Custodian REIT plc : Unaudited Net Asset Value as at 30 June 2018 (707217)

Dow Jones received a payment from EQS/DGAP to publish this press release.

 
 
 Custodian REIT plc (CREI) 
Custodian REIT plc : Unaudited Net Asset Value as at 30 June 2018 
 
24-Jul-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. 
 
           24 July 2018 
 
     Custodian REIT plc 
 
     ("Custodian REIT" or "the Company") 
 
     Unaudited Net Asset Value as at 30 June 2018 
 
        Custodian REIT (LSE: CREI), the UK commercial real estate investment 
  company, today reports its unaudited net asset value ("NAV") as at 30 June 
  2018 and highlights for the period from 1 April 2018 to 30 June 2018 ("the 
           Period"). 
 
           Financial highlights 
 
  · NAV total return per share1 for the Period of 2.0% 
 
  · Dividend per share approved for the Period of 1.6375p 
 
  · NAV per share of 107.8p (31 March 2018: 107.3p) 
 
  · NAV of GBP416.9m (31 March 2018: GBP415.2m) 
 
  · Net gearing2 of 21.0% loan-to-value (31 March 2018: 21.0%) 
 
  · Market capitalisation of GBP467.3m (31 March 2018: GBP437.1m) 
 
           Portfolio highlights 
 
  · Portfolio value of GBP537.4m (31 March 2018: GBP528.9m) 
 
  · GBP8.4m3 invested in two property acquisitions and one refurbishment 
 
  · GBP1.7m valuation increase from successful asset management initiatives 
 
  · EPRA occupancy4 96.7% (31 March 2018: 96.5%) 
 
  · GBP21.5m committed pipeline of investment properties under offer 
 
  · GBP2.3m retail unit in Stourbridge disposed of at valuation 
 
1 NAV per share movement including dividends approved for the Period. 
 
2 Gross borrowings less unrestricted cash divided by portfolio valuation. 
 
3 Before acquisition costs of GBP0.5m. 
 
4 Estimated rental value ("ERV") of let property divided by total portfolio 
ERV. 
 
           Net asset value 
 
    The unaudited NAV of the Company at 30 June 2018 was GBP416.9m, reflecting 
    approximately 107.8p per share, an increase of 0.5% since 31 March 2018: 
 
                                                 Pence per    GBPm 
                                                     share 
 
NAV at 31 March 2018                                 107.3 415.2 
 
Valuation movements relating to: 
- Asset management activity                            0.5   1.7 
- Other valuation movements                            0.0   0.1 
                                                       0.5   1.8 
Acquisition costs                                    (0.1) (0.5) 
Net valuation movement                                 0.4   1.3 
 
Income earned for the Period5                          2.6  10.0 
Expenses and net finance costs for the               (0.9) (3.4) 
Period5 
Dividends paid6                                      (1.6) (6.2) 
 
NAV at 30 June 2018                                  107.8 416.9 
 
5 Including GBP0.8m of annual insurance premium recharged to tenants. 
 
6 Dividends of 1.6125p per share were paid on shares in issue throughout the 
Period. 
 
    The NAV attributable to the ordinary shares of the Company is calculated 
      under International Financial Reporting Standards and incorporates the 
       independent portfolio valuation as at 30 June 2018 and income for the 
Period, but does not include any provision for the approved dividend for the 
           Period, to be paid on 31 August 2018. 
 
          The Company completed the following investments during the Period: 
 
· Acquisition of a distribution unit within Bellshill Industrial Estate, 
Glasgow occupied by Yodel Delivery Network for GBP3.7m, with a net initial 
yield7 ("NIY") of 6.94% and a weighted average unexpired lease term to 
first break ("WAULT") of seven years; 
 
· Acquisition of a health and fitness centre in Lincoln occupied by Total 
Fitness Health Clubs for GBP4.3m, with a NIY of 7.64% and a WAULT of 17 
years; and 
 
· Capital expenditure of GBP0.4m, primarily on the ongoing refurbishment of 
an office building in Birmingham. 
 
7 Passing rent divided by property valuation plus assumed purchaser's costs. 
 
           Asset management 
 
         Owning the right properties at the right time is one key element of 
effective portfolio management, which necessarily involves some selling from 
time to time to balance the portfolio. While Custodian REIT is not a trader, 
       identifying opportunities to dispose of assets significantly ahead of 
  valuation, or that no longer fit within the Company's investment strategy, 
    is important. As we did not anticipate future rental growth, the Company 
  disposed of a five-unit retail development in Stourbridge (with a WAULT of 
   3.5 years) in line with the 31 March 2018 valuation of GBP2.3m. The Company 
        has agreed terms on two other potential disposals that fit the asset 
      disposal criteria outlined above and are expected to complete over the 
           coming months. 
 
  Our continued focus on active asset management including rent reviews, new 
        lettings, lease extensions and the retention of tenants beyond their 
     contractual break clauses resulted in a GBP1.7m valuation increase in the 
  Period, primarily due to agreeing a new 10 year lease with Teleperformance 
     in Ashby-de-la-Zouch, with annual rent increasing by 15% to GBP0.5m which 
   increased the valuation by GBP1.4m. Further initiatives on other properties 
 currently under review are expected to complete during the current quarter. 
 
  The portfolio's WAULT was maintained at 5.9 years with the impact of lease 
      re-gears, acquiring properties let on longer leases and disposing of a 
   property with a short WAULT all offsetting the natural 0.25 years decline 
 due to the passage of time over the Period. At the Company's Annual General 
        Meeting, held on 19 July 2018, shareholders approved a change to the 
           Company's WAULT investment objective as follows: 
 
· Previous 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. 
 
· New 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. 
 
           Property market 
 
       Commenting on the commercial property market, Richard Shepherd-Cross, 
 Managing Director of Custodian Capital Limited (the Company's discretionary 
           investment manager) said: 
 
     "Investment market activity in the second quarter of 2018 has continued 
  unabated with institutional investors keen to deploy funds into commercial 
  property, maintaining prevailing yields at near record lows. I believe the 
general consensus is that industrial is the preferred sector with retail the 
     least favoured, but this conceals a much more complex picture where the 
characteristics of individual assets rather than a sector focus is ever more 
           important. 
 
"Strong occupational demand is resulting in rental growth and by maintaining 
         a high level of occupancy we are able to deliver performance in the 
 portfolio which we will seek to continue in the months ahead. Across the 17 
   rent reviews completed in the last 12 months we have been able to deliver 
  19% average rental increases. We will continue to focus on proactive asset 
  management with our tenants on lease extensions, the removal of breaks and 
      securing of lease renewals. We expect these initiatives to continue to 
           enhance NAV." 
 
           Activity and pipeline 
 
           Commenting on pipeline, Richard Shepherd-Cross said: 
 
     "We continue to hold tightly to our investment strategy and the lack of 
  supply that is causing near record low yields has prevented us maintaining 
   the rate of deployment we managed in 2017. Market appetite for industrial 
assets, and for properties let on long leases, particularly those properties 
 with rents indexed to inflation, are all driving the strongest prices. This 
scenario has caused us to look to the motor trade, offices and drive-through 
     restaurants to try to find 'value', currently with a GBP21.5m pipeline of 
 properties under offer. However, these sectors are not without their risks, 
therefore a cautious approach to stock selection and sub-sector exposure has 
           been paramount." 
 
           Financing 
 
           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 interest fixed 
at 3.935% and is repayable on 13 August 2025; 
 
· A GBP45m term loan facility with Scottish Widows plc which attracts 
interest fixed at 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 30 June 2018 the Company's property portfolio comprised 148 assets with a 
           NIY of 6.59%. 
 
The portfolio is split between the main commercial property sectors, in line 
     with the Company's objective to maintain a suitably balanced investment 
    portfolio, but with a relatively low exposure to office and a relatively 
high exposure to industrial and the alternative sector, often referred to as 
     'other' in property market analysis. Sector weightings are shown below: 
 
                  Valuation    Period Weighting by Weighting by 

                            valuation   income8 30   income8 31 
                             movement     Jun 2018     Mar 2018 
 
                30 Jun 2018 
 
                                   GBPm 
 
                         GBPm 
 
Sector 
 
Industrial            217.0       3.2          40%          39% 
Retail                104.4     (1.1)          20%          20% 
warehousing 
Other9                 84.6     (0.1)          15%          15% 
High street            74.8     (0.5)          14%          14% 
retail 
Office                 56.6       0.3          11%          12% 
 
Total                 537.4       1.8         100%         100% 
 
           8 Current passing rent plus ERV of vacant properties. 
 
9 Includes car showrooms, petrol filling stations, children's day nurseries, 
           restaurants, gymnasiums, hotels and healthcare units. 
 
    Industrial property remains a very good fit with the Company's strategy. 
  However, investment demand in this sector has created price inflation that 
  is limiting our opportunity to acquire properties that meet our investment 
      mandate. GBP1.4m of the GBP3.2m gross valuation increase in the industrial 
       sector in the Period 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 have continued 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 had little impact on the 
     Company's portfolio to date. Although further CVAs remain a threat, 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, containing assets 
   considered mainstream but typically not owned by institutional investors. 
 The 'other' sector has proved to be an out-performer over the long-term and 
           continues to be a target for acquisitions. 
 
Office rents in regional markets are still growing and supply is constrained 
  by a lack of development and the extensive conversion of secondary offices 
       to residential. 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. 
 
  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 30 June 2018 was as 
           follows: 
 
                    Valuation     Period   Weighting   Weighting 
                               valuation by income10 by income10 
                                movement      30 Jun 31 Mar 2018 
                                                2018 
                  30 Jun 2018 
 
                                      GBPm 
 
                           GBPm 
 
Location 
 
West Midlands           106.5          -         19%         20% 
North-West               91.6      (0.3)         18%         18% 
South-East               89.7        0.7         15%         15% 
East Midlands            63.0        2.0         13%         12% 
South-West               61.1      (0.2)         11%         12% 
Scotland                 45.3      (0.4)          9%          8% 
North-East               45.1        0.1          8%          8% 
Eastern                  28.6      (0.1)          6%          6% 
Wales                     6.5          -          1%          1% 
 
Total                   537.4        1.8        100%        100% 
 
           10 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 March 2018 
was paid on 31 May 2018. The Board has approved an interim dividend relating 
to the Period of 1.6375p per share payable on 31 August 2018 to shareholders 
           on the register on 27 July 2018. 
 
        In the absence of unforeseen circumstances, the Board intends to pay 
   quarterly dividends to achieve a target dividend11 per share for the year 
    ending 31 March 2019 of 6.55p (2018: 6.45p). 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. 
 
         11 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. 
 
           Activity since the Period end 
 
           Disposals 
 
   On 11 July 2018 the Company disposed of a 20,424 sq ft high street retail 
   unit in Dumfries. Gross proceeds of GBP1.125m were in line with the 30 June 
           2018 valuation. 
 
     - 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 GBP10 million at acquisition. 
 
        The Company offers investors the opportunity to access a diversified 
      portfolio of UK commercial real estate through a closed-ended fund. By 
targeting sub GBP10 million lot-size, regional properties, the Company intends 
  to provide investors with an attractive level of income with the potential 
           for capital growth. 
 
    Custodian Capital Limited is the discretionary investment manager of the 
           Company. 
 
           For more information visit www.custodianreit.com [2] and 
           www.custodiancapital.com [3]. 
 
ISIN:           GB00BJFLFT45 
Category Code:  MSCH 
TIDM:           CREI 
LEI Code:       2138001BOD1J5XK1CX76 
OAM Categories: 3.1. Additional regulated information required to be 
                disclosed under the laws of a Member State 
Sequence No.:   5776 
EQS News ID:    707217 
 
End of Announcement EQS News Service 
 
 
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=be531edfb7113375e33d32944df93de5&application_id=707217&site_id=vwd_london&application_name=news 
2: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=707217&site_id=vwd_london&application_name=news 
3: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=c24dec6d0ea6c746569ddd52de0eca8d&application_id=707217&site_id=vwd_london&application_name=news 
 

(END) Dow Jones Newswires

July 24, 2018 02:01 ET (06:01 GMT)