Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2018

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 Custodian REIT plc (CREI) 
Custodian REIT plc : Unaudited Net Asset Value as at 31 March 2018 
 
24-Apr-2018 / 08:53 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. 
 
           24 April 2018 
 
     Custodian REIT plc 
 
     ("Custodian REIT" or "the Company") 
 
     Unaudited Net Asset Value as at 31 March 2018 
 
        Custodian REIT (LSE: CREI), the UK commercial real estate investment 
 company, today reports its unaudited net asset value ("NAV") as at 31 March 
     2018 and highlights for the period from 1 January 2018 to 31 March 2018 
           ("the Period"). 
 
           Financial highlights 
 
  · NAV total return per share1 for the year ended 31 March 2018 ("FY18") of 
  9.6% (year ended 31 March 2017 ("FY17"): 8.5%) 
 
  · NAV per share of 107.3p (31 December 2017: 106.0p) 
 
  · NAV of GBP415.2m (31 December 2017: GBP401.0m) 
 
  · FY18 EPRA earnings per share2 6.9p (FY17: 6.6p) 
 
  · Target dividend per share3 for the year ending 31 March 2019 ("FY19") 
  increased to 6.55p (FY18: 6.45p, FY17: 6.35p) 
 
  · Net gearing4 of 21.0% loan-to-value (31 December 2017: 22.3%) 
 
  · GBP9.8m5 of new equity raised during the Period (FY18: GBP54.7m) at an 
  average premium of 10.0% to dividend adjusted NAV per share (FY18: 11.1%) 
 
           Portfolio highlights 
 
  · Portfolio value of GBP528.9m (31 December 2017: GBP518.7m) 
 
  · GBP4.5m valuation increase from successful asset management initiatives 
 
  · GBP4.9m6 invested in two property acquisitions, GBP1.6m capital expenditure 
 
  · EPRA occupancy7 96.5% (31 December 2017: 97.2%) 
 
  · GBP9.3m committed pipeline of property acquisitions 
 
1 NAV per share movement including dividends paid and approved relating to 
the Period. 
 
2 Profit after tax excluding net gains on investment properties and one-off 
costs divided by weighted average number of shares in issue. 
 
3 Dividends paid and approved relating to the year. 
 
4 Gross borrowings less unrestricted cash divided by portfolio valuation. 
 
5 Before costs and expenses of GBP0.2m. 
 
6 Before acquisition costs of GBP0.3m. 
 
7 Estimated rental value ("ERV") of let property divided by total portfolio 
ERV. 
 
           Net asset value 
 
   The unaudited NAV of the Company at 31 March 2018 was GBP415.2m, reflecting 
      approximately 107.3p per share, an increase of 1.2% per share since 31 
           December 2017: 
 
                                           Pence per share    GBPm 
 
NAV at 31 December 2017                              106.0 401.0 
Issue of equity (net of costs)                         0.2   9.6 
 
                                                     106.2 410.6 
Valuation movements relating to: 
- Asset management activity                            1.2   4.5 
- Other valuation movements                          (0.2) (0.6) 
                                                       1.0   3.9 
Acquisition costs                                    (0.1) (0.3) 
Net valuation movement                                 0.9   3.6 
 
Income earned for the Period                           2.3   8.9 
Expenses and net finance costs for the               (0.6) (2.3) 
Period 
One-off impact of settling tenant dispute              0.1   0.5 
Dividends paid8                                      (1.6) (6.1) 
 
NAV at 31 March 2018                                 107.3 415.2 
 
8 Dividends of 1.6125p per share were paid on shares in issue throughout the 
Period. 
 
     During the Period the initial costs (primarily stamp duty) of investing 
   GBP4.9m (before acquisition costs) in new property acquisitions diluted NAV 
  per share total return by 0.1p, offset by raising new equity of GBP9.6m (net 
 of costs) at an average 10.0% premium to dividend adjusted NAV, which added 
           0.2p per share. 
 
    The NAV attributable to the ordinary shares of the Company is calculated 
      under International Financial Reporting Standards and incorporates the 
      independent portfolio valuation as at 31 March 2018 and income for the 
Period, but does not include any provision for the approved dividend for the 
           Period, to be paid on 31 May 2018. 
 
           During the Period the Company acquired the following assets: 
 
· Land in Maypole, Birmingham for a pre-let development to be occupied by 
Starbucks for GBP1.0m, with a NIY9 of 6.43%; and 
 
· An industrial unit on Team Valley Trading Estate, Gateshead occupied by 
Worthington Armstrong for GBP3.9m, reflecting a NIY of 6.73%. 
 
9 Passing rent divided by property valuation plus assumed purchasers' costs. 
 
           Asset management 
 
        In February 2018 the Company settled a disputed 2015 tenant break at 
National Court in Leeds. The Company recovered all rent and insurance due to 
      the date of settlement, plus all costs associated with the dispute and 
        dilapidations, resulting in a one-off GBP0.5m release of rent and cost 
           provisions. 
 
 Our continued focus on active asset management which includes rent reviews, 
     lease extensions and retaining tenants beyond their lease break clauses 
            resulted in a GBP4.5m valuation increase. 
 
 A key asset management initiative completed during the Period was agreement 
of a new 10 year lease with Regus in West Malling, increasing annual rent by 
      14.5% from GBP558k pa (GBP19.20 per sq ft) to GBP639k pa (GBP22.00 per sq ft), 
            resulting in a GBP2.4m valuation increase. 
 
     Other asset management initiatives completed during the Period include: 
 
· Agreeing a five year reversionary lease with YESSS Electrical at 
Foxbridge Way, Normanton, 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; 
 
· 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 7.5% 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; 
 
· 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 Period 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 re-gears. 
 
The portfolio's WAULT has been maintained at 5.9 years during the Period due 
   to asset management activity offsetting the natural one quarter's decline 
  due to the effluxion of time. We believe long leases remain over-valued by 
      the market and will not over-pay for long leases simply to support the 
   WAULT. Due to the current strength of the occupational market, we believe 
  that risk and maintenance of robust income generation 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 simply to 
   mitigate the WAULT metric that is of less relevance to a well-diversified 
           portfolio. 
 
           Property market 
 
       Commenting on the commercial property market, Richard Shepherd-Cross, 
 Managing Director of Custodian Capital Limited (the Company's discretionary 
           investment manager) said: 
 
 "The first quarter of 2018 has been characterised by a very tight supply of 
  investment opportunities and a significant level of demand from a range of 
           investors. This has led to strong competition, particularly for 
 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 have taken a cautious approach to acquisitions through the 
   Period. However, as this price inflation is being caused by a supply side 
     constraint, rather than fundamental weakness in the property investment 
    proposition, we are hopeful that an increase in the supply of investment 
opportunities will see the market settle back to a more sustainable level of 
           pricing. 
 
          "The occupational market, as witnessed by the rental growth we are 
experiencing at lease renewal and rent reviews, remains robust, albeit there 
      is weakness in secondary high streets. It is this robustness that will 
       continue to drive performance in the portfolio and maintain occupancy 
      levels, which in turn will sustain cash flow and support our policy of 
           paying fully-covered dividends." 
 
           Financing 
 
           Equity 
 
The Company issued 8.5m new ordinary shares of 1p each in the capital of the 
Company during the Period ("the New Shares") raising GBP9.8m (before costs and 
 expenses). The New Shares were issued at an average premium of 10.0% to the 
        unaudited NAV per share at 31 December 2017, adjusted to exclude the 
           dividend paid on 28 February 2018. 
 
           Debt 
 
           At the Period end the Company operated: 
 
· A GBP35m revolving credit facility ("RCF") with Lloyds Bank plc, which 
attracts interest of 2.45% above three month LIBOR and expires on 13 
November 2020; 
 
· A GBP20m term loan with Scottish Widows plc, which attracts fixed annual 

interest of 3.935% and is repayable on 13 August 2025; 
 
· A GBP45m term loan facility with Scottish Widows plc which attracts fixed 
annual interest of 2.987% and is repayable on 5 June 2028; and 
 
· A GBP50m term loan facility with Aviva Investors Real Estate Finance 
comprising: 
 
       (i) A GBP35m tranche repayable on 6 April 2032, attracting fixed annual 
           interest of 3.02%; and 
 
   (ii) A GBP15m tranche repayable on 3 November 2032, attracting fixed annual 
           interest of 3.26%. 
 
           Portfolio analysis 
 
 At 31 March 2018 the Company's property portfolio comprised 147 assets with 
            a NIY of 6.6% and current passing rent of GBP37.1m per annum. 
 
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 the industrial and alternative sectors, often referred to as 
          'other' in property market analysis, compared to its peers. Sector 
           weightings are shown below: 
 
                 Valuation    Period  Weighting by Weighting by 
                           valuation   income10 31  income10 31 
                            movement      Mar 2018     Dec 2017 
 
               31 Mar 2018 
 
                                  GBPm 
 
                        GBPm 
 
Sector 
 
Industrial           209.8       2.0           39%          39% 
Retail               107.5     (0.2)           20%          20% 
warehousing 
Other11               80.4       0.2           15%          15% 
High street           75.3     (0.7)           14%          15% 
retail 
Office                55.9       2.6           12%          11% 
 
Total                528.9       3.9          100%         100% 
 
           10 Current passing rent plus ERV of vacant properties. 
 
          11 Includes car showrooms, petrol filling stations, children's day 
           nurseries, restaurants, gymnasiums, hotels and healthcare units. 
 
     Industrial property remains a very good fit with the Company's strategy 
     although the current price inflation seen in the market is limiting our 
         opportunity to acquire properties that meet our investment mandate. 
 
 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 
       company voluntary arrangements ("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. 
 
  The Company operates a geographically diversified portfolio across the UK, 
seeking to ensure that no one area represents the majority of the portfolio. 
  The geographic analysis of the Company's portfolio at 31 March 2018 was as 
           follows: 
 
                    Valuation     Period   Weighting   Weighting 
                               valuation by income12 by income12 
                                movement      31 Mar 31 Dec 2017 
                                                2018 
                  31 Mar 2018 
 
                                      GBPm 
 
                           GBPm 
 
Location 
 
West Midlands           108.5        0.2         20%         20% 
North-West               91.7        1.1         18%         17% 
South-East               88.9        2.1         15%         15% 
South-West               61.2      (0.1)         12%         12% 
East Midlands            56.6      (0.4)         12%         12% 
North-East               44.9        0.6          8%          8% 
Scotland                 41.9        0.1          8%          8% 
Eastern                  28.7        0.3          6%          6% 
Wales                     6.5        0.0          1%          2% 
 
Total                   528.9        3.9        100%        100% 
 
           12 Current passing rent plus ERV of vacant properties. 
 
           For details of all properties in the portfolio please see 
           www.custodianreit.com/property-portfolio [1]. 
 
           Dividends 
 
  An interim dividend of 1.6125p per share for the quarter ended 31 December 
        2017 was paid on 28 February 2018. The Board has approved an interim 
 dividend relating to the Period of 1.6125p per share payable on 31 May 2018 
           to shareholders on the register on 27 April 2018. 
 
        In the absence of unforeseen circumstances, the Board intends to pay 
    quarterly dividends to achieve a target dividend13 per share for FY19 of 
      6.55p (FY18: 6.45p, FY17: 6.35p). 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. 
 
         13 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 is 
           reasonable or achievable. 
 
     - Ends - 
 
Further information: 
 
     Further information regarding the Company can be found at the Company's 
           website www.custodianreit.com [2] or please contact: 
 
          Custodian Capital Limited 
Richard Shepherd-Cross / Nathan         Tel: [phone] 
Imlach / Ian Mattioli MBE 
                                    www.custodiancapital.com [3] 
 
Numis Securities Limited 
Hugh Jonathan / Nathan Brown            Tel: [phone] 
                                             www.numis.com/funds 
 
Camarco 
Ed Gascoigne-Pees                       Tel: [phone] 
                                               www.camarco.co.uk 
 
           Notes to Editors 
 
Custodian REIT plc is a UK real estate investment trust, which listed on the 
    main market of the London Stock Exchange on 26 March 2014. Its portfolio 
    comprises properties predominantly let to institutional grade tenants on 
long leases throughout the UK and is principally characterised by properties 
            with individual values of less than GBP10m at acquisition. 
 
        The Company offers investors the opportunity to access a diversified 
      portfolio of UK commercial real estate through a closed-ended fund. By 
   principally targeting sub GBP10m lot size, regional properties, the Company 
     intends to provide investors with an attractive level of income and the 
   potential for capital growth, becoming the REIT of choice for private and 
           institutional investors seeking high and stable dividends from 
           well-diversified UK real estate. 
 
    Custodian Capital Limited is the discretionary investment manager of the 
           Company. 
 
           For more information visit www.custodianreit.com [2] and 
           www.custodiancapital.com [3]. 
 
ISIN:           GB00BJFLFT45 
Category Code:  NAV 
TIDM:           CREI 
OAM Categories: 3.1. Additional regulated information required to be 
                disclosed under the laws of a Member State 
Sequence No.:   5443 
 
End of Announcement EQS News Service 
 
678041 24-Apr-2018 
 
 
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(END) Dow Jones Newswires

April 24, 2018 03:56 ET (07:56 GMT)