenue from contracts with customers' was issued in May 2014, and
the new standard is effective for accounting periods beginning on or after 1
January 2018 and will be adopted by the Company on 1 April 2018. IFRS 15 was
adopted by the EU in October 2016.
IFRS 15 will change the way revenue from customer contracts is recognised,
potentially impacting both the timing at which revenue may be recognised,
and the value of revenue recognised. Customer contracts are broken down in
to separate performance obligations, with contractual revenues being
allocated to each performance obligation and revenue recognised on a basis
consistent with the transfer of control of goods or services. Additional
disclosure requirements include the reporting of disaggregated revenues, and
the recognition of contract assets and contract liabilities on the face of
the statement of financial position.
The Company is assessing the impact of the accounting and disclosure changes
that will arise under IFRS 15 and at present only anticipates a minimal
impact on revenue recognition and reported net assets due to certain leases
containing an element of variable consideration.
IFRS 16
IFRS 16 'Leases' was issued in January 2016 and is effective for accounting
periods beginning on or after 1 January 2019 and will be adopted by the
Company on 1 April 2019.
IFRS 16 removes the distinction between operating and finance leases for
lessees and replaces them with the concept of 'right-of-use' assets and
associated financial liabilities which will result in almost all leases
being recognised on the balance sheet. A leasee's rent expense under IAS 17
for operating leases will be removed and replaced with depreciation and
finance costs.
Additional disclosure requirements include presenting:
· Depreciation expense
· Carrying value of right-of-use assets
· Additions to right-of-use assets
· Interest expense on lease liabilities
· Variable lease payments not included in the lease liability
· Total cash outflow for leases
Additional qualitative and quantitative disclosures will also be necessary
about the entity's leasing activities if they are considered necessary to
meet the overall disclosure objective.
The Company is assessing the impact of the accounting and disclosure changes
that will arise under IFRS 16 and at present only anticipates a GBP0.03m
impact on income statement categorisation of headlease costs, with no impact
on bank covenants.
IFRS 17
IFRS 17 was published in May 2017 and is effective for periods commencing on
or after 1 January 2021. The Company has not completed its review of the
impact of this new standard but does not anticipate it having a significant
impact.
2.4. Significant accounting policies
The principal accounting policies adopted by the Group and Company and
applied to these financial statements are set out below.
Going concern
The Directors believe the Company is well placed to manage its business
risks successfully. The Company's projections show that the Company should
continue to be cash generative and be able to operate within the level of
its current financing arrangements. Accordingly, the Directors continue to
adopt the going concern basis for the preparation of the financial
statements.
Income recognition
Revenue is recognised to the extent that it is probable that economic
benefits will flow to the Company and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received,
excluding discounts, rebates, VAT and other sales taxes or duties.
Rental income from operating leases on properties owned by the Company is
accounted for on a straight line basis over the term of the lease. Rental
income excludes service charges and other costs directly recoverable from
tenants.
Lease incentives are recognised on a straight-line basis over the lease
term.
Revenue and profits on the sale of properties are recognised on the
completion of contracts. The amount of profit recognised is the difference
between the sale proceeds and the carrying amount.
Finance income relates to bank interest receivable and amounts receivable on
ongoing development funding contracts.
Taxation
The Group operates as a REIT and hence profits and gains from the property
rental business are normally expected to be exempt from corporation tax. The
tax expense represents the sum of the tax currently payable and deferred tax
relating to the residual (non-property rental) business. The tax currently
payable is based on taxable profit for the year. Taxable profit differs from
net profit as reported in the statement of comprehensive income because it
excludes items of income and expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible.
The Company's liability for current tax is calculated using tax rates that
have been enacted or substantively enacted by the reporting date.
Investment property
Investment property is held to earn rentals and/or for capital appreciation
and is initially recognised at cost including direct transaction costs.
Investment property is subsequently valued externally on a market basis at
the reporting date and recorded at valuation. Any surplus or deficit arising
on revaluing investment property is recognised in profit or loss in the year
in which it arises. Dilapidations receipts are held in the statement of
financial position and offset against subsequent associated expenditure. Any
ultimate gains or shortfalls are measured by reference to previously
published valuations and recognised in profit or loss, offset against any
directly corresponding movement in fair value of the investment properties
to which they relate.
Group undertakings
Investments are included in the Company only statement of financial position
at cost less any provision for impairment.
Financial assets
The Company's financial assets include cash and cash equivalents and trade
and other receivables. All financial assets are initially recognised at fair
value plus transaction costs, when the Company becomes party to the
contractual provisions of the instrument. Interest resulting from holding
financial assets is recognised in profit or loss on an accruals basis.
Loans and receivables are measured subsequent to initial recognition at
amortised cost using the effective interest method, less provision for
impairment. Provision for impairment of trade and other receivables is made
when objective evidence is received that the Company will not be able to
collect all amounts due to it in accordance with the original terms of the
receivable. The amount of the impairment is determined as the difference
between the asset's carrying amount and the present value of estimated
future cash flows, discounted at the effective rate computed at initial
recognition. Any change in value through impairment or reversal of
impairment is recognised in profit or loss.
A financial asset is derecognised only where the contractual rights to the
cash flows from the asset expire or the financial asset is transferred and
that transfer qualifies for de-recognition. A financial asset is transferred
if the contractual rights to receive the cash flows of the asset have been
transferred or the Company retains the contractual rights to receive the
cash flows of the asset but assumes a contractual obligation to pay the cash
flows to one or more recipients. A financial asset that is transferred
qualifies for de-recognition if the Company transfers substantially all the
risks and rewards of ownership of the asset.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and on-demand deposits, and
other short-term highly liquid investments that are readily convertible into
a known amount of cash and are subject to an insignificant risk of changes
in value.
Cash proceeds held in charged bank accounts from the disposal of investment
property on which bank borrowings are secured is recognised within other
receivables.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the
Company after deducting all of its liabilities. Equity instruments issued by
the Company are recorded at the proceeds received, net of direct issue
costs.
Share capital represents the nominal value of equity shares issued. Share
premium represents the excess over nominal value of the fair value of the
consideration received for equity shares, net of direct issue costs.
Retained earnings include all current and prior year results as disclosed in
profit or loss. Retained earnings include realised and unrealised profits.
Profits are considered unrealised where they arise from movements in the
fair value of investment properties that are considered to be temporary
rather than permanent.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the fair value of
proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlements or redemption and direct issue costs, are
accounted for on an accruals basis in profit or loss using the effective
interest rate method and are added to the carrying amount of the instrument
to the extent that they are not settled in the period in which they arise.
Trade payables
Trade payables are initially measured at fair value and are subsequently
measured at amortised cost, using the effective interest rate method.
Leases
Payments on operating lease agreements where the Company is lessor are
recognised as an expense on a straight-line basis over the lease term.
Payments on operating lease agreements where the Company is lessee are
charged to profit or loss on a straight-line basis over the term of the
lease.
Segmental reporting
An operating segment is a distinguishable component of the Company that
engages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the Company's
chief operating decision maker (the Board) to make decisions about the
allocation of resources and assessment of performance and about which
discrete financial information is available. As the chief operating decision
maker reviews financial information for, and makes decisions about the
Company's investment properties as a portfolio, the Directors have
identified a single operating segment, that of investment in commercial
properties.
2.5. Key sources of judgements and estimation uncertainty
The preparation of the financial statements requires the Company to make
estimates and assumptions that affect the reported amount of revenues,
expenses, assets and liabilities and the disclosure of contingent
liabilities. If in the future such estimates and assumptions, which are
based on the Directors' best judgement at the date of preparation of the
financial statements, deviate from actual circumstances, the original
estimates and assumptions will be modified as appropriate in the period in
which the circumstances change.
Judgements
The areas where a higher degree of judgement or complexity arises are
discussed below.
· Valuation of property - Investment property is valued at the reporting
date at fair value. Where an investment property is being redeveloped the
property continues to be treated as an investment property. Surpluses and
deficits attributable to the Company arising from revaluation are
recognised in profit or loss. Valuation surpluses reflected in retained
earnings are not distributable until realised on sale. In making its
judgement over the valuation of properties, the Company considers
valuations performed by the independent valuer in determining the fair
value of its investment properties. The valuations are based upon
assumptions including future rental income, anticipated maintenance costs
and appropriate discount rates. The valuer also makes reference to market
evidence of transaction prices for similar properties.
· Acquisition of subsidiaries - The Board applies judgement as to whether
the acquisition of a subsidiary comprises an asset purchase or a business
combination27. A business comprises an integrated set of activities,
including strategic and operational management, and assets capable of
being managed for the purpose of providing an economic benefit to the
owner. The Board assessed the acquisition of subsidiaries detailed in Note
11 as an asset purchase because all outsourced strategic and operational
management contracts were terminated on acquisition.
27. As defined by IFRS 3 - Business Combinations.
Estimates
There are no areas where assumptions and estimates are significant to the
financial statements.
2.6. Change in accounting presentation
During the year the classification of deferred lease incentives has been
reviewed and compared with industry peers, resulting in a presentational
change with no impact on total return or NAV. These assets were previously
reported as a separate receivable and deducted from the independent property
valuation in arriving at the reported investment property balance. To align
the Company's accounting presentation with that adopted by many industry
peers, assets totalling GBP2.7m at 31 March 2017 and GBP1.5m at 31 March 2016
have been reclassified from receivables to investment property in
retrospectively restating the statement of financial position and the
associated notes at those dates in these financial statements.
3 Earnings per ordinary share
Basic EPS amounts are calculated by dividing net profit for the year
attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the net profit attributable
to ordinary equity holders of the Company by the weighted average number of
ordinary shares outstanding during the year plus the weighted average number
of ordinary shares that would be issued on the conversion of all the
dilutive potential ordinary shares into ordinary shares. There are no
dilutive instruments in issue. Shares issued after the year end are
disclosed in Note 20.
The Company became a FTSE EPRA/NAREIT index series constituent in March 2017
and EPRA performance measures have been disclosed to facilitate
comparability with the Company's peers through consistent reporting of key
performance measures. EPRA has issued recommended bases for the calculation
of EPS which the Directors consider are better indicators of performance.
Year Year
ended ended
31 March 31 March
Group and Company 2018 2017
Net profit and diluted net profit
attributable to equity holders of the
Company (GBP000)
32,420 24,205
Net gain on investment property (GBP000) (7,253) (4,512)
EPRA net profit attributable to equity 25,167 19,693
holders of the Company (GBP000)
Weighted average number of ordinary shares:
Issued ordinary shares at start of the year 339,013 251,242
(thousands)
Effect of shares issued during the year 23,380 47,489
(thousands)
Basic and diluted weighted average number of 362,393 298,731
shares (thousands)
Basic and diluted EPS (p) 8.9 8.1
EPRA EPS (p) 6.9 6.6
4 Revenue
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Gross rental income from investment property 34,055 26,980
Income from recharges to tenants 758 630
34,813 27,610
5 Operating profit
Operating profit is stated after charging/(crediting):
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Profit on disposal of investment property (1,606) (1,599)
Net investment property valuation increase (5,647) (2,913)
Fees payable to the Company's Auditor and its
associates for the audit of the
80 57
Company's annual financial statements
Fees payable to the Company's Auditor and its 15 11
associates for other services
Administrative fee payable to the Investment 493 365
Manager
Directly incurred operating expenses of vacant 236 519
rental property
Directly incurred operating expenses of let 616 720
rental property
Lease and sublease expenses 37 37
Fees payable to the Company's auditor, Deloitte LLP, are further detailed in
the Audit Committee report.
6 Finance income
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Bank interest 32 33
Finance income 67 153
99 186
7 Finance costs
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Amortisation of arrangement fees on debt 205 358
facilities
Other finance costs 157 -
Bank interest 3,396 2,233
3,758 2,591
During the prior year the Company repaid a GBP20m term loan with Lloyds Bank
plc resulting in one-off costs of GBP0.165m related to the accelerated
recognition of the associated deferred arrangement fees.
8 Income tax
The tax charge assessed for the year is lower than the standard rate of
corporation tax in the UK during the year of 19.0%. The differences are
explained below:
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Profit before income tax 32,420 24,205
Tax charge on profit at a standard rate of 6,160 4,841
19.0% (2017: 20.0%)
Effects of:
REIT tax exempt rental profits and gains (6,160) (4,841)
Income tax expense - -
Effective income tax rate 0.0% 0.0%
The Company operates as a REIT and hence profits and gains from the property
investment business are normally exempt from corporation tax. Reductions in
the UK corporation tax rate from 20% to 19% (effective from 1 April 2017)
and to 17% (effective 1 April 2020) were substantively enacted at 6
September 2016.
9 Dividends
Year Year
ended ended
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Interim dividends paid on ordinary shares
relating to the quarter ended:
Prior year
5,398 4,227
- 31 March 2017: 1.5875p (2016: 1.6625p)
Current year
- 30 June 2017: 1.6125p (2016: 1.5875p) 5,609 4,492
- 30 September 2017: 1.6125p (2016: 1.5875p) 5,899 4,638
- 31 December 2017: 1.6125p (2016: 1.5875p) 6,101 5,136
23,007 18,493
The Company paid a fourth interim dividend relating to the quarter ended 31
March 2018 of 1.6125p per ordinary share (totalling GBP6.2m) on 31 May 2018 to
shareholders on the register at the close of business on 27 April 2018. This
dividend has not been included as a liability in these financial statements.
10 Investment property
Group and Company GBP000 GBP000
At 31 March 2016 (previously reported) 318,966
Prior year adjustment 1,534
At 31 March 2016 (restated) 320,500
Impact of rent free 1,202
Additions 107,837
Capital expenditure and development 3,234
Disposals (17,138)
Gross valuation increase 9,016
Acquisition costs (6,103)
Net valuation increase 2,913
At 31 March 2017 (restated) 418,548
Impact of rent free 1,547
Additions 110,008
Capital expenditure and development 2,498
Disposals (9,305)
Gross valuation increase 11,859
Acquisition costs (6,212)
Net valuation increase 5,647
At 31 March 2018 528,943
Included in investment properties is GBP1.0m relating to ongoing pre-let
developments.
GBP362.8m (2017: GBP233.1m) of investment property has been charged as security
against the Company's borrowings.
The carrying value of investment property at 31 March 2018 comprises GBP459.8m
freehold (2017: GBP361.6m) and GBP69.1m leasehold property (2017: GBP54.2m).
Investment property is stated at the Directors' estimate of its 31 March
2018 fair value. Lambert Smith Hampton Group Limited ("LSH"), a
professionally qualified independent valuer, valued the property as at 31
March 2018 in accordance with the Appraisal and Valuation Standards
published by the Royal Institution of Chartered Surveyors. LSH has recent
experience in the relevant location and category of the property being
valued.
Investment property has been valued using the investment method which
involves applying a yield to rental income streams. Inputs include yield,
current rent and ERV. For the year end valuation, the equivalent yields used
ranged from 4.7% to 9.0%. Valuation reports are based on both information
provided by the Company e.g. current rents and lease terms, which are
derived from the Company's financial and property management systems and are
subject to the Company's overall control environment, and assumptions
applied by the valuer e.g. ERVs and yields. These assumptions are based on
market observation and the valuer's professional judgement. In estimating
the fair value of each property, the highest and best use of the properties
is their current use.
All other factors being equal, a higher equivalent yield would lead to a
decrease in the valuation of investment property, and an increase in the
current or estimated future rental stream would have the effect of
increasing capital value, and vice versa. However, there are
interrelationships between unobservable inputs which are partially
determined by market conditions, which could impact on these changes.
Investment property additions include GBP6.7m relating to the purchase of a
retail warehouse in Leicester, which the Company acquired by purchasing the
entire issued share capital of Custodian Real Estate BL Limited (formerly BL
(Leicester) Limited), the immediate parent of Custodian Real Estate
(Beaumont Leys) Limited (formerly Belgrave Land (Beaumont Leys) Limited) and
Custodian Real Estate (Leicester) Limited (formerly Belgrave Land
(Leicester) Limited), which held the title and beneficial interest in the
property on acquisition.
On 15 March 2018 the trade and assets of Custodian Real Estate (Beaumont
Leys) Limited and Custodian Real Estate (Leicester) Limited were transferred
to the Company at cost, which was considered market value.
11 Investments
Shares in subsidiaries
Company Country of Principal Ordinary 31 31
registrati activity shares Marc Marc
on and held h h
incorporat 2018 2017
ion
GBP000 GBP000
Company number
Name
Custodian 08882372 England Dormant 100% - -
Real and Wales
Estate
Limited
Custodian 07631899 England Dormant - 100% 7 7
Real and Wales in
Estate GP liquidati
Limited on
Custodian 07661151 England Dormant - 100% - -
Real and Wales in
Estate liquidati
Nominees on
Limited*
Custodian LP014551 England Dormant - 100% - -
Real and Wales in
Estate liquidati
Light on
Industria
l Limited
Partnersh
ip*
Custodian B8162.013 Luxembourg Dormant- 100% 7,10 7,10
Real in 2 2
Estate liquidati
Luxembour on
g
S.à.r.l.
Custodian 09270501 England Dormant 100% - -
Real and Wales
Estate BL
Limited
(formerly
BL
(Leiceste
r)
Limited)
Custodian 04364589 England Dormant 100% 4 -
Real and Wales
Estate
(Beaumont
Leys)
Limited
(formerly
Belgrave
Land
(Beaumont
Leys)
Limited)*
Custodian 04312180 England Dormant 100% 497 -
Real and Wales
Estate
(Leiceste
r)
Limited
(formerly
Belgrave
Land
(Leiceste
r)
Limited)*
7,61 7,10
0 9
* Held indirectly
The Company's dormant UK subsidiaries have claimed the audit exemption
available under Section 479A of the Companies Act 2006. The Company's
registered office is also the registered office of each UK subsidiary. The
registered office of Custodian Real Estate Luxembourg S.à.r.l. is 2 Rue
d'Alsace, L-1122, Luxembourg.
The Company acquired 100% of the ordinary share capital of Custodian Real
Estate BL Limited on 21 December 2017. Custodian Real Estate BL Limited owns
100% of the ordinary share capital of Custodian Real Estate (Beaumont Leys)
Limited and Custodian Real Estate (Leicester) Limited.
The Company acquired 100% of the ordinary share capital of Custodian Real
Estate GP Limited and Custodian Real Estate Luxembourg S.à.r.l. on 29
September 2016 as part of the acquisition of the Light Industrial Portfolio.
Custodian Real Estate GP Limited owns 100% of the ordinary share capital of
Custodian Real Estate Nominees Limited. Custodian Real Estate Luxembourg
S.à.r.l. and Custodian Real Estate GP Limited hold 99.9% and 0.1% beneficial
interests respectively in Custodian Real Estate Light Industrial Limited
Partnership.
12 Trade and other receivables
31 March
31 March 2017
Group and Company 2018 GBP000
GBP000 (restated)
Trade receivables 2,137 1,342
Other receivables 5,194 2,771
Prepayments and accrued income 552 340
7,883 4,453
The Company has provided fully for those receivable balances that it does
not expect to recover. This assessment has been undertaken by reviewing the
status of all significant balances that are past due and involves assessing
both the reason for non-payment and the creditworthiness of the
counterparty. Trade receivables include GBP0.2m (2017: GBP0.1m) which are past
due as at 31 March 2018 for which no provision has been made because the
amounts are considered recoverable.
Included in other receivables is GBP4.4m cash proceeds held in charged bank
accounts from the disposal of investment property on which bank borrowings
are secured.
13 Trade and other payables
Group Company
31 March 31 March 31 March 31 March
2018 2017 2018 2017
GBP000 GBP000 GBP000 GBP000
Falling due in less than
one year:
Trade and other payables 937 608 937 608
Social security and other 1,226 2,423 1,226 2,423
taxes
Accruals 2,490 2,761 2,490 2,761
Rental deposits 1,217 1,222 1,217 1,222
Amounts due to subsidiary - - 7,610 7,109
undertakings
5,870 7,014 13,480 14,123
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. Trade payables and accruals principally
comprise amounts outstanding for trade purchases and ongoing costs. For most
suppliers interest is charged if payment is not made within the required
terms. Thereafter, interest is chargeable on the outstanding balances at
various rates. The Company has financial risk management policies in place
to ensure that all payables are paid within the credit timescale.
Amounts payable to subsidiary undertakings, arising on the transfer of the
trade and assets of Custodian Real Estate Light Industrial Limited
Partnership to the Company, are due on demand.
14 Cash and cash equivalents
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Cash and cash equivalents 5,059 5,807
Cash and cash equivalents include GBP1.3m (2017: GBP1.3m) of restricted cash
comprising GBP1.2m of rental deposits held on behalf of tenants and GBP0.1m of
retentions held in respect of development fundings.
15 Borrowings
Group and Company GBP000 GBP000
Falling due in more than one year:
Bank borrowings 65,000
Costs incurred in the arrangement of bank (1,212)
borrowings
At 31 March 2017 63,788
New borrowings (net of arrangement fees) 49,364
Amortisation of arrangement fees 205
49,569
Bank borrowings 115,000
Costs incurred in the arrangement of bank (1,643)
borrowings
At 31 March 2018 113,357
The Company has the following facilities available:
· A GBP35m RCF with Lloyds Bank plc attracting annual interest of 2.45%
above three-month LIBOR on advances drawn down under the agreement from
time to time;
· A GBP20m term loan facility with Scottish Widows Limited ("SWIP")
repayable in August 2025, attracting fixed annual interest of 3.935%;
· A GBP45m term loan facility with SWIP repayable in June 2028, attracting
fixed annual interest of 2.987%; and
· A GBP50m term loan facility with Aviva comprising:
c) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual
interest of 3.02%; and
d) A GBP15m tranche repayable on 3 November 2032 attracting fixed annual
interest of 3.26%.
The RCF was not drawn at the year end.
All of the Company's borrowing facilities require minimum interest cover of
250% of the net rental income of the security pool. The maximum LTV of the
Company combining the value of all property interests (including the
properties secured against the facilities) must be no more than 35%.
16 Share capital
Group and Company Ordinary shares
of 1p
Issued share capital GBP000
At 31 March 2016 251,242,071 2,512
Issue of share capital 87,771,274 878
At 31 March 2017 339,013,345 3,390
Issue of share capital 47,839,999 479
At 31 March 2018 386,853,344 3,869
During the year, the Company raised GBP54.7m (before costs and expenses)
through the placing of 47,839,999 new ordinary shares.
Rights, preferences and restrictions on shares
All ordinary shares carry equal rights and no privileges are attached to any
shares in the Company. All the shares are freely transferable, except as
otherwise provided by law. The holders of ordinary shares are entitled to
receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with regard to
the Company's residual assets.
At the AGM of the Company held on 20 July 2017, the Board was given
authority to issue up to 115,171,100 shares, pursuant to section 551 of the
Companies Act 2006. This authority is intended to satisfy market demand for
the ordinary shares and raise further monies for investment in accordance
with the Company's investment policy. 38,999,999 ordinary shares have been
issued under this authority since 20 July 2017, leaving an unissued balance
of 76,171,001 at 31 March 2018.
In addition, the Company was granted authority to make market purchases of
up to 34,551,334 ordinary shares under section 701 of the Companies Act
2006. No market purchases of ordinary shares have been made.
Group and Company Share premium
account
Retained earnings
GBP000
GBP000
Other reserves
At 31 March 2016 68,874 183,674
Shares issued during 91,547 -
the year
Costs of share issue (1,320) -
Profit for the year - 24,205
Dividends paid - (18,493)
At 31 March 2017 159,101 189,386
Shares issued during 54,191 -
the year
Costs of share issue (758) -
Profit for the year - 32,420
Dividends paid - (23,007)
At 31 March 2018 212,534 198,799
The following table describes the nature and purpose of each reserve within
equity:
Reserve Description and purpose
Share premium Amounts subscribed for share capital in excess
of nominal value less any associated issue
costs that have been capitalised.
Retained earnings All other net gains and losses and
transactions with owners (e.g. dividends) not
recognised elsewhere.
17 Commitments and contingencies
Company as lessor
The Company lets all investment properties under operating leases. The
aggregated future minimum rentals receivable under all non-cancellable
operating leases are:
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Not later than one year 36,085 29,279
Later than one year but not later than five 107,264 85,803
years
Later than five years 85,597 63,180
228,946 178,262
Company as lessee
The Company owns long-leasehold property and has non-cancellable payments
due under headlease liabilities of:
31 March 31 March
2018 2017
Group and Company GBP000 GBP000
Not later than one year 37 37
Later than one year but not later than five 149 149
years
Later than five years 3,306 3,343
3,492 3,529
18 Related party transactions
Save for transactions described below, the Company is not a party to, nor
had any interest in, any other related party transaction during the year.
Transactions with directors
Each of the directors is engaged under a letter of appointment with the
Company and does not have a service contract with the Company. Under the
terms of their appointment, each director is required to retire by rotation
and seek re-election at least every three years. Each director's appointment
under their respective letter of appointment is terminable immediately by
either party (the Company or the director) giving written notice and no
compensation or benefits are payable upon termination of office as a
director of the Company becoming effective.
Ian Mattioli is Chief Executive of Mattioli Woods, the parent company of the
Investment Manager, and is a director of the Investment Manager. As a
result, Ian Mattioli is not independent. The Company Secretary, Nathan
Imlach, is also a director of Mattioli Woods and the Investment Manager.
Investment Management Agreement
On 25 February 2014 the Company entered into a three-year IMA with the
Investment Manager commencing on Admission, under which the Investment
Manager was appointed as AIFM with responsibility for the property
management of the Company's assets, subject to the overall supervision of
the Directors. The Investment Manager manages the Company's investments in
accordance with the policies laid down by the Board and the investment
restrictions referred to in the IMA. The Investment Manager also provides
day-to-day administration of the Company and acts as secretary to the
Company, including maintenance of accounting records and preparing the
annual financial statements of the Company.
On 1 June 2017 the terms of the IMA were varied with effect from that date
to extend the appointment of the Investment Manager for a further three
years and to introduce further fee hurdles such that annual management fees
payable to the Investment Manager under the IMA are:
· 0.9% of the NAV of the Company as at the relevant quarter day which is
less than or equal to GBP200m divided by 4;
· 0.75% of the NAV of the Company as at the relevant quarter day which is
in excess of GBP200m but below GBP500m divided by 4; plus
· 0.65% of the NAV of the Company as at the relevant quarter day which is
in excess of GBP500m divided by 4.
Administrative fees payable to the Investment Manager under the IMA are:
· 0.125% of the NAV of the Company as at the relevant quarter day which is
less than or equal to GBP200m divided by 4;
· 0.08% of the NAV of the Company as at the relevant quarter day which is
in excess of GBP200m but below GBP500m divided by 4; plus
· 0.05% of the NAV of the Company as at the relevant quarter day which is
in excess of GBP500m divided by 4.
The IMA is terminable by either party by giving not less than 12 months'
prior written notice to the other, which notice may only be given after the
expiry of the three-year term. The IMA may also be terminated on the
occurrence of an insolvency event in relation to either party, if the
Investment Manager is fraudulent, grossly negligent or commits a material
breach which, if capable of remedy, is not remedied within three months, or
on a force majeure event continuing for more than 90 days.
The Investment Manager receives a fee of 0.25% (2017: 0.25%) of the
aggregate gross proceeds from any issue of new shares in consideration of
the marketing services it provides to the Company.
During the year the Investment Manager charged the Company GBP3.12m (2017:
GBP2.49m) in respect of annual management charges, GBP0.49m (2017: GBP0.37m) in
respect of administrative fees and GBP0.14m (2017: GBP0.23m) in respect of
marketing fees.
During the year Mattioli Woods charged the Company GBP0.01m (2017: GBP0.02m) in
respect of corporate transaction support.
Properties
The Company owns MW House and Gateway House located at Grove Park,
Leicester, which are partially let to Mattioli Woods. Mattioli Woods paid
the Company rentals of GBP0.35m (2017: GBP0.35m) during the year.
19 Financial risk management
Capital risk management
The Company manages its capital to ensure it can continue as a going concern
while maximising the return to stakeholders through the optimisation of the
debt and equity balance within the parameters of its investment policy. The
capital structure of the Company consists of debt, which includes the
borrowings disclosed below, cash and cash equivalents and equity
attributable to equity holders of the parent, comprising issued ordinary
share capital, share premium and retained earnings.
Net gearing ratio
The Board reviews the capital structure of the Company on a regular basis.
As part of this review, the Board considers the cost of capital and the
risks associated with each class of capital. The Company has a target net
gearing ratio of 25% determined as the proportion of debt (net of
unrestricted cash) to investment property. The net gearing ratio at the year
end was 21.0% (2017: 14.5%).
Externally imposed capital requirements
The Company is not subject to externally imposed capital requirements,
although there are restrictions on the level of interest that can be paid
due to conditions imposed on REITs.
Financial risk management
The Company seeks to minimise the effects of interest rate risk, credit
risk, liquidity risk and cash flow risk by using fixed and floating rate
debt instruments with varying maturity profiles, at low levels of net
gearing.
Interest rate risk management
The Company's activities expose it primarily to the financial risks of
increases in interest rates, as it borrows funds at floating interest rates.
The risk is managed by maintaining:
· An appropriate balance between fixed and floating rate borrowings;
· A low level of net gearing; and
· The RCF whose flexibility allows the Company to manage the risk of
changes in interest rates.
The Board periodically considers the availability and cost of hedging
instruments to assess whether their use is appropriate and also considers
the maturity profile of the Company's borrowings.
Interest rate sensitivity analysis
Interest rate risk arises on interest payable on the RCF only, as interest
on all other debt facilities is payable on a fixed rate basis. At 31 March
2018, the RCF was drawn at GBPnil and therefore the Company was not exposed to
interest rate risk.
Market risk management
The Company manages its exposure to market risk by holding a portfolio of
investment property diversified by sector, location and tenant.
Market risk sensitivity
Market risk arises on the valuation of the Company's property portfolio in
complying with its bank loan covenants (Note 15). The Company would breach
its overall borrowing covenant if the valuation of its property portfolio
fell by 40%.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its
contractual obligations resulting in a financial loss to the Company. The
Company's credit risk is primarily attributable to its trade receivables and
cash balances. The amounts included in the statement of financial position
are net of allowances for bad and doubtful debts. An allowance for
impairment is made where there is an identified loss event which, based on
previous experience, is evidence of a reduction in the recoverability of the
cash flows.
The Company has adopted a policy of only dealing with creditworthy
counterparties as a means of mitigating the risk of financial loss from
defaults. The maximum credit risk on financial assets at 31 March 2018 was
GBP2.2m (2017: GBP1.4m).
The Company has no significant concentration of credit risk, with exposure
spread over a large number of tenants covering a wide variety of business
types. Further detail on the Company's credit risk management process is
included within the Strategic report.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board,
which has built an appropriate liquidity risk management framework for the
management of the Company's short, medium and long-term funding and
liquidity management requirements. The Company manages liquidity risk by
maintaining adequate reserves, banking facilities and reserve borrowing
facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profile of financial assets and liabilities.
The following tables detail the Company's contractual maturity for its
financial liabilities. The table has been drawn up based on undiscounted
cash flows of financial liabilities based on the earliest date on which the
Company can be required to pay. The table includes both interest and
principal cash flows.
Group Weighted 31 March 31 March 31 March
average 2018 2018 2018
effective
interest
rate % 31 March
0-3 3 months 2018 5 years
months - 1 year +
1-5
GBP000 GBP000 years GBP000
GBP000
Trade and other - 2,154 - 146 425
payables
Borrowings:
Variable rate - - - - -
Fixed rate 3.935 197 590 3,148 21,867
Fixed rate 2.987 336 1,008 5,377 51,967
Fixed rate 3.020 264 793 4,228 44,533
Fixed rate 3.260 122 367 1,956 19,694
3,073 2,758 14,855 138,486
Company Weighted 31 March 31 March 31 March
average 2018 2018 2018
effective
interest
rate % 31 March
0-3 3 months 2018 5 years
months - 1 year +
1-5
GBP000 GBP000 years GBP000
GBP000
Trade and other - 9,764 - 146 425
payables
Borrowings:
Variable rate - - - - -
Fixed rate 3.935 197 590 3,148 21,867
Fixed rate 2.987 336 1,008 5,377 51,967
Fixed rate 3.020 264 793 4,228 44,533
Fixed rate 3.260 122 367 1,956 19,694
10,683 2,758 14,855 138,486
Group Weighted 31 March 31 March 31
average 2017 2017 March
effective 2017
interest
rate % 31 March
0-3 3 2017
months months- 5 years
1 year +
1-5 years
GBP000
GBP000
GBP000
Trade and other - 1,830 - 146 425
payables
Borrowings:
Variable rate - - - - -
Fixed rate 3.935 197 590 3,148 22,654
Fixed rate 2.987 336 1,008 5,377 53,312
2,363 1,598 8,671 76,391
Company Weighted 31 March 31 March 31
average 2017 2017 March
effective 2017
interest
rate % 31 March
0-3 3 2017
months months- 5 years
1 year +
1-5 years
GBP000
GBP000
GBP000
Trade and other - 8,939 - 146 425
payables
Borrowings:
Variable rate - - - - -
Fixed rate 3.935 197 590 3,148 22,654
Fixed rate 2.987 336 1,008 5,377 53,312
9,472 1,598 8,671 76,391
Fair values
The fair values of financial assets and liabilities are not materially
different from their carrying values in the financial statements. The fair
value hierarchy levels are as follows:
· Level 1 - quoted prices (unadjusted) in active markets for identical
assets and liabilities;
· Level 2 - inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
· Level 3 - inputs for the assets or liability that are not based on
observable market data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the year. The
main methods and assumptions used in estimating the fair values of financial
instruments and investment property are detailed below.
Investment property - level 3
Fair value is based on valuations provided by an independent firm of
chartered surveyors and registered appraisers, which uses the inputs set out
in Note 10. These values were determined after having taken into
consideration recent market transactions for similar properties in similar
locations to the investment properties held by the Company. The fair value
hierarchy of investment property is level 3. At 31 March 2018, the fair
value of the Company's investment properties was GBP528.9m (2017: GBP418.5m).
Interest bearing loans and borrowings - level 3
As at 31 March 2018 the value of the Company's loans was GBP113.4m (2017:
GBP63.8m) and the amortised cost of the Company's loans with Lloyds Bank plc,
SWIP and Aviva approximated their fair value.
Trade and other receivables/payables - level 3
The carrying amount of all receivables and payables deemed to be due within
one year are considered to reflect their fair value.
20 Events after the reporting date
Acquisitions
On 9 April 2018 the Company acquired a 53,198 sq ft distribution unit in
Bellshill, Glasgow for GBP3.72m let to Yodel Delivery Network Limited on a
lease expiring on 1 August 2025 with current passing rent of GBP0.28m,
reflecting a NIY of 6.94%.
On 1 June 2018 the Company acquired a 77,242 sq ft health and fitness centre
in Lincoln for GBP4.3m let to Total Fitness Health Clubs Limited on a lease
expiring on 22 June 2040, subject to a break option on 22 June 2035. The
current passing rent of GBP0.35m reflects a NIY of 7.64%.
Disposals
On 7 May 2018 the Company disposed of a 15,229 sq ft five-unit retail
development in Stourbridge for GBP2.25m, in line with the 31 March 2018
valuation.
21 Distribution of the Annual Report and accounts to members
The announcement above does not constitute a full financial statement of the
Group's affairs for the years ended 31 March 2016 or 31 March 2017. The
Group's auditors have reported on the full accounts of each year and have
accompanied them with an unqualified report. The accounts have yet to be
delivered to the Registrar of Companies.
The Annual Report and accounts will be posted to shareholders in due course,
and will be available on our website (www.custodianreit.com) and for
inspection by the public at the Company's registered office address: 1
Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business
hours on any weekday. Further copies will be available on request.
The AGM of the Company will be held at Canaccord Genuity Limited, 88 Wood
Street, London, EC2V 7QR at 11:00am on 19 July 2018.
- Ends -
ISIN: GB00BJFLFT45
Category Code: FR
TIDM: CREI
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 5617
EQS News ID: 692245
End of Announcement EQS News Service
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