Custodian REIT plc : Unaudited net asset value as at 30 June 2020 and dividend update (1105601)

 
 Custodian REIT plc (CREI) 
Custodian REIT plc : Unaudited net asset value as at 30 June 2020 and 
dividend update 
 
30-Jul-2020 / 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. 
 
           30 July 2020 
 
     Custodian REIT plc 
 
     ("Custodian REIT" or "the Company") 
 
     Unaudited net asset value as at 30 June 2020 and dividend update 
 
        Custodian REIT (LSE: CREI), the UK commercial real estate investment 
  company, today reports its unaudited net asset value ("NAV") as at 30 June 
     2020, highlights for the period from 1 April 2020 to 30 June 2020 ("the 
           Period") and the dividend payable for the Period. 
 
           Financial highlights 
 
  · Continued impact of the COVID-19 pandemic resulting in: 
 
  · A GBP24.2m (4.2% of property portfolio) valuation decrease during the 
  Period; 
 
  · 92% of rent collected relating to the Period, adjusted for contractual 
  rent deferrals; and 
 
  · To date, 80% of rent due collected relating to the quarter ending 30 
  September 2020 ("FY21 Q2"), adjusted for contractual rent deferrals 
 
  · NAV total return per share1 for the Period of -4.9%, comprising 0.9% 
  dividends less a 5.8% capital decrease 
 
  · Dividend per share approved for the Period of 0.95p, 27% ahead of the 
  0.75p minimum dividend for the Period announced in April 2020, facilitated 
  by robust rent collection levels 
 
  · NAV per share of 95.7p (31 March 2020: 101.6p) 
 
  · NAV of GBP402.1m (31 March 2020: GBP426.7m) 
 
  · Net gearing2 of 23.5% loan-to-value (31 March 2020: 22.4%) 
 
Portfolio highlights 
 
  · Property portfolio value of GBP533.7m (31 March 2020: GBP559.8m), subject to 
  a 'material uncertainty' clause for all properties (excluding industrial 
  and logistics) in line with prevailing RICS guidance: 
 
  · GBP24.2m aggregate valuation decrease for the Period due primarily to the 
  impact of COVID-19 on all investment market and property sectors 
 
  · Disposal of an industrial property in Westerham for consideration of 
  GBP2.8m, 23% ahead of 31 March 2020 valuation 
 
  · EPRA occupancy3 93.8% (31 March 2020: 95.6%) 
 
  · Since the Period end GBP0.9m invested in the acquisition of land for the 
  development of a Starbucks drive-through restaurant in Nottingham 
 
1 NAV per share movement including dividends approved for the Period. 
 
2 Gross borrowings less cash (excluding rent deposits) divided by portfolio 
valuation. 
 
3 Estimated rental value ("ERV") of let property divided by total portfolio 
ERV. 
 
           Net asset value 
 
    The unaudited NAV of the Company at 30 June 2020 was GBP402.1m, reflecting 
     approximately 95.7p per share, a decrease of 5.9p (5.8%) since 31 March 
           2020: 
 
                                          Pence per share     GBPm 
 
NAV at 31 March 2020                                101.6  426.7 
 
Profit on disposal of investment                      0.1    0.5 
properties (net of disposal costs) 
Valuation movements                                 (5.7) (24.2) 
 
Income earned for the Period                          2.3    9.8 
Expenses, receivable provisioning and net           (0.9)  (3.7) 
finance costs for the Period 
Dividends paid4 relating to the previous            (1.7)  (7.0) 
quarter 
 
NAV at 30 June 2020                                  95.7  402.1 
 
4 Dividends of 1.6625p per share relating to the quarter ended 31 March 2020 
were paid on 29 May 2020. 
 
    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 2020, which is subject to a 
         'material uncertainty' clause for certain sectors in line with RICS 
       guidance, and income for the Period. The movement in NAV reflects the 
    payment of a 1.6625p per share dividend relating to the quarter ended 31 
   March 2020 during the Period, which was fully covered by cash collections 
    and earnings in that quarter, but does not include any provision for the 
 approved dividend of 0.95p per share for the Period to be paid on 28 August 
           2020. 
 
Market commentary 
 
      Commenting on the market, Richard Shepherd-Cross, Managing Director of 
  Custodian Capital Limited (the Company's discretionary investment manager) 
           said: 
 
"A full quarter of lockdown has seen occupational and investment activity in 
      marked contrast to the buoyant market at the start of 2020. Investment 
volumes during the Period were only 20% of the previous quarter's levels and 
     many office and retail occupiers deserted their premises in late March. 
           While we are starting to see occupiers returning to offices and 
    non-essential shops have been open for a few weeks, we have yet to fully 
 recover from the occupational void caused by lockdown. The principal impact 
    of this void has been the challenge of rent collection, discussed below. 
 
      "While greater clarity is emerging on the medium-term picture for rent 
    collection, there has been limited transactional evidence in the market, 
   creating a difficult environment in which to provide valuations. The RICS 
    continues to recommend the imposition of a 'material uncertainty' caveat 
     against the valuation of all but industrial and logistics properties to 
reflect the limited evidence available. With limited transactional evidence, 
the valuation profession is trying to reflect market sentiment in valuations 
   by applying a risk factor to the collection of deferred rent or rents due 
       from tenants which may be disproportionately affected by the COVID-19 
pandemic. The consequential decline in NAV is perhaps inevitable but not, we 
          believe, an irrecoverable structural shift. As improvements in the 
 prevention of COVID-19 (and care for those who catch it) continue we expect 
     that demand from occupiers for commercial real estate will improve from 
       occupiers and the risk factor applied to rents within valuations will 
           dissipate. 
 
  "As we see increasing confidence in the collection of contractual rent and 
landlords recover their ability to formally pursue non-payers is re-instated 
 by Government, positive sentiment towards commercial real estate investment 
  is likely to return. The low return environment, where dividends are under 
      pressure across all investment markets, should put the relatively high 
  dividends from real estate, even if at subdued levels compared to previous 
           years, in focus for income-driven investors. 
 
  "Income (and therefore earnings per share) is a more important metric than 
 NAV per share in delivering long-term and sustainable returns. As a result, 
our focus has understandably been centred on rent collection. For many years 
   Custodian REIT has enjoyed a near 100% rent collection record and despite 
           the headwinds of lockdown and legislation rendering this target 
   unattainable, much progress has been made on collecting contractual rents 
           due." 
 
Rent collection 
 
As Investment Manager Custodian Capital invoices and collects rent directly, 
 thereby allowing it to hold direct conversations promptly with most tenants 
    regarding the payment of rent. This direct contact has proved invaluable 
     through the early and current stages of the COVID-19 pandemic, enabling 
    better outcomes for the Company. Some of these conversations have led to 
    positive asset management outcomes, including the extension of leases in 
      return for rent concessions, providing short-term cash flow relief for 
           occupiers and longer-term income security for the Company. 
 
    The process of collecting rent arrears continues and to date 92% of rent 
      relating for the quarter, net of contractual rent deferrals5, has been 
collected. The balance of rent arrears for the Period remains the subject of 
       discussion with various tenants, although a proportion of arrears are 
     potentially at risk of non-recovery from Company Voluntary Arrangements 
           ("CVAs") or Pre-pack Administrations. 
 
 To date 80% of rent expected for FY21 Q2 has been collected, net of amounts 
 contractually deferred6 to be recovered through payment plans over the next 
           12-18 months. 
 
5 The proportion of rent collected relating to the Period (adjusted for the 
agreed deferral of 11% of invoiced rents). 
 
6 The proportion of rent collected relating to FY21 Q2 invoiced rents now 
due (adjusted for the agreed deferral of 5% of FY21 Q2 invoiced rents) and 
the rents now due having been deferred from the Period. 
 
           Dividends 
 
An interim dividend of 1.6625p per share for the quarter ended 31 March 2020 
       was paid on 29 May 2020, reflecting the 100% rent collection for that 
           period. 
 
      In April, before the full impact of lockdown could be ascertained, but 
         acknowledging the importance of income to shareholders, the Company 
         announced its intention to pay each of the subsequent two quarterly 
   dividends at a minimum of 0.75p per share regardless of the level of rent 
   collection, with the support of previous year's undistributed reserves if 
required. Furthermore, the Company undertook to pay a more generous dividend 
           if rent collection rates allowed. 
 
  While still short of the Company's long-term dividend target the Board has 
 approved an interim dividend relating to the Period of 0.95p per share, 27% 
     ahead of the minimum 0.75p previously indicated. This improved level of 
      dividend is fully covered by net cash receipts for the Period and 140% 
  covered by earnings meaning that no historical reserves have been utilised 
           for this dividend. 
 

   This first quarterly dividend of the financial year of 0.95p per share is 
  payable on 28 August 2020 to shareholders on the register on 7 August 2020 
           and will be designated as a property income distribution ("PID"). 
 
           Asset management 
 
 Despite the ongoing economic uncertainty caused by COVID-19, the Investment 
  Manager has remained focused on active asset management during the Period, 
completing the following initiatives on three high street retail units which 
           have tempered valuation decreases in that sector: 
 
· A re-gear with The Works in Portsmouth which removed a tenant only break 
option in October 2021, extending the term certain to October 2026; 
 
· A lease renewal with The White Company in Nottingham for a five year 
lease with 2.5 year tenant only break option at a reduced rent of GBP65k pa 
(previously GBP140k), in line with current ERV; and 
 
· A short-term turnover-based lease with mutual breaks to retain Game in 
Portsmouth, following expiry of its existing lease, whilst we re-market 
the premises. 
 
   Since the Period end the following initiatives have been completed, which 
            are expected to add GBP0.6m to the 30 September valuation: 
 
· A five year lease extension with Erskine Murray for its offices in 
Leicester, extending expiry from December 2020 to December 2025 at an 
increased annual rental of GBP72.5k (previously GBP66.5k); 
 
· A 10 year reversionary lease with MKM in Lincoln on a trade counter 
unit, extending expiry from June 2022 to June 2032 without break, 
maintaining annual passing rent at GBP192k; and 
 
· A five year lease extension with DHL in Speke on an industrial unit, 
subject to a tenant-only break in year three, maintaining annual passing 
rent at GBP119k. 
 
These positive asset management outcomes may be offset by an increase in 
potential tenant default due to the following events, which could 
potentially, in aggregate, impact circa 3.6% of the Company's rent roll: 
 
                                              Passing 
                                                 rent 
 
                                                 GBP000 
 
Location     Tenant          Sector                        Event 
Portishead   Travelodge      Hotel                222 CVA - rent 
                                                      reduced to 
                                                          25% of 
                                                         passing 
                                                         rent in 
                                                        2020 and 
                                                          70% in 
                                                            2021 
Perth        The Restaurant  Restaurant           100 CVA - rent 
             Group                                    reduced to 
                                                       0% for 12 
                                                          months 
                                                          before 
                                                        closure. 
                                                           Under 
                                                        offer to 
                                                      new tenant 
Carlisle and JB Global (t/a  Retail               390   Pre-pack 
             Oak Furniture   Warehouse                Administra 
             Land)                                    tion - Oak 
                                                       Furniture 
Plymouth                                                Land now 
                                                       occupying 
                                                           under 
                                                         licence 
                                                      whilst new 
                                                       terms are 
                                                      negotiated 
Grantham and Poundstretcher  Retail               221      CVA - 
Evesham                      Warehouse                    tenant 
                                                      remains in 
                                                      occupation 
                                                       rent free 
                                                          whilst 
                                                       units are 
                                                      remarketed 
Swindon      Go Outdoors     Retail               325   Pre-pack 
                             Warehouse                Administra 
                                                      tion - new 
                                                       tenant in 
                                                      occupation 
                                                           under 
                                                        licence, 
                                                      negotiatin 
                                                       g revised 
                                                           lease 
                                                           terms 
Torquay      Las Iguanas     Restaurant           110         In 
                                                      Administra 
                                                          tion - 
                                                          tenant 
                                                      remains in 
                                                      occupation 
                                                           under 
                                                        licence, 
                                                      negotiatin 
                                                       g revised 
                                                           lease 
                                                           terms 
Torquay      Le Bistrot      Restaurant            90   Pre-pack 
             Pierre                                   Administra 
                                                      tion - new 
                                                       tenant in 
                                                      occupation 
                                                           under 
                                                        licence, 
                                                      negotiatin 
                                                           g new 
                                                           lease 
                                                           terms 
                                                1,460 
 
 In nearly all these affected properties the businesses remain in occupation 
  and continue to trade, with negotiations for new lease terms either agreed 
and in solicitors hands or under negotiation. Offers from new occupiers have 
 been secured on two of the properties demonstrating occupier demand remains 
           in the market for well-located assets. 
 
     The portfolio's weighted average unexpired lease term to first break or 
  expiry ("WAULT") decreased from 5.3 years at 31 March 2020 to 5.1 years at 
           the Period end, reflecting the natural elapse of time. 
 
Financial resilience 
 
           The Company retains its strong financial position to address the 
    extraordinary circumstances imposed by COVID-19. At 30 June 2020 it had: 
 
· A diverse and high-quality asset and tenant base comprising 160 assets 
and over 200 typically 'institutional grade' tenants across all commercial 
sectors, with an occupancy rate of 93.8%; 
 
· GBP22m of cash-in-hand with gross borrowings of GBP150m resulting in low net 
gearing, with no short-term refinancing risk and a weighted average debt 
facility maturity of seven years; and 
 
· Significant headroom on lender covenants at a portfolio level, with 
Company net gearing of 23.5% compared to a maximum loan to value ("LTV") 
covenant of 35%. 
 
           The Company operates the following loan facilities: 
 
· A GBP35m revolving credit facility ("RCF") with Lloyds Bank plc ("Lloyds") 
expiring on 17 September 2022 with interest of between 1.5% and 1.8% above 
three-month LIBOR, determined by reference to the prevailing LTV ratio of 
a discrete security pool; 
 
· A GBP20m term loan with Scottish Widows plc ("SWIP") repayable on 13 
August 2025 with interest fixed at 3.935%; 
 
· A GBP45m term loan with SWIP repayable on 5 June 2028 with interest fixed 
at 2.987%; and 
 
· A GBP50m term loan with Aviva Investors Real Estate Finance ("Aviva") 
comprising: 
 
a) A GBP35m tranche repayable on 6 April 2032 with fixed annual interest 
of 3.02%; and 
 
b) A GBP15m tranche repayable on 3 November 2032 with fixed annual 
interest of 3.26%. 
 
      Each facility has a discrete security pool, comprising a number of the 
Company's individual properties, over which the relevant lender has security 
           and covenants: 
 
· The maximum LTV of the discrete security pool is between 45% and 50%, 
with an overarching covenant on the Company's property portfolio of a 
maximum 35% LTV; and 
 
· Historical interest cover, requiring net rental receipts from each 
discrete security pool, over the preceding three months, to exceed 250% of 
the facility's quarterly interest liability. 
 
     The Company has GBP173.5m (33% of the property portfolio) of unencumbered 
   assets which could be charged to the security pools to enhance the LTV on 
           the individual loans. 
 
   At a portfolio level, the aggregate interest cover on borrowings was more 
 than 500% for the Period. However, to mitigate the risk that interest cover 
  covenants on individual facilities come under some short-term pressure due 
  to curtailed rent receipts, during the Period the Company has put in place 

       pre-emptive interest cover covenant waivers until at least the end of 
           September 2020. 
 
           Portfolio analysis 
 
At 30 June 2020 the Company's property portfolio comprised 160 assets with a 
  net initial yield7 ("NIY") of 7.0% (31 March 2020: 6.8%). The portfolio is 
        split between the main commercial property sectors, in line with the 
   Company's objective to maintain a suitably balanced investment portfolio. 
           Sector weightings are shown below: 
 
           Valuation           Period        Weighting Weighting 
                               valuat               by        by 
                                  ion          income8   income8 
                               moveme           30 Jun    31 Mar 
              30 Jun Weighting     nt Period      2020      2020 
                      by value        valuat 
                        30 Jun           ion 
                          2020        moveme 
                2020               GBPm     nt 
 
Sector            GBPm 
 
Industrial     249.6       47%  (5.5) (2.2%)       41%       40% 
Retail         103.9       20%  (5.9) (5.1%)       21%       22% 
warehouse 
Other9          81.1       15%  (6.3) (6.8%)       17%       17% 
High            48.6        9%  (4.3) (7.5%)       11%       11% 
street 
retail 
Office          50.5        9%  (2.2) (4.1%)       10%       10% 
 
Total          533.7      100% (24.2) (4.2%)      100%      100% 
 
        7 Passing rent divided by property valuation plus purchaser's costs. 
 
           8 Current passing rent plus ERV of vacant properties. 
 
9 Includes car showrooms, petrol filling stations, children's day nurseries, 
           restaurants, gymnasiums, hotels and healthcare units. 
 
 During the Period all sectors have seen valuation decreases with industrial 
     and logistics valuations most robust, showing only a 2.2% decrease. The 
 decrease in retail values shows a greater percentage decline in high street 
    locations (7.5%) compared to out-of-town retail warehousing (5.1%). This 
differential is perhaps a reflection of the stock selection in the Custodian 
     REIT portfolio where retail warehouse occupiers are predominantly value 
    retailers and homewares/DIY, many of whom have remained open for trading 
        during the lockdown. Furthermore, the average rent across the retail 
     warehouse portfolio is only GBP14.31 per square foot, which represents an 
           affordable rent for most occupiers. 
 
The Company operates a geographically diversified property portfolio across 
the UK, seeking to ensure that no one region represents an overweight 
position. The geographic analysis of the Company's portfolio at 30 June 2020 
was as follows: 
 
                     Weighting Period        Weighting Weighting 
                      by value valuat               by        by 
                        30 Jun    ion          income8   income8 
                          2020 moveme           30 Jun    31 Mar 
                                   nt             2020      2020 
 
           Valuation               GBPm Period 
                                      valuat 
                                         ion 
                                      moveme 
              30 Jun                      nt 
                2020 
 
Location 
                  GBPm 
 
West           115.2       22%  (4.4) (3.5%)       20%       20% 
Midlands 
North-West      88.7       17%  (3.9) (4.2%)       18%       17% 
South-East      66.8       12%  (3.8) (5.1%)       13%       13% 
East            64.1       12%  (3.1) (4.5%)       13%       13% 
Midlands 
South-West      62.4       12%  (3.3) (4.9%)       11%       11% 
North-East      51.9       10%  (1.9) (3.5%)       10%       10% 
Scotland        46.0        8%  (1.7) (3.6%)        8%        8% 
Eastern         32.3        6%  (1.7) (4.8%)        6%        6% 
Wales            6.3        1%  (0.4) (6.0%)        1%        2% 
 
Total          533.7      100% (24.2) (4.2%)      100%      100% 
 
           For details of all properties in the portfolio please see 
           www.custodianreit.com/property-portfolio [1]. 
 
     - 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 / Ed Moore /     Tel: [phone] 
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 
      targeting sub GBP10m lot-size, regional properties, the Company seeks to 
 provide investors with an attractive level of income with the potential for 
           capital growth. 
 
    Custodian Capital Limited is the discretionary investment manager of the 
           Company. 
 
           For more information visit www.custodianreit.com [2] and 
           www.custodiancapital.com [3]. 
 
ISIN:           GB00BJFLFT45 
Category Code:  MSCU 
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.:   78853 
EQS News ID:    1105601 
 
End of Announcement EQS News Service 
 
 
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2: https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=1105601&site_id=vwd&application_name=news 
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(END) Dow Jones Newswires

July 30, 2020 02:00 ET (06:00 GMT)