REG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Final results for the year ended 31 March 2023
15/06/2023 07:15
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Custodian Property Income REIT plc (CREI)
Custodian Property Income REIT plc: Final results for the year ended 31 March 2023
15-Jun-2023 / 07:00 GMT/BST
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15 June 2023
Custodian Property Income REIT plc
(“the Company” or “Custodian Property Income REIT”)
Final results for the year ended 31 March 2023
Custodian Property Income REIT (LSE: CREI), which seeks to deliver an enhanced income return by investing
in a diversified portfolio of smaller regional, core/core-plus properties across the UK, today announces
its final results for the year ended 31 March 2023.
Commenting on the final results, David Hunter, Chairman of Custodian Property Income REIT, said:
“Our strategy of investing in smaller, regional, core/core-plus property demonstrated its relative
resilience and defensive qualities this year as the market corrected to the new interest rate environment,
with the Company’s portfolio experiencing a 11.8% like-for-like decline in valuations compared to a 17%
market decrease.
“Since the year end we are beginning to see some optimism returning to real estate markets following six
months of economic turbulence. Valuations appear to have largely stabilised and the Company saw a return
to a positive quarterly NAV total return per share in Q4.
“Recurring (EPRA) earnings per share of 5.6p for the year compares to 5.9p in 2022 and 5.6p in 2021.
While capital valuations have fluctuated, the underlying occupational property market has remained strong,
maintaining relatively stable income returns.
“Capturing rental growth to support earnings is a key focus of the Investment Manager in the coming year.
In an inflationary environment and with a lack of supply of modern, smaller regional properties we expect
to see continued rental growth. It will be this growth in income that is likely to form the greater
component of total return over the next phase of the property market and we believe that Custodian
Property Income REIT’s strong income yielding portfolio, supported by higher-than-peer group EPRA
earnings, will underpin shareholder returns.”
For further information, please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
1 www.custodiancapital.com
Numis Securities Limited Tel: +44 (0)20 7260 1000
Nathan Brown / Hugh Jonathan www.numiscorp.com
FTI Consulting Tel: +44 (0)20 3727 1000
Richard Sunderland / Andrew Davis / Oliver Parsons 2 custodianreit@fticonsulting.com
Custodian Property Income REIT plc Annual Report and Accounts 2023
Custodian Property Income REIT plc (“Custodian Property Income REIT” or “the Company”) is a UK real estate
investment trust (“REIT”) which seeks to deliver an enhanced income return by investing in a diversified
portfolio of smaller, regional, core/core-plus properties let to predominantly institutional grade tenants
across the UK.
Property highlights
2023
£m Comments
Portfolio value 613.6
Market movements due to rising interest rates and inflation,
Property valuation decreases 3 1 : (91.6) largely reversing the £94.0m of gains in the prior year,
explained further in the Investment Manager’s report
• £15.0m retail park in Nottingham
• £11.1m distribution unit near Glasgow
• £8.9m retail warehouses in Droitwich and Measham
Property acquisitions 4 2 52.6 • £7.5m industrial facility in Grangemouth
• £3.6m high street retail units in Winchester
• £3.5m industrial unit in Chesterfield
• £3.0m drive-through restaurants in York
Primarily comprising:
• £3.6m redeveloping an industrial site in Redditch
Capital investment 11.1 • £3.6m refurbishing industrial assets in Avonmouth and
Winsford, offices in Manchester, a retail warehouse in
Swindon and a leisure asset in Crewe
• £1.2m invested in electric vehicle chargers and
photovoltaics at various sites
Sale proceeds of £28.8m at an aggregate 18% premium to
valuation comprising:
• £9.3m shopping centre in Gosforth
Profit on disposal 5 3 4.4 • £8.5m industrial unit in Milton Keynes
• £5.6m Audi dealership in Derby
• £2.8m business park offices in Leicester
• £1.4m industrial unit in Kilmarnock
• £0.7m high street retail unit in Weston-Super-Mare
• £0.5m high street retail unit in Bury St Edmunds
Financial highlights and performance summary
2023 2022 Comments
Returns
Decreased due to increases in interest rates
*EPRA 6 4 earnings per share 7 5 5.6p 5.9p applicable to variable rate borrowing and
professional fee inflation
Basic and diluted earnings per (14.9p) 28.5p Loss for the year a result of £91.6m valuation
share 8 6 decreases caused by market sentiment around interest
(Loss)/profit before tax (£m) (65.8) 122.3 rate rises and inflation
Dividends per share 9 7 5.5p 5.25p Target dividend per share for the year ended 31
March 2024 of not less than 5.5p
*Dividend cover 10 8 102.2% 110.3% In line with the Company’s policy of paying fully
covered dividends
*NAV total return per share 11 9 (12.5%) 28.4% 4.6% dividends paid (2022: 5.8%) and a 17.1% capital
decrease (2022: 22.6% capital increase)
*Share price total return 12 10 (7.0%) 17.0% Share price decreased from 101.8p to 89.2p during
the year
Capital values
NAV and *EPRA NTA 13 11 (£m) 437.6 527.6 Decreased due to £91.6m of valuation decreases
NAV per share and *NTA per share 99.3p 119.7p
*Net gearing 14 12 27.4% 19.1% Broadly in line with the Company’s 25% target
*Weighted average cost of drawn debt 3.8% 3.0% Base rate (SONIA) increased from 0.7% to 4.2% during
facilities the year
Costs
*Ongoing charges ratio 15 13 (“OCR”) 1.96% 1.94% Increases in ESG compliance and professional fee
*OCR excluding direct property 1.23% 1.20% inflation
expenses 16 14
Environmental
*Weighted average energy performance C (58) C (61) Continued improvements in the environmental performance
certificate (“EPC”) rating 17 15 of the portfolio
*Alternative performance measures - the Company reports alternative performance measures (“APMs”) to
assist stakeholders in assessing performance alongside the Company’s results on a statutory basis, set out
above. APMs are among the key performance indicators used by the Board to assess the Company’s
performance and are used by research analysts covering the Company. The Company uses APMs based upon the
EPRA Best Practice Recommendations Reporting Framework which is widely recognised and used by public real
estate companies. Certain other APMs may not be directly comparable with other companies’ adjusted
measures and APMs are not intended to be a substitute for, or superior to, any IFRS measures of
performance. Supporting calculations for APMs and reconciliations between APMs and their IFRS equivalents
are set out in Note 22.
Business model and strategy
Purpose
Custodian Property Income REIT offers investors the opportunity to access a diversified portfolio of UK
commercial real estate through a closed-ended fund. The Company seeks to provide investors with an
attractive level of income and the potential for capital growth from a portfolio with strong environmental
credentials, becoming the REIT of choice for private and institutional investors seeking high and stable
dividends from well-diversified UK real estate.
The Board also recognises the importance of stakeholder interests and keeps these at the forefront of
business and strategic decisions, ensuring the Company:
• Understands and meets the needs of its occupiers, owning fit for purpose properties with strong
environmental credentials in the right locations which comply with necessary safety regulations;
• Protects and improves its stable cash flows with long-term planning and decision making, implementing
its policy of paying sustainable dividends fully covered by recurring earnings and securing the
Company’s future; and
• Adopts a responsible approach to communities and the environment, actively seeking ways to minimise
the Company’s impact on climate change and providing the real estate fabric of the economy, giving
employers a place of business.
Investment Policy
The Company’s investment policy 18 16 is summarised below:
• To invest in a diverse portfolio of UK commercial real estate, principally characterised by individual
property values of less than £15m at acquisition 19 17 .
• The property portfolio should be diversified by sector, location, tenant and lease term, with a
maximum weighting to any one property sector or geographic region of 50%.
• To acquire modern buildings or those considered fit for purpose by occupiers, focusing on areas with:
• High residual values;
• Strong local economies; and
• An imbalance between supply and demand.
• No one tenant or property should account for more than 10% of the rent roll at the time of purchase,
except for:
• Governmental bodies or departments; or
• Single tenants rated by Dun & Bradstreet as having a credit risk score worse than two 20 18 , where
exposure may not exceed 5% of the rent roll.
• The Company will not undertake speculative development, except for the refurbishment or redevelopment
of existing holdings, but may invest in forward funding agreements where the Company may acquire
pre-let development land and construct investment property with the intention of owning the completed
development.
• The Company may use gearing provided that the maximum loan-to-value (“LTV”) shall not exceed 35%, with
a medium-term net gearing target of 25% LTV.
The Board reviews the Company’s investment objectives at least annually to ensure they remain appropriate
to the market in which the Company operates and in the best interests of shareholders.
Differentiated property strategy
The Company’s portfolio is focused on smaller, regional, core/core-plus assets which helps achieve our
target of high and stable dividends from well-diversified real estate by offering:
• An enhanced yield on acquisition – with no need to sacrifice quality of property/location/tenant or
environmental performance for income and with a greater share of value in ‘bricks and mortar’;
• Greater diversification – spreading risk across more assets, locations and tenants and offering more
stable cash flows; and
• A higher income component of total return – driving out-performance with forecastable and predictable
returns.
Success in achieving the Company’s performance and ESG objectives is, in part, measured by performance
against key performance indicators set out in detail in the Financial review and ESG Committee reports
respectively. The Principal risks and uncertainties section of the Strategic Report sets out potential
risks in achieving the Company’s objectives.
Richard Shepherd-Cross, Investment Manager, commented: "Our smaller-lot specialism has consistently
delivered significantly higher yields without exposing shareholders to additional risk”.
Growth strategy
The Board is committed to seeking further growth in the Company to increase the liquidity of its shares
and reduce ongoing charges. Our growth strategy involves:
• Organic growth through share issuance at a premium to NAV;
• Broadening the Company’s shareholder base, particularly through further penetration into online
platforms;
• Becoming the natural choice for private clients and wealth managers seeking to invest in UK real
estate;
• Taking market share from failing open-ended funds; and
• Strategic property portfolio acquisitions and corporate consolidation.
The Board ensures that property fundamentals are central to all decisions.
Diverse portfolio
Annual passing
rent
% portfolio income
(£m)
Top 10 tenants Asset locations
Menzies Distribution Aberdeen, Edinburgh, Glasgow, Ipswich, Norwich, 1.5 3.7%
Dundee, Swansea, York
B&M Retail Swindon, Ashton-under-Lyne, Plymouth, Carlisle 1.3 3.0%
Wickes Building Supplies Winnersh, Burton upon Trent, Southport, 1.2 2.8%
Nottingham
B&Q Banbury, Weymouth 1.0 2.4%
Matalan Leicester, Nottingham 1.0 2.3%
DFS Droitwich, Measham 0.9 2.1%
First Title (t/a Enact Leeds 0.6 1.5%
Conveyancing)
Homebase Leighton Buzzard, Cromer 0.6 1.5%
Regus (Maidstone West West Malling 0.6 1.5%
Malling)
Gist Glasgow 0.6 1.5%
Weighting
by income
Weighting by income 31 March 2023
31 March 2023
Location
Sector West Midlands 19%
North-West 19%
Industrial 40% East Midlands 14%
Retail warehouse 23% South-East 13%
Office 16% Scotland 12%
Other 13% South-West 10%
High street retail 8% North-East 8%
Eastern 4%
Wales 1%
Our environmental, social and governance (“ESG”) objectives
• Improving the energy performance of our buildings - investing in carbon reducing technology,
infrastructure and onsite renewables and ensuring redevelopments are completed to high environmental
standards
• Reducing energy usage and emissions - liaising closely with our tenants to gather and analyse data on
the environmental performance of our properties to identify areas for improvement
• Achieving positive social outcomes and supporting local communities - engaging constructively with
tenants and local government to ensure we support the wider community through local economic and
environmental plans and strategies and playing our part in providing the real estate fabric of the
economy, giving employers safe places of business that promote tenant well-being
• Understanding environmental risks and opportunities - allowing the Board to maintain appropriate
governance structures to ensure the Investment Manager is appropriately mitigating risks and
maximising opportunities
• Complying with all requirements and reporting in line with best practice where appropriate - exposing
the Company to public scrutiny and communicating our targets, activities and initiatives to
stakeholders
Investment Manager
Custodian Capital Limited (“the Investment Manager”) is appointed under an investment management agreement
(“IMA”) to provide property management and administrative services to the Company. Richard Shepherd-Cross
is Managing Director of the Investment Manager. Richard has over 25 years’ experience in commercial
property, qualifying as a Chartered Surveyor in 1996 and until 2008 worked for JLL, latterly running its
national portfolio investment team.
Richard established Custodian Capital Limited as the Property Fund Management subsidiary of Mattioli Woods
plc (“Mattioli Woods”) and in 2014 was instrumental in the launch of Custodian Property Income REIT from
Mattioli Woods’ syndicated property portfolio and its 1,200 investors. Following the successful IPO of
the Company, Richard has overseen the growth of the Company to its current property portfolio of over
£600m.
Richard is supported by the Investment Manager’s other key personnel: Ed Moore - Finance Director, Alex
Nix - Assistant Investment Manager and Tom Donnachie – Portfolio Manager, along with a team of five other
surveyors and four accountants.
Chair’s statement
The year to 31 March 2023 was a year of two halves. In the six months to September a market driven by
weight of incoming capital and cheap debt pushed market valuations to levels that swiftly became
unsupportable in the face of rising interest rates in the second half of the year. Custodian Property
Income REIT’s strategy of investing in smaller regional property demonstrated its relative resilience and
defensive qualities as the market corrected to the new interest rate environment, with its portfolio
experiencing a 11.8% like-for-like decline in valuations during the year of £91.6m (2022: increase of
£94.0m) compared to a 17% 21 19 market decrease. However, since the year end we are beginning to see
some optimism returning to real estate markets following six months of economic turbulence. Property
pricing has reacted promptly to the new interest rate environment and to punishing refurbishment/build
cost inflation, allowing the market to continue to function despite transaction levels remaining low.
Valuations appear to have largely stabilised and the Company saw a return to a positive quarterly NAV
total return per share in Q4. NAV total return per share for the year was -12.5%, compared to +28.4% last
year and these significant variations in the headline return demonstrate the extreme impact of volatile
valuations which are driven by market sentiment. This volatility reinforces our view that NAV is a poor
measure of underlying performance, believing instead that we should follow the US approach of focusing on
EPRA earnings per share (“EPRA EPS” or funds from operations). EPRA EPS was 5.6p for the year which
compares to 5.9p in 2022 and 5.6p in 2021. While capital valuations have fluctuated, the underlying
occupational property market has remained strong, maintaining relatively stable income returns.
Dividends
Acknowledging the importance of income for shareholders the Board was pleased to maintain the rate of
quarterly dividends during the second half of the year taking the total dividends declared for the year to
5.5p per share (2022: 5.25p). This dividend was one of the highest fully covered dividends amongst the
Company’s peer group of listed property investment companies 22 20 for the year ended 31 March 2023 and,
in line with the Company’s policy, was 102% covered by EPRA earnings.
The Company is targeting a dividend per share of at least 5.5p per share for the year ending 31 March
2024.
Strategy for future growth
We continue to believe that there is a strong case for consolidation amongst the subscale listed REITs,
with much of the market trading at persistently high discounts to NAV. In this respect, and given our low
discount to NAV relative to much of the listed REIT sector, we intend to seek opportunities to purchase
complementary portfolios via mergers or corporate acquisitions, similar to our acquisition of Drum Income
Plus REIT plc (“DRUM”) in 2021.
Net asset value
The NAV of the Company at 31 March 2023 was £437.6m, approximately 99.3p per share, a decrease of 20.4p or
17.0% since 31 March 2022 (2022: increase of 22.1p or 22.6%):
Pence per share £m
NAV at 31 March 2022 119.7 527.6
Valuation decrease before acquisition costs (20.7) (91.6)
Impact of asset acquisition costs (0.8) (3.4)
Valuation decrease including acquisition costs (21.5) (95.0)
Profit on disposal of investment property 1.0 4.4
Net loss on investment property (20.5) (90.6)
EPRA earnings 5.6 24.8
Dividends paid 23 21 (5.5) (24.2)
NAV at 31 March 2023 99.3 437.6
The valuation decrease before acquisition costs of £91.6m largely reversed the £94.0m gains in the year to
31 March 2022 despite improving prospects for rental growth across the portfolio. A property valuation
commentary is detailed in the Investment Manager’s report.
The market
Much of the optimism in real estate is due to the prospect of rental growth which is the key component of
anticipated total returns. In an inflationary environment, real returns from real assets can be achieved
when rents are growing. The Company’s portfolio has an EPRA net initial yield 24 22 of 5.8% and an
equivalent yield 25 23 of 7.3%, demonstrating the reversionary potential of the Company’s properties,
which we continue to capture.
Our asset management of the portfolio and the types of assets we own are focused on where occupational
demand is strongest, allowing us to lease vacant space across all sectors and deliver rental growth. This
has supported EPRA earnings per share and underpins the Company’s long-term track record of paying a fully
covered dividend.
Custodian Property Income REIT’s balance sheet resilience, with low gearing and a longer-term fixed rate
debt profile, has left the Company well insulated from the negative impact of interest rate rises. Rental
growth feeding into the portfolio will create headroom for eventual refinancing.
Borrowings
In June 2022 the Company arranged a £25m tranche of 10 year debt with Aviva Real Estate Investors
(“Aviva”) at a fixed rate of interest of 4.10% per annum to refinance a £25m variable rate revolving
credit facility with Royal Bank of Scotland (“RBS”) which was due to expire in September 2022.
This refinancing mitigated interest rate risk and refinancing risk for shareholders and increased the
proportion of the Company’s drawn debt facilities that are at fixed rates of interest to 81% at 31 March
2023. The refinancing also maintained the accretive margin between the Company’s 3.8% weighted average
cost of debt and property portfolio EPRA topped-up net initial yield 26 24 of 6.2%.
Investment Manager
The performance of the Investment Manager is reviewed each year by the Management Engagement Committee.
During the year the fees charged by the Investment Manager were £4.5m (2022: £4.4m) in respect of annual
management, administrative and transaction fees.
Further details of fees payable to the Investment Manager are set out in Note 19.
The Board is pleased with the performance of the Investment Manager, particularly its effective
communication programme with shareholders, continued successful asset management initiatives and capital
improvements to the Company’s portfolio, which mitigated decreases in valuations, enhanced the
environmental performance and maintained occupancy and income. As a result the Board believes the
continued appointment of the Investment Manager is in the interests of the shareholders as a whole.
In light of additional work required to achieve the Company’s environmental objectives the Board has
agreed, with effect from 1 April 2022, to amend the rates applicable in calculating administrative fees
payable to the Investment Manager under the IMA (detailed in Note 19). A rate increase for NAV between
£200m and £500m has resulted in administrative fees increasing by £95k for the year with a projected
additional annual fee of £83k based on the year-end NAV of £437.6m. However, rate decreases applicable to
NAV in excess of £500m mean that this fee differential decreases with growth in NAV beyond £500m and the
rate changes, in aggregate, will decrease the overall administrative fee if NAV exceeds £950m. The Board
believes this fee change is in the long-term interest of shareholders and is satisfied that the Investment
Manager’s performance remains aligned with the Company’s purpose, values and strategy.
Board succession and tenure
In line with the Company’s succession plan, Matthew Thorne retired as a director at the 31 August 2022 AGM
and I intend to retire as a Director at the 8 August 2023 AGM following our respective eight and nine
years of service.
Where possible, the Board’s policy is to recruit successors well ahead of the retirement of Directors.
Responding pre-emptively to these departures we were delighted to welcome Malcolm Cooper and David
MacLellan, who joined the Board on 6 June 2022 and 9 May 2023 respectively. Their appointments bring a
wealth of experience and skills including leadership, financial expertise, property and governance.
The Company’s independent Directors are appointed on an initial three-year term, with a typical
expectation that two, three-year terms will be served, plus the potential to be invited to serve for an
additional three-year period. The Company’s succession policy allows for a Chair tenure of longer than
nine years, in line with the 2019 AIC Corporate Governance Code for Investment Companies (“AIC Code”), but
the Board acknowledges the benefits of ongoing Board refreshment.
Diversity
The Board is conscious of the importance stakeholders place on diversity and understands a diverse Board
brings constructive challenge and fresh perspectives to discussions.
The Company follows the AIC Code which recommends:
• The Board has a combination of skills, experience and knowledge; and
• Both appointments and succession plans should be based on merit and objective criteria and, within
this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and
personal strengths.
The Board’s positive approach to diversity means that, where possible, each time a director is recruited
at least one of the shortlist candidates is female and at least one of the shortlist candidates is from a
minority ethnic background. During both recruitment processes a number of female candidates and at least
one candidate from a minority ethnic background were interviewed. Neither David MacLellan nor Malcolm
Cooper are from minority ethnic backgrounds and the appointments were made based on skillset and
experience, particularly having chaired the Board and Audit Committees of other listed or investment
entities.
The Board supports the overall recommendations of the FTSE Women Leaders Review and Parker Reviews for
appropriate gender and ethnic diversity. During the year the FCA has introduced ‘comply or explain’
targets of:
• At least 40% of the board should be women;
• At least one of the senior board positions (Chair, Chief Executive Officer, Chief Financial Officer or
Senior Independent Director (“SID”) should be a woman; and
• At least one member of the board should be from a minority ethnic background.
At the year end, the Company only meets one of the three criteria above, as Elizabeth McMeikan acts as the
Senior Independent Director. In line with the requirements of listing rule LR 9.8.6, the Board’s
ethnicity and gender balance at the year-end is shown in tabular format below. No other categories of
ethnicity are relevant for the Company and as the Company has no executive directors it has not reported
the fields and the corresponding data relating to executive management in the table below as required by
listing rule 15.4.29RB.
Number of senior positions
on the board (SID and
Number of board Percentage of the Chair)
members board
White British or other White (including
minority-white groups) 6 100% 2
Female 2 33% 1
Male 4 67% 1
This information has been collected by self-disclosure directly from the individuals concerned who were
asked to confirm their gender and ethnicity.
Custodian Property Income REIT is an investment company with no Executive Directors and a small Board
compared to equivalent size listed trading companies. As a result, the Company does not comply with the
newly introduced diversity targets.
The Committee considers diversity in a broad sense, not limited to gender or ethnicity, including
socio-economic background and education. 14% of the Board are from working class backgrounds 27 25 and
57% attended state-run schools.
The Board welcomes the diversity offered by the Investment Management team working with the Company, which
has a 33% ethnic minority representation and is 33% female.
Environmental, social and governance
The Board recognises that its decisions have an impact on the environment, people and communities. The
Board also believes that the Company’s property strategy and ESG aspirations create a compelling rationale
to make environmentally beneficial improvements to its property portfolio and incorporate ESG best
practice into everything the Company does.
The Company’s ESG Committee: develops the Company’s environmental key performance indicators (“KPIs”) and
monitors its performance against them; ensures it complies with its environmental reporting requirements
and best practice; assesses the engagement with the Company’s environmental consultants; and assesses the
level of social outcomes being achieved for its stakeholders and the communities in which it operates.
The Company's ESG policy outlines our approach to managing ESG impacts and provides the framework for
setting and reviewing environmental and social objectives to ensure we are continuously improving our
performance and setting a leadership direction.
As a result, the Board has committed to:
• Understanding environmental risks and opportunities;
• Improving the energy performance of our buildings;
• Reducing energy usage and emissions;
• Achieving positive social outcomes and supporting local communities; and
• Complying with all requirements and reporting in line with best practice where appropriate.
Progress towards these commitments during the year and details of the Company’s environmental policy and
performance against its targets are contained within the ESG Committee report within the Strategic
report.
The Board is determined to ensure the Company’s expected pathway towards net zero carbon fits with
stakeholder expectations and the Company’s property strategy. We see the careful implementation of a
practical carbon reduction strategy as a crucial next step in the Company’s ESG journey and during the
course of the year ending 31 March 2024 we will publish a detailed plan to achieve this.
Case study – Winsford
The previous tenant at this site vacated in June 2022 and alongside the required dilapidations works we
have recently completed an extensive refurbishment of the site including the following which have
significantly improved the building’s ESG credentials and futureproofed the site:
• LED lighting across the warehouse and office space;
• Decarbonisation of the site by removing the gas boiler and replacing with an air source heat pump
system; and
• 12 EV charging points installed for the tenant’s usage.
The site also benefits from the installation of photovoltaics (“PV”) which will be utilised by the
incoming tenant, with any surplus to be sold back to a distribution network operator to assist with the
shortfall of green energy currently available in the UK. This assists with investment returns of the PV
with providers offering between 5-20p/kWh for surplus energy produced.
Company name
To better reflect the Company’s focus on income and to facilitate retail investors more easily identifying
the Company’s shares via online platforms, the Board changed the Company’s name from Custodian REIT plc to
Custodian Property Income REIT plc at the 31 August 2022 AGM.
Investment policy
Since IPO the Company has sought to provide enhanced income returns from UK real estate by following a
smaller lot-sized, regional property strategy, and we expect this approach to continue in the future.
As market demand has changed over time, the properties that provide the enhanced income characteristics
targeted by the Company have also changed, and the Company’s Investment Policy relating to maximum
lot-size and weighted average unexpired lease term has been updated a number of times in response.
While smaller lot-size properties will continue to dominate the strategy, we believe their characteristics
can be found in a wider range of properties that offer the same enhanced income characteristics, which are
not purely defined by lot-size.
Commercial real estate equity investments are classified into three strategies:
• Core - generally lowest risk and target returns;
• Core-plus - generally low-to-moderate risk and target returns; and
• Value add - generally moderate-to-higher risk and target returns.
The Custodian Property Income REIT strategy is best defined as a balance between core and core-plus
strategies. Its core strategy delivers stable, long-term income from predominantly smaller regional
properties and the core-plus strategy provides enhanced income through asset management or differentiated
location, lease length, tenant covenant or sector. We believe that ‘core/core-plus’ best describes
Custodian Property Income REIT’s strategy, providing no greater volatility in underlying values and a
better risk and return reward than a pure core strategy.
Accordingly, to better align the Investment Policy with the Company’s property strategy, and to provide
more flexibility when considering future acquisitions, the Board recommends that shareholders approve
changing the Company’s Investment Policy, using this well-established terminology rather than lot-size, as
follows (wording added or deleted is shown in underline and strikethrough respectively):
“To invest in a diversified portfolio of UK commercial real estate principally characterised by smaller,
regional, core/core-plus properties that provide enhanced income returns. individual values of less than
£15 million at acquisition.”
Outlook
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 and
diversified portfolio are well suited to investors looking for a close proxy to direct real estate
investment but in a managed and liquid structure.
Capturing rental growth to support earnings is a key focus of the Investment Manager as discussed in its
report. In an inflationary environment and with a lack of supply of modern, smaller regional properties
we expect to see continued rental growth over the year ahead. Furthermore, where we can provide space
that meets the modern environmental standards demanded by both legislation and tenants, we expect to see
additional rental growth.
It will be this growth in income that is likely to form the greater component of total return over the
next phase of the property market and we believe that Custodian Property Income REIT’s strong income
yielding portfolio, supported by higher-than-peer group EPRA EPS, will underpin shareholder returns.
David Hunter
Chair
14 June 2023
Investment Manager’s report
The UK property market
Despite investment market volatility during 2022, in many ways the real estate market is in a much better
place than it has been for the last 18 months. Rent collection levels are very strong, COVID-19
restrictions appear to be behind us and the impact of COVID-19 on tenants’ businesses is largely
resolved. The economy has, thus far, narrowly avoided recession but even in a slowdown we are not faced
with an over-supply of real estate and rising vacancy rates which are so often associated with the
property market in recession.
In the 12 months to 31 March 2023 the UK commercial property market saw valuations decline by 17% with the
bulk of the rerating in the quarter to December 2023. These valuation decreases were primarily due to
changes in the macro-economic environment including heightened uncertainty from rising inflation, slowing
economic growth, the energy crisis, increasing interest rates, stresses in supply chains, constraints in
the labour market and low consumer spending against the backdrop of seeking to mitigate the impact of
climate change. The Company’s portfolio experienced a more muted fall of 11.8% like-for-like and we
believe this lower volatility is primarily due to Custodian Property Income REIT’s smaller regional
property strategy and focus on income returns. Firstly, the Company’s valuations did not ‘overheat’
during mid-2022 to the same extent as, say, prime logistics. Secondly, the diversified strategy provided a
softer landing as sub-sectors such as high street retail, drive through restaurants and car showrooms saw
much less pricing volatility than logistics. With valuations appearing to have stabilised it is possible
to see the rapid correction due to the new interest rate environment as strongly positive for the market,
maintaining liquidity and providing future acquisition opportunities.
The table below shows the reversionary potential of the portfolio by sector once, by comparing EPRA net
initial yields (“NIY”) to the equivalent yield, which factors in expected rental growth and the letting of
vacant units. Across the whole portfolio, valuers’ estimated rental values are 16% ahead of passing rent
and while part of the reversionary potential is due to vacancy, the balance is this latent rental growth
which will be unlocked at rent review and lease renewal.
EPRA Topped-up NIY 29 27
Equivalent yield 28 26
31 March 2023 EPRA NIY 30 28
31 March 2023
Sector 31 March 2023
Industrial 6.6% 5.1% 4.9%
Retail warehouse 7.3% 7.2% 6.7%
Other 8.0% 6.8% 6.3%
Office 8.9% 6.4% 5.4%
High street retail 8.6% 9.6% 9.4%
Portfolio total 7.3% 6.2% 5.8%
Retail warehousing has been a key sector for acquisitions for some time and it demonstrated extraordinary
resilience through the pandemic, particularly in our favoured sub-sectors of food, homewares, DIY and the
discounters. Vacancy rates are very low and future rental growth appears affordable for occupiers.
In the office sector, a much clearer picture is emerging of how tenants will use and occupy offices in the
new world of hybrid working. Occupiers are demanding much higher levels of amenity both from their
offices and from their office locations. This favours modern, flexible office space in city centre
locations with strong transport links and high environmental credentials. Where this space can be
provided there appears to be meaningful rental growth, but conversely office space that cannot meet these
criteria risks becoming obsolete and will need to be re-purposed. In our portfolio we have seen strong
rental growth in Oxford and central Manchester where we are currently refurbishing offices to meet the new
market demand.
Rental growth remains strong in the industrial and logistics sector which accounts for 40% of the
Company’s rent roll and 48% of the portfolio by value. Lack of supply, limited development of smaller and
mid-box industrial units and construction cost inflation have all combined to heighten occupational demand
and produce low vacancy rates, driving rental growth for new-build regional industrial units and well
specified, refurbished space.
We have reorganised our high street retail portfolio over the last two years, exiting most of the
secondary retail locations. We have let three vacant high street properties during the year and have
terms agreed or are seeing active demand for the very limited remaining vacant space we have in the high
street portfolio from both retail and leisure occupiers. Low vacancy rates in prime locations and
occupier demand should be supportive of future rental growth.
Prevailing investment approach
Based on our assessment of the current market, our strategy of a regionally focused diversified portfolio,
set out below, has proven resilient and we expect to continue to reinvest the proceeds from selective
disposals. In particular we intend to focus on:
• Maintain weighting to industrial and logistics - assets in this sector still have latent rental
growth, and strong occupier demand for small/mid-box units;
• Retail warehousing let off low rents which should recover from 2021 levels;
• Selective regional offices with a focus on strong city centre locations instead of out-of-town
business parks;
• Drive-through expansion involving acquisition and development where rental growth is anticipated;
• Selective high street retail assets in the country’s strongest locations where rents have stabilised
and there is potential for growth; and
• Refurbishment of existing property, maximising all opportunities to invest in the quality of our
assets and support our ESG goals.
Sectoral view
Industrial and logistics
The recent rerating of market pricing was most acute in the industrial and logistics sector and most
particularly for large prime distribution units where the margin over the cost of money disappeared as
debt costs escalated. While smaller regional industrial assets were also re-rated the impact was less
severe. Low vacancy rates in the industrial sector are still driving rental growth and take up continues
to be at or above long-term averages according to CBRE. A restricted supply should lead to an increase in
development activity but to generate the necessary gross development value required to bring forward new
developments, higher investment yields and increased costs of finance, labour and materials dictate that
rents should continue to grow.
In summary:
• Occupational demand is robust; supply is tight
• Vacancy rate below the long-term average
• Latent rental growth potential
• Target sector for well-priced opportunities
High street retail
We have been a seller of smaller retail units in market towns where we do not forecast rental growth.
However, we are holders in prime locations where rents appear to have bottomed out or are even seeing a
slight recovery, and lower rents are supporting occupier demand and reducing vacancy rates and void
periods.
In summary:
• Over-supply - rents have suffered but are bottoming out
• Yields are high in this unfashionable area
Retail warehouse
Out-of-town retail saw great pricing volatility throughout the year to March 2023, but has shown early
stability and some growth in investor demand post year-end. The combination of convenience, lower costs
per square foot and the complementary offer to online retail has kept these assets trading strongly, most
notably amongst DIY, discounters, homewares and food retailers, which should prove defensive if consumer
spending levels decrease. As the second largest sector in the Custodian Property Income REIT portfolio,
the recovery in market sentiment towards out-of-town retail is positive and vacancy rates remain low.
In summary:
• Units let off low rents
• Lower costs of occupation
• Complementary to online
Offices
While there is talk of ‘stranded assets’ that are incapable of meeting modern environmental standards,
obsolescence in commercial property and particularly in offices is a well understood concept. For many
years offices have required regular updating and refurbishment to meet current fashions or requirements.
The focus on environmental improvements is little different and we believe that the offices in the
portfolio will be able to keep up with modern requirements or be profitably re-purposed.
Other
Weighting Weighting
by income by income
31 March 2023 31 March 2022
Sub-sector of ‘Other’ sector assets
Pub and restaurant 20% 18%
Gym 18% 20%
Drive-through 17% 14%
Motor trade 16% 24%
Leisure 13% 8%
Trade counter 8% 8%
Other 8% 8%
Total of ‘Other’ sector 100% 100%
The additional diversification provided by the ‘other’ or ‘alternative’ sector of the commercial property
market has long been a key differentiator and mitigator of risk for the Company. It continues to be a
target sector with opportunities for the development of drive-through units being explored on existing
sites and the roll out of public access EV chargers on retail parks adding to the rent roll.
Property portfolio balance
Property portfolio summary
2023 2022
Property portfolio value £613.6m £665.2m
Separate tenancies 319 339
EPRA occupancy rate 90.3% 89.8%
Assets 161 160
Weighted average unexpired lease term to first break of expiry (“WAULT”) 5.0 years 4.7 years
EPRA topped-up NIY 6.2% 5.5%
Weighted average EPC rating C (58) C (61)
The property portfolio is split between the main commercial property sectors in line with the Company’s
objective to maintain a suitably balanced investment portfolio. The Company has a relatively low exposure
to office and high street retail combined with a relatively high exposure to industrial and to alternative
sectors, often referred to as ‘other’ in property market analysis. The current sector weightings are:
Valuation Weighting by Valuation Weighting Valuation
income 31 29 by income movement Valuation
31 March 31 March before movement
2023 31 March 2022 31 March acquisition including Weighting Weighting
costs acquisition costs by value by value
£m 2023 £m 2022 £m 31 March 31 March
£m 2023 2022
Sector
Industrial 295.1 40% 325.1 38% (53.0) (54.4) 48% 49%
Retail 131.8 23% 125.4 21% (17.7) (19.4) 21% 19%
warehouse
Other 78.6 13% 76.9 13% 2.0 1.9 13% 12%
Office 71.7 16% 88.1 17% (15.6) (15.6) 12% 13%
High street 36.4 8% 49.7 11% (7.3) (7.5) 6% 7%
retail
Total 613.6 100% 665.2 100% (91.6) (95.0) 100% 100%
For details of all properties in the portfolio please see 32 custodianreit.com/property/portfolio.
Acquisitions
The Company invested £52.6m (excluding acquisition costs) during the year, described below:
• The 70,160 sq ft Springfield Retail Park in Nottingham for £15.0m comprising four units occupied by
Wickes, Matalan, Poundland and KFC. The leases have a WAULT of nine years with an aggregate passing
rent of £994k per annum, reflecting a NIY 33 30 of 6.21%;
• A 91,955 sq ft distribution facility on Eurocentral park between Edinburgh and Glasgow for £11.125m
let to Gist on a five-year lease with third year break option. The annual rent is £623k reflecting a
NIY of 5.25% with an expected reversionary yield 34 31 of 7.0%;
• Two retail warehouses covering an aggregate 40,077 sq ft in Droitwich and Measham for £8.9m. Both
units are let to DFS with an aggregate WAULT of 8.0 years and aggregate annual passing rent of £894k
reflecting a NIY of 9.43%;
• An 86,922 sq ft industrial facility in Grangemouth for £7.5m let to Thornbridge Sawmills for a further
18 years. The unit has a passing rent of £388k per annum, with a reversion in September 2023 linked
to RPI, which is expected to reflect a net reversionary yield of 5.5%;
• Two retail units on Winchester high street covering an aggregate 5,228 sq ft for £3.65m let to
Nationwide Building Society and Hobbs. The tenants’ leases expire in April 2028 and December 2031
respectively and are currently at an aggregate current passing rent of £249k per annum, reflecting a
NIY of 6.41%;
• A 47,882 sq ft industrial facility near Chesterfield let to Container Components with 20 years
remaining on the lease for £3.5m. The property produces an index linked passing rent of £227k per
annum, reflecting a NIY of 6.10%; and
• Two drive-through restaurants on Clifton Moor Retail Park, York for £3.025m. The units are occupied
by Burger King and KFC franchisees with a WAULT of 9.7 years and an aggregate passing rent of £163k
per annum, reflecting a NIY of 5.07%.
Disposals
Owning the right properties at the right time is a key element of effective property portfolio management,
which necessarily involves periodically selling properties to balance the property portfolio. Custodian
Property Income REIT is not a trading company but identifying opportunities to dispose of assets
significantly ahead of valuation or that no longer fit within the Company’s investment strategy is
important.
The Company sold the following properties during the year for an aggregate consideration of £28.8m:
• A shopping centre in Gosforth for £9.3m, which had been part of the purchase of DRUM REIT in November
2021, for a 3.5% premium to the £8.975m apportioned value of the asset at purchase. Since
acquisition, the asset has produced rental income of c. £0.9m with the completion of several asset
management activities increasing occupancy and extending contractual lease terms;
• An industrial unit in Milton Keynes to a special purchaser for £8.5m, reflecting a 73% premium to
valuation
• An Audi car dealership in Derby for £5.6m, £1.2m ahead of valuation;
• Business park offices in Leicester for £2.8m at valuation where minimal future rent and valuation
growth was expected;
• An industrial unit in Kilmarnock at auction for £1.4m, 12% ahead of valuation. The unit’s
environmental credentials did not fit with the Company’s ESG objectives and it was not considered
practical to mitigate these risks;
• A high street retail unit in Weston-Super-Mare at valuation for £0.7m; and
• A high street retail unit in Bury St Edmunds at auction for £0.5m, £0.1m (35%) ahead of valuation.
Since the year end the Company has sold a retail unit in Cirencester at valuation for proceeds of £0.7m.
ESG
The sustainability credentials of both the building and the location have become ever more important for
occupiers and investors. As Investment Manager we are absolutely committed to achieving the Company’s
challenging goals in relation to ESG and believe the real estate sector should be a leader in this field.
Until recently we considered the environmental impact of real estate and the management of the portfolio
as separate issues. It is now central to the asset management of the portfolio with the moral imperative,
legislation and importantly financial advantage all pulling together to keep our focus on improving
environmental performance, as measured by the EPC.
Happily, our efforts in this regard are reflected in greater tenant demand, additional rental growth and,
increasingly, in valuations.
As EPC requirements of the Minimum Energy Efficiency Standards (“MEES”) tighten we expect to maintain a
compliant portfolio of properties. With energy efficiency a core tenet of the Company’s asset management
strategy and with tenant requirements aligning with our energy efficiency goals we see the advance of MEES
as an opportunity to secure greater tenant engagement and higher rents.
Outlook
We remain confident that our ongoing intensive asset management of the portfolio, which still offers a
number of wide-ranging opportunities to add value, will unlock its reversionary potential, enhance cash
flow and support consistent returns. Coupled with the strength of the Company’s balance sheet, this
should continue to support our high income return strategy.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
14 June 2023
ESG Committee report
Composition and designation
The ESG Committee (“the Committee”) comprises Hazel Adam as Chair, Malcolm Cooper and Elizabeth McMeikan,
all of whom are independent non-executive directors.
Reporting
The Committee was delighted to publish its inaugural ESG Report earlier this year which is available at:
custodianreit.com/wp-content/uploads/2023/03/ESG%20Report%202023.pdf
This report contains details of the Company’s ESG approach, successes and aspirations along with case
studies of recent positive steps taken to improve the environmental performance of the portfolio.
Responsibilities
The Committee’s key responsibilities are:
• To develop the Company’s environmental KPIs, monitor performance against those KPIs and ensure the
Investment Manager is managing its property portfolio in line with the ESG policy;
• To ensure the Company complies with its external reporting obligations and best practice on ESG
matters including the Global Real Estate Sustainability Benchmark (“GRESB”), EPRA and Streamlined
Energy and Carbon Report (“SECR”);
• To assess, at least annually, the fees and scope of engagement of the Company’s environmental
consultants; and
• To assess whether the Company is obtaining a suitable level of social outcomes for its tenants, other
stakeholders and the communities in which it operates.
The Company is committed to delivering its strategic objectives in an ethical and responsible manner and
meeting its corporate responsibilities towards society, human rights and the environment. The Board
acknowledges its responsibility to society is broader than simply generating financial returns for
shareholders. The Company’s approach to ESG matters addresses the importance of these issues in the
day-to-day running of the business, as summarised below.
ESG approach
Environmental - we want our properties to minimise their impact on the local and wider environment. The
Investment Manager carefully considers the environmental performance of our properties, both before we
acquire them, as well as during our period of ownership. Sites are visited on a regular basis by the
Investment Manager and any obvious environmental issues are reported.
Social - Custodian Property Income REIT strives to manage and develop buildings which are safe,
comfortable and high-quality spaces. As such, the safety and well-being of occupants of our buildings is
paramount.
Governance - high standards of corporate governance and disclosure are essential to ensuring the effective
operation of the Company and instilling confidence amongst our stakeholders. We aim to continually
improve our levels of governance and disclosure to achieve industry best practice.
The Committee encourages the Investment Manager to act responsibly in the areas it can influence as a
landlord, for example by working with tenants to improve the environmental performance of the Company’s
properties and minimise their impact on climate change. The Committee believes that following this
strategy will ultimately be to the benefit of shareholders through enhanced rent and asset values.
The Company’s environmental policy commits the Company to:
• Improving the energy performance of our buildings - investing in carbon reducing technology,
infrastructure and onsite renewables and ensuring redevelopments are completed to high environmental
standards.
• Reducing energy usage and emissions - liaising closely with our tenants to gather and analyse data on
the environmental performance of our properties to identify areas for improvement.
• Achieving positive social outcomes and supporting local communities - engaging constructively with
tenants and local government to ensure we support the wider community through local economic and
environmental plans and strategies and playing our part in providing the real estate fabric of the
economy, giving employers safe places of business that promote tenant well-being.
• Understanding environmental risks and opportunities – allowing the Board to maintain appropriate
governance structures to ensure the Investment Manager is appropriately mitigating risks and
maximising opportunities
• Reporting in line with best practice and complying with all requirements - exposing the Company to
public scrutiny and communicating our targets, activities and initiatives to stakeholders
Environmental key performance indicators
The Company’s environmental targets are measured by key performance indicators (“KPIs”), which provide a
strategic way to assess its success towards achieving its environmental objectives and ensure the
Investment Manager has embedded key ESG principles.
To help the assessment of progress against KPIs a central data management system, hosted by the Company’s
environment consultants, has been established to provide a robust data collation and validation process.
As 2023 KPIs have changed to monitor landlord and tenant performance, this data management system will
allow us to identify data inefficiencies and improve data collection. This data management system is also
being used to identify tenant engagement and asset optimisation opportunities and facilitates the
communication of environmental performance data to various stakeholders.
The Company’s performance against its KPIs is set out below:
Area Target Progress during the year
Increase EV
charging capacity 31 x 62.5kW or 75kW chargers (2,125kW/hr of capacity) are currently
to the following by active across the public facing assets in the portfolio.
2025 35 32 :
• 4,200
kW/hr 36 33 Works are in progress at a further three sites with installing 6 x
across retail 75kW chargers (450kW/hr capacity), and we are in discussions with
warehouse and suppliers to install a further 12 x 62.5kW chargers.
other sector
assets; and
• 980
kW/hr 37 34 Our non-public facing assets (office and industrial) have 23 x 7kW
across office chargers totalling 161kW/hr of capacity with a further 117
and industrial installations planned.
assets
Install on-site PV has been installed on two of the six redevelopments and major
renewable refurbishments which took place during the year (33%). The plans for
electricity the refurbishment of other assets were agreed before this KPI was
generation at 75% set. Ongoing PV and air source heat pumps installed at Trafford
of redevelopments Park and Winsford refurbishments and such installations are planned
and major in Ashby. We are actively working with our largest tenant, Menzies
refurbishments Distribution, to proactively install PV at all eight of their sites
Physical building let from the Company.
improvements
(whole portfolio
boundary) Install smart We have successfully installed smart meters at 18 sites (19% of
meters across 25% floor areas) with four further locations due to be online in Q1 FY24
of the portfolio by (22% floor area).
floor area
All ‘D’ EPC ratings
to be removed or
improved by 2027
EPC ratings across the portfolio are detailed below.
All ‘E’ EPC ratings
to be removed or
improved by 2025
All redevelopments
to achieve Building
Research
Establishment
Environmental No redevelopments have been completed during the year. The ongoing
Assessment Method work at Alto60 in Redditch is expected to be BREEAM Excellent.
(“BREEAM”)
Excellent rating
For landlord
controlled areas in
the like for like
portfolio, on a
2019 baseline,
achieve:
• Reduction in
Scope 1 and 2 • 7% like-for-like 39 36 decrease in Scope 1 and 2 emissions
emissions of since 2019
30% by 2025
• Reduction in
energy
consumption of • 12% like-for-like increase in energy consumption since 2019
15% by 2025 • Actual waste to landfill data coverage for the year is
Landlord • Less than 5% insufficient and the amount of data estimation required to
controlled usage waste to measure the progress towards this KPI would not depict an
(landlord landfill by accurate performance.
controlled 2022 • 6% like-for-like increase in water consumption since 2019
boundary 38 35 ) • Reduction in
water
consumption by
50% by 2025
Switch all
landlord-controlled
sites to 100%
renewable Achieved
electricity by 2023
Switch all landlord
controlled sites to Achieved
green gas by 2023.
Use best practice
recommendations and Disclosure is within the Company’s ESG report available at:
reporting
frameworks to custodianreit.com/wp-content/uploads/2023/03/ESG%20Report%202023.pdf
disclose our
approach to climate As a closed-end investment fund, the Company is exempt from
related governance, disclosures relating to the Task Force for Climate Disclosures
strategy, risk (“TCFD”).
management and
opportunities.
Risk management
and reporting Incorporate ESG
factors into all
investment due Achieved - Investment Committee reports all include a section on ESG
diligence impact of decisions.
undertaken
Achieve an annual GRESB ‘Real Estate’ and ‘Development’ scores have both increased
improvement in from 2022 to 2023:
GRESB score between
2021 and 2025 • Real estate - 50 (2022: 49)
• Developments - 46 (2022: 35)
For the
non-landlord
controlled
like-for-like
portfolio, on a
2019 baseline,
achieve: Tenant data collection via a data platform currently covers c. 19%
of the Company’s portfolio by floor area which is expected to
• Reduction in increase with improved tenant engagement. Analysis of this data will
tenants’ allow us to analyse the portfolio and identify assets which are
emissions of performing poorly in order to make improvements.
20% by 2025
• Reduction in
energy
Tenant engagement consumption of
(tenant 10% by 2025
boundary 40 37 )
Engage with tenants Ongoing - tenant survey has now been issued to tenants with a 32%
on a quarterly response rate representing an increase of 125% on the prior year.
basis on ESG issues
Engage with
occupiers during
lease negotiations
to incorporate Ongoing. 23% of tenants are interested in green leases (based on
sustainability the latest tenant survey).
clauses into new
leases
Utilise 25% of
vacant high street
retail space for Of three vacant retail properties one is being used by a charity and
short-term another property’s windows and frontage are used by the local
not-for-profit Business Improvement District.
lettings
Install changing New cycle storage and shower facilities installed at Lochside Way,
facilities and Edinburgh. Amenity block to be installed at industrial property in
secure cycle Ashby as part of refurbishment. Cycle racks being installed at
parking at all Winsford and Oxford Willow Court.
appropriate assets
Social outcomes
Ensure properties
comply with the
Company’s cladding Achieved for acquisitions made during the year.
policy within three
months of
acquisition
Consider Bat roost now installed at Alto 60, Redditch. We are exploring a
biodiversity and green wall and bug hotel as part of Ashby refurbishment where an
habitat strategy ecology survey has been commissioned as part of the refurbishment
during all works.
redevelopments
ESG policy
The Company’s ESG policy is set out at:
41 custodianreit.com/wp-content/uploads/2022/06/Custodian-Capital-ESG-Policy-June-2022-FINAL.pdf
EPC ratings
During the year the Company has updated EPCs at 42 units across 32 properties covering 745k sq ft for
properties where existing EPCs had expired or where works had been completed. For updated EPCs, there was
an aggregate decrease in rating of 25 ‘energy performance asset rating points 42 38 and the portfolio
weighted average EPC score has improved from 63 (C) to 58 (C) during the year.
Significant improvements in rating occurred during the year through the:
• Refurbishment and conversion of two former Pizza Hut restaurants into Tim Hortons drive-throughs in
Leicester and Watford, moving the EPC ratings from 87(D) to 24 (A) and from 109 (E) to 32 (B)
respectively;
• Tenant improvements of a pub in High Wycombe improving the rating from 106 (E) to 34 (B); and
• Refurbishment of an industrial unit in Avonmouth improving the rating from 51 (C) to 29 (B).
The Investment Manager is currently reviewing and undertaking new assessments of any EPCs that are older
than five years and below a ‘C’ rating. A ‘C’ rating is expected to become the minimum standard under the
MEES in 2027.
The Company’s EPC profile is shown below:
Number of EPCs Weighted average
EPC rating 31 March 2023 31 March 2022 31 March 2023 31 March 2022
A 12 8 2% 1%
B 82 61 24% 17%
C 161 199 44% 45%
D 50 63 20% 26%
E 32 27 9% 11%
F 7 1 1% 0%
G - 1 - 0%
344 360 100% 100%
The table shows that the weighted average ‘C’ or better ratings has increased from 63% to 70% during the
year.
The ‘F’ rated units at 31 March 2023 are in two properties (Atherstone and Arthur House, Manchester).
Atherstone is let to Warwickshire Borough Council which sub-lets the units to small local businesses and
the EPC assessment of its single ‘F’ rated unit is out of the Company’s control, meaning it is exempt from
MEES regulations. We are in ongoing discussions with our tenant regarding it arranging an updated EPC.
Arthur House, Manchester has six ‘F’ rated units, all of which are vacant and earmarked for refurbishment
which is expected to improve the EPC rating once complete.
Net zero 43 39 carbon pathway
Continuing the journey towards net zero carbon is a crucial next step in our ESG strategy and making this
journey align with stakeholder goals and the Company’s property strategy is one of the key challenges
facing the Company and the real estate sector. During the course of the year ending 31 March 2024 we
expect to publish a detailed plan to achieve this.
Outlook
The Company will work towards achieving its ESG targets over the course of the next financial year,
improving our understanding of the specific impacts of climate change on the Company, seeking to further
influence tenant behaviour to improve environmental outcomes and continuing to develop our strategy
towards creating a Net Zero pathway.
Approval
This report was approved by the Committee and signed on its behalf by:
Hazel Adam
Chair of the ESG Committee
14 June 2023
Financial review
A summary of the Company’s financial performance for the year is shown below:
Year ended Year ended
Financial summary 31 March 2023 31 March 2022
£000
£000
Revenue 44,147 39,891
Expenses and net finance costs (19,359) (14,639)
EPRA profits 24,788 25,252
Net (loss)/profit on investment property (90,609) 97,073
(Loss)/profit before tax (65,821) 122,325
EPRA EPS (p) 5.6 5.9
Dividend cover 102.2% 110.3%
OCR excluding direct property costs 1.23% 1.20%
Borrowings
Net gearing 27.4% 19.1%
Weighted average debt maturity 5.9 years 5.7 years
Weighted average cost of drawn debt 3.8% 3.0%
The £97.1m of net gains on investment property experienced in 2022 largely reversed during the year which
saw a £90.6m net loss, resulting in a loss before tax of £65.8m (2022: £122.3m profit). EPRA earnings per
share of 5.6p (2022: 5.9p, 2021: 5.6p) fully covered dividends, but were impacted by rising interest rates
which increased finance costs on the Company’s variable rate revolving credit facility (“RCF”) facility.
Reported revenue increased by £4.3m due to a £2.7m increase in amounts rechargeable to tenants, which
offsets an equivalent amount in expenses, and £1.6m from the Company’s rent roll increasing by 3.7% from
£40.5m at 31 March 2022 to £42.0m at 31 March 2023.
This increase in contractual rent was due primarily to net property acquisitions, which added £1.3m, but
importantly the graph above illustrates aggregate rental growth across the portfolio and the positive
impact of asset management activity in increasing like-for-like occupancy through net new lettings, which
demonstrate the robust nature of the Company’s diverse property portfolio.
The decrease in EPRA EPS to 5.6p (2022: 5.9p, 2021: 5.6p) was due primarily to increasing interest rates.
During the year we deployed £9.6m of variable rate debt on property development and refurbishments, most
of which will not be income producing until the next financial year when the associated properties are
let. SONIA increased from 0.7% to 4.2% during the year and in June 2022 we refinanced a £25m variable
rate revolving credit facility with a £25m tranche of 10 year debt with Aviva at a fixed rate of interest
of 4.10% per annum.
Dividend policy
The Board acknowledges the importance of income for shareholders and during the year its policy was to pay
dividends on a sustainable basis at a rate fully covered by net rental income which does not inhibit the
flexibility of the Company’s investment strategy.
The Company paid dividends totalling 5.5p per share during the year (£24.2m) comprising fourth interim
dividend relating to the year ended 31 March 2022 of 1.375p, and quarterly interim dividends of 1.375p per
share relating to the year ended 31 March 2023.
The Company paid a fourth quarterly interim dividend of 1.375p per share for the quarter ended
31 March 2023 on 31 May 2023 totalling £6.1m. Dividends relating to the year ended 31 March 2023 of 5.5p
(2022: 5.25p) were 102% (2022: 110%) covered by EPRA earnings of £24.8m (2022: £25.3m), as calculated in
Note 22.
Key performance indicators
The Board reviews the Company’s quarterly performance against a number of key financial and non-financial
measures:
• EPS and EPRA EPS – reflect the Company’s ability to generate recurring earnings from the property
portfolio which underpin dividends;
• Dividends per share and dividend cover - 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;
• Target dividend per share – an expectation of the Company’s ability to deliver an income stream to
shareholders for the forthcoming year;
• NAV per share total return – reflects both the NAV growth of the Company and dividends payable to
shareholders. The Board assesses NAV per share 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;
• Share price total return – reflects the movement in share price and dividends payable to shareholders,
giving returns that were available to shareholders during the year;
• NAV/NTA per share, share price and market capitalisation – reflect various measures of shareholder
value at a point in time;
• Net gearing – measures the Company’s borrowings as a proportion of its investment property, balancing
the additional returns available from utilising debt with the need to effectively manage risk;
• Weighted average cost of debt – measures the cost of the Company’s borrowings based on amounts drawn
and SONIA at the year end;
• 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
• Weighted average EPC rating – measures the overall environmental performance of the Company’s property
portfolio.
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 Chair's
statement and the Investment Manager's report.
EPRA performance measures
EPRA Best Practice Recommendations, which are APMs, have been disclosed to facilitate comparison with the
Company’s peers through consistent reporting of key real estate specific performance measures.
2023 2022
EPRA EPS (p) 5.6 5.9
EPRA Net Tangible Assets (“NTA”) and Net Reinstatement Value (“NRV”) per share (p) 99.3 119.7
EPRA Net Disposal Value (“NDV”) per share (p) 101.0 119.7
EPRA NIY 5.8% 5.0%
EPRA ‘topped-up’ NIY 6.2% 5.5%
EPRA vacancy rate 9.7% 10.2%
EPRA cost ratio (including direct vacancy costs) 23.3% 22.9%
EPRA cost ratio (excluding direct vacancy costs) 18.7% 19.0%
EPRA LTV 27.3% 20.5%
EPRA capital expenditure (£m) 63.7 69.0
EPRA like-for-like rental growth (£m) 36.6 35.3
• EPRA EPS – a key measure of the Company’s underlying operating results and an indication of the extent
to which current dividend payments are supported by earnings
• EPRA NAV per share metrics – make adjustments to the NAV per the IFRS financial statements to provide
stakeholders with information on the fair value of the assets and liabilities of a real estate
investment company, under different scenarios. EPRA NTA - assumes that entities buy and sell assets,
thereby crystallising certain levels of unavoidable deferred tax. EPRA NDV – includes an adjustment
for the fair value of fixed rate debt.
• EPRA NIY and ‘topped-up’ NIY – alternative measures of property portfolio valuation based on cash
passing rents at the reporting date and once lease incentive periods have expired, net of ongoing
property costs
• EPRA vacancy rate – estimated rental value (“ERV”) of vacant space as a percentage of the ERV of the
whole property portfolio and offers insight into the additional rent generating capacity of the
portfolio.
• EPRA cost ratios – alternative measures of ongoing charges based on expenses, excluding operating
expenses of rental property recharged to tenants, but including increases in the doubtful debt
provision, compared to gross rental income
• EPRA LTV – a measure of gearing including all payables and receivables
• EPRA capital expenditure - capital expenditure incurred on the Company’s property portfolio during the
year
• EPRA like-for-like rental growth - a measure of passing rent of the property portfolio, excluding
acquisitions and disposals
• EPRA Sustainability Best Practice Recommendations – environmental performance measures focusing on
emissions and resource consumption which create transparency to potential investors by enabling a
comparison against peers and set a direction towards improving the integration of ESG into the
management of the Company’s property portfolio.
Debt 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. The Company’s net gearing
increased from 19.1% LTV last year to 27.4% at the year end primarily due to £91.6m of valuation
decreases.
During the year the Company arranged a £25m tranche of 10 year debt with Aviva at a fixed rate of interest
of 4.10% per annum to refinance a £25m variable rate revolving credit facility with RBS. At the year end
the Company had the following facilities available:
• A £40m RCF with Lloyds Bank plc (“Lloyds”) with interest of between 1.5% and 1.8% above SONIA,
determined by reference to the prevailing LTV ratio of a discrete security pool of assets, and
expiring on 17 September 2024. The facility limit can be increased to £50m with Lloyds’ approval;
• A £20m term loan facility with Scottish Widows Limited (“SWIP”) repayable in August 2025, with fixed
annual interest of 3.935%;
• A £45m term loan facility with SWIP repayable in June 2028, with fixed annual interest of 2.987%; and
• A £75m term loan facility with Aviva comprising:
• A £35m tranche repayable on 6 April 2032, with fixed annual interest of 3.02%;
• A £15m tranche repayable on 3 November 2032 with fixed annual interest of 3.26%; and
• A £25m tranche repayable on 3 November 2032 with fixed annual interest of 4.10%.
Each facility has a discrete security pool, comprising a number of the Company’s individual properties,
over which the relevant lender has security and the following covenants:
• The maximum LTV of each 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 income from each discrete security pool, over the
preceding three months, to exceed 250% of the facility’s quarterly interest liability.
At the year end the Company had £166.3m (27% of the property portfolio) of unencumbered assets which could
be charged to the security pools to enhance the LTV on the individual loans.
The weighted average cost of the Company’s drawn debt facilities at 31 March 2023 was 3.8% (2022: 3.0%),
with a weighted average maturity of 5.9 years (2022: 5.2 years). At 31 March 2023 the Company had £33.5m
(2022: £nil) drawn under its Lloyds RCF, meaning 81% (2022: 84%) of the Company’s drawn debt facilities
were at fixed rates of interest.
This high proportion of fixed rate debt significantly mitigates long-term interest rate risk for the
Company and provides shareholders with a beneficial margin between the fixed cost of debt and income
returns from the property portfolio.
Outlook
The Company’s business model has remained resilient during the year and we have further mitigated against
interest rate rises by refinancing £25m of variable rate debt at a fixed rate. We have a scalable cost
structure and flexible capital structure to be on the front foot when opportunities present themselves to
raise new equity and exploit acquisition opportunities.
Ed Moore
Finance Director
for and on behalf of Custodian Capital Limited
Investment Manager
14 June 2023
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. During the year the Board has performed a
robust assessment of the principal and emerging risks facing the Company through a periodic review of its
risk register. 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 and Risk Committee, to assess the effectiveness of the Investment Manager’s risk
management and internal control systems. During this review, no significant failings or weaknesses were
identified in respect of risk management, internal control and related financial and business reporting.
Further information on the risk governance and risk management processes are included in the Internal
control and risk management section of the Governance report.
The Company holds a portfolio of high quality property let predominantly to institutional grade tenants
and is primarily financed by fixed rate debt. It does not undertake speculative development.
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 risks facing the
Company, including risks that would threaten the business model, future performance, solvency or
liquidity. The table below outlines the principal risks 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.
Likelihood and Overall change in
Risk on business impact risk from last Mitigating factors Appetite
year
• Diverse property
portfolio covering
all key sectors and
Loss of revenue geographical areas
• The Company has 319
• Tenant default due individual tenancies
to a cessation or with the largest
curtailment of tenant accounting
trade for 3.7% of the rent
• An increasing roll
number of tenants • Investment policy
exercising limits the Company’s
contractual breaks rent roll to no more
or not renewing at Likelihood: Moderate than 10% from a
lease expiry single tenant and
• Enforced reduction 50% from a single
in contractual sector The Board relies
rents through a CVA Impact: High Increased – • Primarily on the Investment
or legislative deterioration in institutional grade Manager’s
changes the UK’s tenants processes
• Property short-term • Focused on regarding due
environmental Loss of revenue has economic outlook. established business diligence on
performance an immediate impact locations for acquisitions and
insufficient to on earnings and investment lettings. A
attract tenants or dividend capacity. • Active management of degree of tenant
maintain rents There is also an Discussed further lease expiry profile covenant risk and
• Decreases in ERVs increased risk of in the Investment considered in short WAULTs are
resulting in breaching interest Manager’s report forming acquisition accepted due to
decreases in cover covenants on and disposal the nature of the
passing rent to borrowings detailed decisions business
secure long-term in Note 16, which • Building
occupancy could ultimately specifications
• Expiries or breaks lead to default. typically not
concentrated in a tailored to one user
specific year • Strong tenant
• Unable to re-let relationships
void units • Significant focus
• Low UK economic and pro-active
growth impacting investment in
the occupational asset-by-asset
property market environmental
performance to
maintain or improve
rental levels
• Occupational demand
has been resilient
during the year
despite economic
Decreases in property headwinds
portfolio valuation • Active property
portfolio
• Reduced property diversification
market sentiment Likelihood: High between office,
and investor demand industrial
affecting market Increased – (distribution,
pricing valuation manufacturing and There is no
• Decreases in Impact: Moderate decreases warehousing), retail certainty that
sector-specific experienced during warehousing, high
ERVs the year due to street retail and property values
• Loss of contractual worsening UK other will be realised.
revenue Significant economic outlook, • Investment policy
• Tenants exercising valuation decreases macro-economic limits the Company’s This is an
contractual breaks increase the risk of shocks, interest property portfolio inherent risk of
or not renewing at non-compliance with rate rises and to no more than 50% property
lease expiry LTV covenants on high inflation in any specific investment.
• Change in demand borrowings, detailed impacting investor sector or
for space in Note 16, which demand geographical region The Investment
• Property could ultimately • Smaller lot-size Manager aims to
environmental lead to default. business model minimise this
performance The Company’s limits exposure to risk through its
insufficient to sensitivity to Discussed further individual asset asset selection
attract tenants valuation decreases in the Chair’s values
• Properties is considered in statement and • High quality assets and active asset
concentrated in a Going concern and Investment in good locations management
specific longer-term Manager’s report should remain initiatives.
geographical viability below popular with
location or sector investors
• Lack of • Significant focus on
transactional asset-by-asset ESG
evidence performance and
pro-actively
investing in
environmental
performance to
maintain or improve
demand
Likelihood: Moderate
• The Company has
Impact: High three lenders
• The Company’s
Financial weighted average The Board and
maturity on its debt Investment
• Reduced Increases in is c. six years Manager focus
availability or interest rates in • Target net gearing
increased cost of the short-term of 25% LTV on on having funding
arranging or reduce earnings and Increased due to property portfolio in place to take
servicing debt dividend capacity to increases in • 81% of drawn debt advantage of
• Breach of financial the extent the interest rates facilities at the opportunities as
and non-financial Company has drawn which face year end at a fixed they arise.
borrowing covenants balances on its continued upward rate of interest
• Significant variable rate RCF. pressure • Significant The Board’s aim
increases in Lack of availability unencumbered is to minimise
interest rates of financing would properties available this risk to the
• Refinancing risk have a significant to cure any extent possible
from upcoming impact on property potential breaches through arranging
expiries strategy if of LTV covenants longer-term
properties needed to • Ongoing monitoring facilities.
be sold to repay and management of
loans. the forecast
liquidity and
covenant position
Likelihood: Low
• Ongoing review of
performance by
Impact: High independent Board of
Operational Directors The Board relies
• Outsourced internal on the Investment
• Inadequate audit function Manager’s
performance, Increased risk of No change reporting directly processes. Its
controls or systems sub-optimal returns to the Audit and appetite for such
operated by the impacting earnings Risk Committee
Investment Manager and dividend • External depositary risk is low
capacity, with responsibility
ineffective risk or for safeguarding
threat management or assets and
decisions made on performing cash
inaccurate monitoring
information.
• Strong compliance
culture
• External
Regulatory and legal Likelihood: Moderate professional
advisers are engaged
• Adverse impact of to review and advise
new or revised upon control
legislation or Impact: High environment, ensure
regulations, or by regulatory
changes in the compliance and
interpretation or advise on the impact
enforcement of Reputational damage of changes The Board has no
existing government could impact demand No change • Business model and appetite for
policy, laws and for shares. culture embraces FCA non-compliance
regulations Earnings and principles
• Non-compliance with dividend capacity • REIT regime
the REIT would decrease with compliance is
regime 44 40 or penalties/fines for considered by the
changes to the non-compliance or Board in assessing
Company’s tax through an increased the Company’s
status tax charge financial position
and setting
dividends and by the
Investment Manager
in making
operational
decisions
• Data is regularly
backed up and
replicated and the
Investment Manager’s
IT systems are
Likelihood: Moderate protected by
Business interruption anti-virus software
and firewalls that
• Cyber-attack are regularly
results in the Impact: High updated
Investment Manager • Fire protection and
being unable to use access/security
its IT systems procedures are in The Board relies
and/or losing data Reputational damage place at all of the on the Investment
• Terrorism or from not being able No change Company’s managed Manager’s
pandemics interrupt to communicate with properties processes. It has
the Company’s shareholders on a • Comprehensive no appetite for
operations through timely and accurate property damage and such risk
impact on either basis. Loss of business
the Investment earnings and interruption
Manager or the dividend capacity if insurance is held,
Company’s assets or contractual rents including three
tenants not invoiced. Fines years’ lost rent and
and penalties from terrorism
non-compliance with • At least annually, a
reporting fire risk assessment
requirements. and health and
safety inspection is
performed for each
property in the
Company’s managed
portfolio
• The Company has
engaged specialist
environmental
consultants to
advise the Board on
compliance with
requirements and
ESG adopting best
practice where
• Failure to possible
appropriately • The Company has a
manage the published ESG policy
environmental which seeks to
performance of the improve energy
property portfolio, efficiency and
resulting in it not Likelihood: Moderate reduce emissions
meeting the • The ESG Committee
required standards ensures compliance
of environmental with environmental
legislation and Impact: Moderate Increased due to requirements, the
making properties increasing best ESG policy and
unlettable or practice environmental KPIs The Board has a
unsellable requirements and • At a property level low tolerance for
• ESG policies and Risk of reputational continued an environmental non-compliance
targets being damage, suboptimal investment in EV assessment is with risks that
insufficient to returns for chargers and PV undertaken which adversely impact
meet the required shareholders, influences decisions reputation,
standards of decreased asset regarding stakeholder
stakeholders liquidity, reduced acquisitions, sentiment and
• Non-compliance with access to debt and Discussed further refurbishments and asset liquidity.
environmental capital markets and in the ESG asset management
reporting poor relationships Committee report initiatives
requirements with stakeholders • Upgrading power
• Insufficient supplies where
electricity supply availability permits
to maintain tenant • All investments are
operations due to scrutinised by the
inadequate Investment Manager’s
infrastructure Investment
• Unsuccessful Committee.
investment in new Investment Committee
technology reports include a
dedicated ESG
rationale. Carbon
reducing technology
is a key part of the
carbon-reduction
strategy but is not
invested in
speculatively and
only established
products are
considered.
• Comprehensive due
diligence is
undertaken in
Acquisitions Likelihood: Low conjunction with
professional
• Unidentified Decreased – no advisers and the The Board accepts
liabilities corporate provision of insured risk with such
associated with the Impact: Moderate acquisitions warranties and transactions with
acquisition of new completed during indemnities are the mitigations
properties (whether the year sought from vendors opposite used to
acquired directly where appropriate manage risk where
or via a corporate Decrease in NAV and • Acquired companies’ possible
structure) loss of shareholder trade and assets are
value hived-up into
Custodian Property
Income REIT plc and
the acquired
entities are
subsequently
liquidated
Emerging risks
The following emerging risks have been identified:
• Macro-economic environment - the recovery in global demand following the COVID-19 pandemic and the
ongoing war in Ukraine have contributed to global supply chain issues, inflation and the risk of
agricultural shortages. These impact the Company in terms of the cost and availability of materials
and labour in carrying out redevelopments, refurbishments and maintenance, their effect on increasing
interest rates and indirectly through their impact on the UK economy in terms of growth and consumer
spending and the consequential impact on occupational demand for real estate.
The Board believes the Company effectively mitigates the longer-term impact of these risks because the
Company:
• Carefully assesses the economic viability of all capital projects, ensuring as a minimum that
resulting expected, demonstrable rental increases will result in valuations increasing that at least
cover capital expenditure over the medium-term;
• Notes that occupational demand has proven robust, discussed in more detail in the Investment Manager’s
report;
• Has a portfolio diversified by sector and location with a predominantly institutional grade tenant
base;
• Has low gearing with 81% of drawn debt facilities at the year end at a fixed rate of interest; and
• Has a stable investment portfolio and does not undertake speculative development.
No other emerging risks have been added to the Company’s risk register during the year.
Going concern and longer-term viability
The Board assesses the Company’s prospects over the long-term, taking into account rental growth
expectations, climate related risks, longer-term debt strategy, expectations around capital investment in
the portfolio and the UK’s long-term economic outlook. At quarterly Board meetings, the Board reviews
summaries of the Company’s liquidity position and compliance with loan covenants, as well as forecast
financial performance and cash flows.
Forecast
The Investment Manager maintains a detailed forecast model projecting the financial performance of the
Company over a period of three years, which provides a reasonable level of accuracy regarding projected
lease renewals, asset-by-asset capital expenditure, property acquisitions and disposals, rental growth,
interest rate changes, cost inflation and refinancing of the Company’s variable rate debt which typically
has a maximum tenor of three years. The detailed forecast model allows robust sensitivity analysis to be
conducted and over the three year forecast period included the following key, prudent assumptions:
• A 1% annual loss of contractual revenue through CVA or tenant default;
• No changes to the demand for leasing the Company’s assets going forwards, maintaining the occupancy
rate;
• No portfolio valuation movements and no net acquisitions/disposals;
• Rental growth, captured at lease expiry, based on consensus forecasts;
• The Company’s capital expenditure programme to invest in its existing assets continues as expected;
and
• Modest further interest rate rises experienced based on the prevailing forward curve.
The Directors have assessed the Company’s prospects and longer-term viability over this three-year period
in accordance with Provision 36 of the AIC Code, and the Company’s prospects as a going concern over a
period of 12 months from the date of approval of the Annual Report, using the same forecast model and
assessing the risks against each of these assumptions.
The Directors note that the Company has performed strongly during the year despite economic headwinds and
valuation decreases, with rents and occupancy increasing over the last 12 months.
Sensitivities
Sensitivity analysis involves flexing these key assumptions, taking into account the principal risks and
uncertainties and emerging risks detailed in the Strategic Report, and assessing their impact on the
following areas:
Covenant compliance
The Company operates the loan facilities summarised in Note 16. At 31 March 2023 the Company had
significant headroom on lender covenants at a portfolio level with:
• Net gearing of 27.4% compared to a maximum LTV covenant of 35%, with £166.3m (27% of the property
portfolio) unencumbered by the Company’s borrowings; and
• 122% minimum headroom on interest cover covenants for the quarter ended 31 March 2023.
Over the one and three year assessment periods the Company’s forecast model projects a small increase in
net gearing and an increase in headroom on interest cover covenants. Reverse stress testing has been
undertaken to understand what circumstances would result in potential breaches of financial covenants over
these periods. While the assumptions applied in these scenarios are possible, they do not represent the
Board’s view of the likely outturn, but the results help inform the Directors’ assessment of the viability
of the Company. The testing indicated, assuming no unencumbered properties were charged, that:
• The rate of loss or deferral of contractual rent on the borrowing facility with least headroom would
need to deteriorate by 30% (for the going concern assessment period) and 59% (for the longer-term
viability assessment period) from the levels included in the Company’s prudent base case forecasts to
breach interest cover covenants; or
• At a portfolio level property valuations would have to decrease by 19% from the 31 March 2023 position
to risk breaching the overall 35% LTV covenant for both assessment periods.
The Board notes that the February 2023 IPF Forecasts for UK Commercial Property Investment survey suggests
an average 0.6% increase in rents during 2023 with capital value decreases of 5.5%. The Board believes
that the valuation of the Company’s property portfolio will prove resilient due to its higher weighting to
industrial assets and overall diverse and high-quality asset and tenant base comprising 161 assets and
over 300 typically 'institutional grade' tenants across all commercial sectors.
Liquidity
At 31 March 2023 the Company had:
• £6.8m of cash and £6.5m undrawn RCF (can be increased to £16.5m with Lloyds’ consent), with gross
borrowings of £173.5m resulting in low net gearing of 27.4%, with no short-term refinancing risk and a
weighted average debt facility maturity of six years; and
• An annual contractual rent roll of £42.0m, with interest costs on drawn loan facilities of only c.
£6.7m per annum.
The Company’s forecast model projects it will have sufficient cash and undrawn facilities to settle its
target dividends and its expense and interest liabilities over the one and three year assessment periods.
As detailed in Note 16, the Company’s Lloyds RCF expires in September 2024 and discussions are underway
regarding a renewal. The Board anticipates lender support in agreeing subsequent facilities, and would
seek to refinance the RCF with another lender or dispose of sufficient properties to repay it in September
2024 in the unlikely event of lender support being withdrawn.
Results of the assessments
Based on the prudent assumptions within the Company’s forecasts regarding the factors set out above, the
Directors expect that over the one-year and three-year periods of their assessment:
• The Company has surplus cash to continue in operation and meet its liabilities as they fall due;
• Borrowing covenants are complied with; and
• REIT tests are complied with.
Section 172 statement and stakeholder relationships
The Directors consider that in conducting the business of the Company over the course of the year they
have complied with Section 172(1) of the Companies Act 2006 (“the Act”) by fulfilling their duty to
promote the success of the Company and act in the way they consider, in good faith, would be most likely
to promote the success of the Company for the benefit of its members as a whole.
Issues, factors and stakeholders
The Board has direct engagement with the Company’s shareholders and seeks a rounded and balanced
understanding of the broader impact of its decisions through regular engagement with its stakeholder
groups (detailed below) to understand their views, typically through feedback from the Investment Manager
and the Company’s broker, which is regularly communicated to the Board via quarterly meetings.
Stakeholder engagement also ensures the Board is kept aware of any significant changes in the market,
including the identification of emerging trends and risks, which in turn can be factored into its strategy
discussions.
Management of the Company’s day-to-day operations has been delegated to the Investment Manager, Custodian
Capital Limited, and the Company has no employees. This externally managed structure allows the Board and
the Investment Manager to have due regard to the impact of decisions on the following matters specified in
Section 172 (1) of the Act:
Section 172(1) factor
Approach taken
The business model and strategy of the Company is set out within the
Strategic Report. Any deviation from or amendment to that strategy is
subject to Board and, if necessary, shareholder approval. The Company’s
Management Engagement Committee ensures that the Investment Manager is
operating within the scope of the Company’s investment objectives.
At least annually, the Board considers a budget for the delivery of its
strategic objectives based on a three year forecast model. The
Investment Manager reports non-financial and financial key performance
indicators to the Board, set out in detail in the Business model and
strategy section of the Strategic report, at least quarterly which are
used to assess the outcome of decisions made.
Likely consequences of any The Board’s commitment to keeping in mind the long-term consequences of
decision in the long-term its decisions underlies its focus on risk, including risks to the
long-term success of the business.
The investment strategy of the Company is focused on medium to long-term
returns and minimising the Company’s impact on communities and the
environment and as such the long-term is firmly within the sights of the
Board when all material decisions are made.
The board gains an understanding of the views of the Company’s key
stakeholders from the Investment Manager, broker and Management
Engagement Committee, and considers those stakeholders’ interests and
views in board discussions and long-term decision-making.
The Company has no employees as a result of its external management
structure, but the Directors have regard to the interests of the
individuals responsible for delivery of the property management and
administration services to the Company to the extent that they are able
The interests of the Company’s to.
employees
The Company’s Nominations Committee is responsible for applying the
diversity policy set out in the Nominations Committee Report to Board
recruitment.
Business relationships with suppliers, tenants and other counterparties
are managed by the Investment Manager. Suppliers and other
counterparties are typically professional firms such as lenders, property
agents and other property professionals, accounting firms and legal firms
and tenants with which the Investment Manager often has a longstanding
relationship. Where material counterparties are new to the business,
checks, including anti money laundering checks where appropriate, are
conducted prior to transacting any business to ensure that no
reputational or legal issues would arise from engaging with that
The need to foster the Company’s counterparty. The Company also periodically reviews the compliance of
business relationships with all material counterparties with relevant laws and regulations such as
suppliers, customers and others the Modern Slavery Act 2015. The Company pays suppliers in accordance
with pre-agreed terms. The Management Engagement Committee engages
directly with the Company’s key service providers providing a direct line
of communication for receiving feedback and resolving issues.
Because the Investment Manager directly invoices most tenants and
collects rent without using managing agents, it has open lines of
communication with tenants and can understand and resolve any issues
promptly.
The Board recognises the importance of supporting local communities where
the Company’s assets are located and seeks to invest in properties which
will be fit for future purpose and which align with ESG targets. The
Company also seeks to benefit local communities by creating social value
through employment, viewing its properties as a key part of the fabric of
the local economy.
The impact of the Company’s
operations on the community and
the environment The Board takes overall responsibility for the Company’s impact on the
community and the environment and its ESG policies are set out in the ESG
report.
The Company’s approach to preventing bribery, money laundering, slavery
and human trafficking is disclosed in the Governance report.
The Board believes that the ability of the Company to conduct its
The desirability of the Company investment business and finance its activities depends in part on the
maintaining a reputation for reputation of the Board and Investment Manager’s team. The risk of
high standards of business falling short of the high standards expected and thereby risking its
conduct business reputation is included in the Board’s review of the Company’s
risk register, which is conducted periodically. The principal risks and
uncertainties facing the business are set out in that section of the
Strategic report. The Company’s requirements for a high standard of
conduct and business ethics are set out in the Governance report.
The Company’s shareholders are a very important stakeholder group. The
Board oversees the Investment Manager’s formal investor relations
programme which involves the Investment Manager engaging routinely with
the Company’s shareholders. The programme is managed by the Company’s
broker and the Board receives prompt feedback from both the Investment
Manager and broker on the outcomes of meetings and presentations. The
Board and Investment Manager aim to be open with shareholders and
available to them, subject to compliance with relevant securities laws.
The Chair of the Company and other Non-Executive Directors make
themselves available for meetings as appropriate and attend the Company’s
The need to act fairly as AGM.
between members of the Company
The investor relations programme is designed to promote formal engagement
with investors and is typically conducted after each half-yearly results
announcement. The Investment Manager also engages with existing
investors who may request meetings and with potential new investors on an
ad hoc basis throughout the year, including where prompted by Company
announcements. Shareholder presentations are made available on the
Company’s website. The Company has a single class of share in issue with
all members of the Company having equal rights.
Methods used by the Board
The main methods used by the Directors to perform their duties include:
• Board Strategy Days held at least annually to review all aspects of the Company’s business model and
strategy and assess the long-term sustainable success of the Company and its impact on key
stakeholders;
• The Management Engagement Committee assesses the Company’s engagements with its key service providers
and the Investment Manager reports on their performance to the Board. The responsibilities of the
Management Engagement Committee are detailed in the Management Engagement Committee report;
• The Board is ultimately responsible for the Company’s ESG activities set out in the ESG Committee
report, which it believes are a key part of benefitting the local communities where the Company’s
assets are located;
• The Board’s risk management procedures set out in the Governance report identify the potential
consequences of decisions in the short, medium and long-term so that mitigation plans can be put in
place to prevent, reduce or eliminate risks to the Company and wider stakeholders;
• The Board sets the Company’s purpose, values and strategy, detailed in the Business model and strategy
section of the Strategic report, and the Investment Manager ensures they align with its culture;
• The Board carries out direct shareholder engagement via the AGM and Directors attend shareholder
meetings on an ad hoc basis;
• External assurance is received through internal and external audits and reports from brokers and
advisers; and
• Specific training for existing Directors and induction for new Directors as set out in the Governance
report.
Principal decisions in the year
The Board has delegated operational functions to the Investment Manager and other key service providers.
In particular, responsibility for management of the Company’s property portfolio has been delegated to the
Investment Manager. The Board retains responsibility for reviewing the engagement of the Investment
Manager and exercising overall control of the Company, reserving certain key matters as set out in the
Governance report. The principal non-routine decisions taken by the Board during the year, and its
rationale on how the decision was made, were:
Decision How decision was made
Setting target dividends at 5.5pps for the In line with the Board’s dividend policy of paying a high,
year ending 31 March 2024. sustainable level of dividend which maximises shareholder
returns without negatively influencing property strategy.
The Management Engagement Committee recommended Knight
Re-appointing Knight Frank as one of the Frank’s reappointment based on its strong performance
Company’s independent valuers for a further during its first period of appointment, which offers
three years. stakeholders reassurance over the accuracy of the Company’s
reported NAV.
Appointing JLL as the Company’s ESG adviser in
October 2022 and considering its net zero
carbon strategy as described in the ESG JLL is a market leader in real estate ESG advisory and the
Committee report. Board believed its appointment would enable the Company to
accelerate the implementation of its ESG strategy and more
effectively achieve its objectives.
Appointing new Directors as detailed in the The Board believes Malcolm Cooper and David MacLellan bring
Chair’s statement. a wealth of experience and skills including leadership,
financial expertise, property and governance which will
benefit all shareholders.
Due to the nature of these decisions, a variety of stakeholders had to be factored into the Board’s
discussions. Each decision was announced at the time, so that all stakeholders were aware of the
decisions.
Stakeholders
The Board recognises the importance of stakeholder engagement to deliver its strategic objectives and
believes its stakeholders are vital to the continued success of the Company. The Board is mindful of
stakeholder interests and keeps these at the forefront of business and strategic decisions. Regular
engagement with stakeholders is fundamental to understanding their views. The below section highlights
how the Company engages with its key stakeholders, why they are important and the impact they have on the
Company and therefore its long-term success, which the Board believes helps demonstrate the successful
discharge of its duties under s172(1) of the Act.
Stakeholder Stakeholder interests Stakeholder engagement
• Regular dialogue through rent
collection process
Tenants • Review published data, such as
accounts, trading updates and
The Investment Manager understands the • High quality assets analysts’ reports
businesses occupying the Company’s • Profitability • Ensured buildings comply with
assets and seeks to create long-term • Efficient operations the necessary safety
partnerships and understand their needs • Knowledgeable and committed regulations and insurance
to deliver fit for purpose real estate landlord • Most tenants contacted to
and develop asset management • Flexibility to adapt to the request environmental
opportunities to underpin long-term changing UK commercial performance data and offer an
sustainable income growth and maximise landscape engagement programme on their
occupier satisfaction • Buildings with strong premises’ environmental
environmental credentials performance
• Occupancy has remained around
90% during the year
The Investment Manager and its
employees • Long-term viability of the
Company • Board and Committee meetings
As an externally managed fund the • Long-term relationship with • Face-to-face and
Company’s key service provider is the the Company video-conference meetings with
Investment Manager and its employees • Well-being of the the Chair and other Board
are a key stakeholder. The Investment Investment Manager’s Directors
Manager’s culture aligns with that of employees • Quarterly KPI reporting to the
the Company and its long-standing • Being able to attract and Board
reputation of operating in the smaller retain high-calibre staff • Board evaluation, including
lot-size market is key when • Maintaining a positive and feedback from key Investment
representing the Company transparent relationship Manager personnel
with the Board • Ad hoc meetings and calls
Suppliers
• Collaborative and
A collaborative relationship with our transparent working • Board and Committee meetings
suppliers, including those to whom key relationships • One-to-one meetings
services are outsourced, ensures that • Responsive communication • Annual review of key service
we receive high quality services to • Being able to deliver providers for the Management
help deliver strategic and investment service level agreements Engagement Committee
objectives
• Annual and half year
presentations
• Sustainable growth • AGM
Shareholders • Attractive level of income • Market announcements and
returns corporate website
Building a strong investor base through • Strong Corporate Governance • Regular investor feedback
clear and transparent communication is and environmental received from the Company’s
vital to building a successful and credentials broker, distribution agents
sustainable business and generating • Transparent reporting and PR adviser as well as
long-term growth framework seeking feedback from
face-to-face meetings
• On-going dialogue with
analysts
Lenders • Stable cash flows
• Stronger covenants
Our lenders play an important role in • Being able to meet interest
our business. The Investment Manager payments
maintains close and supportive • Maintaining agreed gearing • Regular covenant reporting
relationships with this group of ratios • Regular catch-up calls
long-term stakeholders, characterised • Regular financial reporting
by openness, transparency and mutual • Proactive notification of
understanding issues or changes
• Openness and transparency
Government, local authorities and • Proactive compliance with
communities new legislation
• Proactive engagement
As a responsible corporate citizen the • Support for local economic
Company is committed to engaging and environmental plans and • Engagement with local
constructively with central and local strategies authorities where we operate
government and ensuring we support the • Playing its part in • Two way dialogue with
wider community providing the real estate regulators and HMRC
fabric of the economy,
giving employers a place of
business
Approval of Strategic report
The Strategic report, (incorporating the Business model and strategy, Chair’s statement, Investment
Manager’s report, ESG Committee report, Financial report, Principal risks and uncertainties and Section
172 statement and stakeholder relationships) was approved by the Board of Directors and signed on its
behalf by:
David Hunter
Chair
14 June 2023
Board of Directors and Investment Manager personnel
The Board currently comprises seven non-executive directors. A short biography of each director is set
out below:
David Hunter - Independent Chair
David is a professional non-executive director and strategic adviser focused principally on UK and
international real estate. He chairs the Company and its Nominations Committee and is on the boards of
both listed and unlisted companies in the UK and overseas, as well as holding corporate advisory roles.
He qualified as a chartered surveyor in 1978 and has over 25 years’ experience as a fund manager,
including as Managing Director of Aberdeen Asset Management’s property fund business. David is a former
President of the British Property Federation and was actively involved in the introduction of REITs to the
UK. He is also Honorary Swedish Consul to Glasgow and an Honorary Professor of real estate at Heriot-Watt
University.
David is Non-Executive Chair of Capital & Regional plc (“C&R”). During the year, David was appointed as
Non-Executive Chair of Dar Global plc (“DG”), a company established to develop the international assets of
Dar Al Arkan Real Estate Development Company, a leading Saudi Arabian property developer.
The Board perceives no material conflicts of interest between Custodian Property Income REIT and the
activities of C&R or DG due to their divergent property strategies.
David’s other roles are not considered to impact his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
David MacLellan - Independent Director
David was appointed to the Board on 9 May 2023 and is expected to take on the Chair role on 8 August 2023
following David Hunter’s scheduled retirement.
He has over 35 years’ experience in private equity and fund management and an established track record as
Chair and Non-Executive director of public and private companies. During his executive career David was
an Executive Director of Aberdeen Asset Management plc following its purchase of Murray Johnstone Limited
(“MJ”) in 2000. At the time of the purchase he was Group Managing Director of MJ, a Glasgow based fund
manager managing inter alia closed and open ended funds, having joined MJ’s venture capital team in
1984. Prior to joining MJ he qualified as a Chartered Accountant at Arthur Young McLelland Moores (now
EY).
David is currently Chair and Managing Partner of RJD Partners (“RJD”), a private equity business;
Non-Executive Director and Audit Committee Chair of J&J Denholm Limited, a family owned business involved
in shipping, logistics, seafoods and industrial services; and Non-Executive Director and Audit Committee
Chair of Aquila Renewables plc, an investment trust.
David is former Chair and Senior Independent Director of John Laing Infrastructure Fund, a FTSE 250
investment company, former Chair of Stone Technologies Limited, former Chair of Havelock Europa plc and
former Non-Executive Director of Maven Income & Growth VCT 2 plc. He was also Chair of Britannic UK
Income Fund for 12 years until 2013 as well as a director of a number of private equity backed businesses.
David’s other roles are not considered to impact his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Elizabeth McMeikan – Senior Independent Director
Elizabeth’s substantive career was with Tesco plc, where she was a Stores Board Director before embarking
on a non-executive career in 2005.
Elizabeth is currently Chair of Nichols plc, the AIM listed diversified soft drinks group. She is Senior
Independent Director and Remuneration Committee Chair at both Dalata Hotel Group plc, the largest hotel
group in Ireland, and at McBride plc, Europe’s leading manufacturer of cleaning and hygiene products. She
is also Non-Executive Director of Fresca Group Limited, a fruit and vegetable grower and importer.
Previously Elizabeth was SID and Remuneration Committee Chair at both The Unite Group plc and at Flybe
plc, SID at J D Wetherspoon plc and Chair of Moat Homes Limited.
Elizabeth’s other roles are not considered to impact her ability to allocate sufficient time to the
Company to discharge her responsibilities effectively.
Hazel Adam - Independent Director
Hazel was an investment analyst with Scottish Life until 1996 and then joined Standard Life Investments.
As a fund manager she specialised in UK and then Emerging Market equities. In 2005 Hazel joined Goldman
Sachs International as an executive director on the new markets equity sales desk before moving to HSBC in
2012, holding a similar equity sales role until 2016.
Hazel was an independent non-executive director of Aberdeen Latin American Income Fund Limited until June
2023 and holds the CFA Level 4 certificate in ESG Investing and the Financial Times Non-Executive
Directors Diploma.
Chris Ireland FRICS - Independent Director
Chris joined international property consultancy King Sturge in 1979 as a graduate and has worked his whole
career across the UK investment property market. He ran the investment teams at King Sturge before
becoming Joint Managing Partner and subsequently Joint Senior Partner prior to its merger with JLL in
2011.
Chris was Chief Executive Officer of JLL UK between 2016 and 2021 and subsequently its Chair from 2021
until retiring in March 2023. Chris is committed to leading the property sector on sustainability and
supporting the debate around the climate emergency.
Chris is a former Chair of the Investment Property Forum and is a Non-Executive Director of Le Masurier, a
Jersey based family trust with assets across the UK, Germany and Jersey. Chris is also a keen supporter
of the UK homelessness charity Crisis.
Chris’ other roles are not considered to impact his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Malcolm Cooper FCCA FCT - Independent Director
Malcolm was appointed to the Board on 6 June 2022.
He is a qualified accountant and an experienced FTSE 250 company Audit Committee Chair with an extensive
background in corporate finance and a wide experience in infrastructure and property.
Malcolm worked with Arthur Andersen and British Gas/BG Group/Lattice before spending 15 years with
National Grid with roles including Managing Director of National Grid Property and Global Tax and Treasury
Director, and culminated in the successful sale of a majority stake in National Grid’s gas distribution
business, now known as Cadent Gas.
Malcolm is currently a Non-Executive Director of Morgan Sindall Group plc, a FTSE 250 UK construction and
regeneration business, Chairing its Audit and Responsible Business Committees. He is also Senior
Independent Director and Credit Committee Chair of MORhomes plc, Non-Executive Director, Remuneration
Committee Chair and Audit Committee Chair at Southern Water Services Limited and Non-Executive Director
and Audit and Risk Committee Chair at Local Pensions Partnership Investment. Malcolm was recently
appointed as Deputy President of the Association of Corporate Treasurers.
Malcolm was previously Senior Independent Director and Audit Committee chair at CLS Holdings plc, a
Non-Executive Director of St William Homes LLP and a member of the Financial Conduct Authority’s Listing
Authority Advisory Panel.
Malcolm’s other roles are not considered to impact his ability to allocate sufficient time to the Company
to discharge his responsibilities effectively.
Ian Mattioli MBE - Director
Ian is CEO of Mattioli Woods with over 35 years’ experience in financial services, wealth management and
property businesses and is the founder director of Custodian Property Income REIT. Together with Bob
Woods, Ian founded Mattioli Woods, the AIM-listed wealth management and employee benefits business which
is the parent company of the Investment Manager. Mattioli Woods now has over £15bn of assets under
management, administration and advice. Ian is responsible for the vision and operational management of
Mattioli Woods and instigated the development of its investment proposition, including the syndicated
property initiative that developed into the seed portfolio for the launch of Custodian Property Income
REIT.
Ian is a non-independent Director of the Company due to his role with Mattioli Woods and is viewed by the
Board as representative of Mattioli Woods’ client shareholders which represent approximately 68% of the
Company’s shareholders.
His personal achievements include winning the London Stock Exchange AIM Entrepreneur of the Year award and
CEO of the year in the 2018 City of London wealth management awards. Ian was awarded an MBE in the
Queen's 2017 New Year's Honours list for his services to business and the community in Leicestershire and
was appointed High Sheriff of Leicestershire in March 2021, an independent non-political Royal appointment
for a single year. Ian and his family own 6.1m shares in the Company.
Ian’s other roles are not considered to impact his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Investment Manager personnel
Short biographies of the Investment Manager’s key personnel and senior members of its property team are
set out below:
Richard Shepherd-Cross MRICS - Managing Director
Richard qualified as a Chartered Surveyor in 1996 and until 2008 worked for JLL, latterly running its
national portfolio investment team.
Since joining Mattioli Woods in 2009, Richard established Custodian Capital as the Property Fund
Management subsidiary to Mattioli Woods and in 2014 was instrumental in the establishment of Custodian
Property Income REIT from Mattioli Woods’ syndicated property portfolio and its 1,200 investors.
Following the successful IPO of the Company, Richard has overseen the growth of the Company to its current
property portfolio of over £0.6bn. Richard and his family own 371,061 shares in the Company.
Ed Moore FCA – Finance Director
Ed qualified as a Chartered Accountant in 2003 with Grant Thornton, specialising in audit, financial
reporting and internal controls across its Midlands practice. He is Finance Director of Custodian Capital
with responsibility for all day-to-day financial aspects of its operations.
Since IPO in 2014 Ed has overseen the Company raising over £300m of new equity, arranging or refinancing
seven loan facilities and completing four corporate acquisitions, including leading on the acquisition of
DRUM REIT in 2021. Ed’s key responsibilities for Custodian Property Income REIT are accurate external and
internal financial reporting, ongoing regulatory compliance and maintaining a robust control environment.
Ed is Company Secretary of Custodian Property Income REIT and is a member of the Investment Manager’s
Investment Committee. Ed is also responsible for the Investment Manager’s environmental initiatives,
attending Custodian Property Income REIT ESG Committee meetings and co-leading the Investment Manger’s ESG
working group.
Ian Mattioli MBE - Founder and Chair
Ian’s biography is set out above.
Alex Nix MRICS – Assistant Investment Manager
Alex graduated from Nottingham Trent University with a degree in Real Estate Management before joining
Lambert Smith Hampton, where he spent eight years and qualified as a Chartered Surveyor in 2006.
Alex is Assistant Investment Manager to Custodian Property Income REIT having joined Custodian Capital in
2012. Alex heads the Company’s property management and asset management initiatives, assists in sourcing
and executing new investments and is a member of the Investment Manager’s Investment Committee.
Tom Donnachie MRICS – Portfolio Manager
Tom graduated from Durham University with a degree in Geography before obtaining an MSc in Real Estate
Management from Sheffield Hallam University. Tom worked in London for three years where he qualified as a
Chartered Surveyor with Workman LLP before returning to the Midlands first with Lambert Smith Hampton and
then CBRE.
Tom joined Custodian Capital in 2015 as Portfolio Manager with a primary function to maintain and enhance
the existing property portfolio and assist in the selection and due diligence process regarding new
acquisitions. Tom co-leads the Investment Manager’s environmental working group and attends Custodian
Property Income REIT ESG Committee meetings.
Javed Sattar MRICS – Portfolio Manager
Javed joined Custodian Capital in 2011 after graduating from Birmingham City University with a degree in
Estate Management Practice. Whilst working as a trainee surveyor on Custodian Property Income REIT’s
property portfolio for Custodian Capital he completed a PGDip in Surveying via The College of Estate
Management and qualified as a Chartered Surveyor in 2017.
Javed operates as Portfolio Manager managing properties predominantly located in the North-West of
England.
Aman Sharma MRICS – Portfolio Manager
Aman has worked in real estate for over 10 years having graduated from Nottingham Trent University with a
degree in Real Estate Management and subsequently qualified as a Chartered Surveyor in 2014, having spent
time with AXA-IM Real Assets and JLL.
Aman joined Custodian Capital in 2022 and is responsible for managing a portfolio of mixed-use assets with
a focus on the South and East of England and assists in the sourcing and due diligence process regarding
new acquisitions.
Consolidated statements of comprehensive income
For the year ended 31 March 2023
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
Note £000 £000 £000 £000
Revenue 4 44,147 39,891 43,347 38,490
Investment management (3,880) (3,854) (3,880) (3,782)
Operating expenses of rental property
• rechargeable to tenants (3,526) (852) (3,526) (852)
• directly incurred (3,530) (3,422) (3,242) (3,174)
Professional fees (911) (617) (911) (579)
Directors’ fees (318) (291) (318) (291)
Other expenses (822) (776) (819) (774)
Depreciation (112) - (112) -
Expenses (13,099) (9,812) (12,808) (9,452)
Operating profit before (loss)/profit on investment
property, financing and group reorganisations
31,048 30,079 30,539 29,038
Unrealised (loss)/profit on revaluation of investment
property:
10 (91,551) 93,977 (91,840) 86,656
• relating to property revaluations
• relating to costs of acquisition 10 (3,426) (2,273) (3,426) (2,273)
Valuation (decrease)/increase (94,977) 91,704 (95,266) 84,383
Profit on disposal of investment property 4,368 5,369 4,368 5,369
Net (loss)/profit on investment property (90,609) 97,073 (90,898) 89,752
Operating (loss)/profit before financing and group (59,561) 127,152 (60,359) 118,790
reorganisations
Finance income 6 22 - 22 -
Finance costs 7 (6,282) (4,827) (6,105) (4,615)
Net finance costs (6,260) (4,827) (6,083) (4,615)
(Loss)/profit before group reorganisations (65,821) 122,325 (66,442) 114,175
Impairment of investments on receipt of dividends from group 12 - - (22,538) -
companies
Dividends received from group companies 12 - - 31,384 -
Other - - (75) -
Net income from group reorganisations 12 - - 8,771 -
(Loss)/profit before tax (65,821) 122,325 (57,671) 114,175
Income tax expense 8 - - - -
(Loss)/profit for the year and total comprehensive income for the
year, net of tax (65,821) 122,325
(57,671) 114,175
Attributable to:
Owners of the Company (65,821) 122,325 (57,671) 114,175
Earnings per ordinary share:
Basic and diluted (p) 3 (14.9) 28.5
EPRA (p) 3 5.6 5.9
The profit for the year arises from continuing operations.
Consolidated and Company statements of financial position
As at 31 March 2023
Registered number: 08863271
Group Company
31 March
31 March 2023 31 March 2023 31 March 2022
2022
Note £000 £000 £000
£000
Non–current assets
Investment property 10 613,587 665,186 613,587 616,211
Property, plant and equipment 11 1,113 - 1,113 -
Investments 12 - - - 22,538
Total non-current assets 614,700 665,186 614,700 638,749
Current assets
Trade and other receivables 13 3,748 5,201 3,748 3,365
Cash and cash equivalents 15 6,880 11,624 6,880 9,217
Total current assets 10,628 16,825 10,628 12,582
Total assets 625,328 682,011 625,328 651,331
Equity
Issued capital 17 4,409 4,409 4,409 4,409
Share premium 17 250,970 250,970 250,970 250,970
Merger reserve 17 18,931 18,931 18,931 18,931
Retained earnings 17 163,259 253,330 163,259 245,180
Total equity attributable to equity holders of the
Company
437,569 527,640 437,569 519,490
Non-current liabilities
Borrowings 16 172,102 113,883 172,102 113,883
Other payables 570 570 570 570
Total non-current liabilities 172,672 114,453 172,672 114,453
Current liabilities
Borrowings 16 - 22,727 - -
Trade and other payables 14 7,666 9,783 7,666 10,985
Deferred income 7,421 7,408 7,421 6,403
Total current liabilities 15,087 39,918 15,087 17,388
Total liabilities 187,759 154,371 187,759 131,841
Total equity and liabilities 625,328 682,011 625,328 651,331
These consolidated and Company financial statements of Custodian Property Income REIT plc were approved
and authorised for issue by the Board of Directors on 14 June 2023 and are signed on its behalf by:
David Hunter
Chair
Consolidated and Company statements of cash flows
For the year ended 31 March 2023
Group Company
Year Year
Year ended Year ended
ended ended
31 March 31 March
31 March 31 March
2023 2023
2022 2022
Note £000 £000 £000 £000
Operating activities
Profit for the year (65,821) 122,325 (57,671) 114,175
Net finance costs 6,260 4,827 6,083 4,615
Valuation decrease/(increase) of investment property 10 94,977 (91,704) 95,266 (84,383)
Impact of rent free 10 (1,677) (1,112) (1,690) (1,157)
Net income from group reorganisations 12 - - (8,771) -
Amortisation of right-of-use asset 8 7 8 7
Profit on disposal of investment property (4,368) (5,369) (4,368) (5,369)
Depreciation 112 - 112 -
Cash flows from operating activities before changes in
working capital and provisions
29,491 28,974 28,969 27,888
Decrease in trade and other receivables 2,954 1,923 4,349 2,636
(Decrease)/increase in trade and other payables and deferred (2,104) 1,702 (1,559) 1,180
income
Cash generated from operations 30,341 32,599 31,759 31,704
Interest and other finance charges (6,072) (4,463) (5,918) (4,279)
Net cash inflows from operating activities 24,269 28,136 25,841 27,425
Investing activities
Purchase of investment property (52,603) (21,529) (52,603) (21,529)
Capital expenditure and development (11,333) (3,515) (11,333) (3,510)
Acquisition costs (3,426) (2,272) (3,426) (2,272)
Purchase of property, plant and equipment (1,225) - (1,225) -
Disposal of investment property 28,767 54,403 28,767 54,403
Costs of disposal of investment property (237) (479) (237) (479)
Interest and finance income received 6 22 - 22 -
Loan to subsidiaries - - (23,228) -
Cash acquired through the hive up of DRUM REIT - - 835 -
Net cash (outflows)/inflows from investing activities (40,035) 26,608 (62,428) 26,613
Financing activities
Proceeds from the issue of share capital 17 - 558 - 558
Costs of the issue of share capital - (51) - (51)
New borrowings 16 58,500 - 58,500 -
Repayment of borrowings and origination costs 16 (23,228) (25,057) - (25,057)
Dividends paid 9 (24,250) (24,191) (24,250) (24,191)
Net cash inflow/(outflow) from financing activities 11,022 (48,741) 34,250 (48,741)
Net (decrease)/increase in cash and cash equivalents (4,744) 6,003 (2,337) 5,297
Cash acquired through the acquisition of DRUM REIT - 1,701 - -
Cash and cash equivalents at start of the year 11,624 3,920 9,217 3,920
Cash and cash equivalents at end of the year 6,880 11,624 6,880 9,217
Consolidated statement of changes in equity
For the year ended 31 March 2023
Issued Share Retained Total
Merger reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 122,325 122,325
Total comprehensive income for year - - - 122,325 122,325
Transactions with owners of the Company, recognised
directly in equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 17 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 253,330 527,640
Loss for the year - - - (65,821) (65,821)
Total comprehensive loss for year - - - (65,821) (65,821)
Transactions with owners of the Company, recognised
directly in equity
Dividends 9 - - - (24,250) (24,250)
Issue of share capital 17 - - - - -
As at 31 March 2023 4,409 18,931 250,970 163,259 437,569
Company statement of changes in equity
For the year ended 31 March 2023
Issued Share Retained Total
Merger reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 114,175 114,175
Total comprehensive income for year - - - 114,175 114,175
Transactions with owners of the Company, recognised
directly in equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 17 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 245,180 519,490
Loss for the year - - - (57,671) (57,671)
Total comprehensive loss for year - - - (57,671) (57,671)
Transactions with owners of the Company, recognised
directly in equity
Dividends 9 - - - (24,250) (24,250)
Issue of share capital 17 - - - - -
As at 31 March 2023 4,409 18,931 250,970 163,259 437,569
Notes to the financial statements for the year ended 31 March 2023
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
and parent company 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 (£000), except when otherwise indicated. The consolidated financial statements
were authorised for issue in accordance with a resolution of the Directors on 14 June 2023.
2. Basis of preparation and accounting policies
1. Basis of preparation
The consolidated financial statements and the separate financial statements of the parent company have
been prepared in accordance with United Kingdom adopted international accounting standards and
International Financial Reporting Standards (IFRSs) as issued by the IASB. The financial statements have
also been prepared in accordance with International Financial Reporting Standards as issued by the IASB.
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. 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. 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 the Company
gains control up to the effective date when the Company ceases to control the subsidiary.
3. Business combinations
Where property is acquired, via corporate acquisitions or otherwise, the substance of the assets and
activities of the acquired entity are considered in determining whether the acquisition represents a
business combination or an asset purchase under IFRS 3 - Business Combinations.
A business combination is a transaction or event in which an acquirer obtains control of one or more
businesses. A business is defined in IFRS 3 as an integrated set of activities and assets that is capable
of being conducted and managed for the purpose of providing goods or services to customers, generating
investment income (such as dividends or interest) or generating other income from ordinary activities. To
assist in determining whether a purchase of investment property via corporate acquisition or otherwise
meets the definition of a business or is the purchase of a group of assets, the group will apply the
optional concentration test in IFRS 3 to determine whether substantially all of the fair value of the
gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable
assets. If the concentration test is not met the group applies judgement to assess whether acquired set
of activities and assets includes, at a minimum, an input and a substantive process by applying IFRS 3:B8
to B12D. Where such acquisitions are not judged to be a business combination, due to the asset or group
of assets not meeting the definition of a business, they are accounted for as asset acquisitions and the
cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the
entity based on their relative fair values at the acquisition date. Accordingly no goodwill or additional
deferred taxation arises.
Under the acquisition accounting method, the identifiable assets, liabilities and contingent liabilities
acquired are measured at fair value at the acquisition date. The consideration transferred is measured at
fair value which is calculated as the sum of the acquisition-date fair values of assets transferred by the
Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in
profit or loss as incurred.
4. Application of new and revised International Financial Reporting Standards
During the year the Company adopted the following new standards with no impact on reported financial
performance or position:
• Amendments to IFRS 3 - References to the conceptual framework
• Amendments to IAS 16 - Property, plant and equipment – proceeds before intended use
• Amendments to IAS 37 - Onerous contracts – cost of fulfilling a contract
• Annual improvements to IFRSs: 2018-2020 - amendments to IFRS 1, IFRS 9, IFRS 16, and IAS 41
The IASB and the International Financial Reporting Interpretations Committee have issued the following
standards and interpretations, as at the date of this report, that are mandatory for later accounting
periods and which have not been adopted early. They are not expected to have a material impact on the
financial statements.
• IFRS 17 - Insurance contracts
• Amendments IFRS 17 - Initial application of IFRS 17 and IFRS 9 – comparative information
• Amendments IFRS 16 - Lease liability in a sale and leaseback
• Amendments IAS 1 - Classification of liabilities as current or non-current – deferral of effective
date
- Disclosure of accounting policies
- Non-current liabilities with covenants
• Amendments IAS 8 - Definition of accounting estimates
• Amendments IAS 12 - Deferred tax related to assets and liabilities arising from a single transaction
• Amendments IFRS 4 - Extension of the temporary exemption from applying IFRS 9
• Amendments to IAS 12 - Pillar two model Rules
• IAS 7 / IFRS 7 - Supplier finance arrangements
5. 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 and the
Company’s projections show that it should be able to operate within the level of its current financing
arrangements for at least the 12 months from the date of approval of these financial statements, set out
in more detail in the Directors’ report and Principal risks and uncertainties section of the Strategic
report. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the
financial statements.
Income recognition
Contractual revenues are allocated to each performance obligation of a contract and revenue is recognised
on a basis consistent with the transfer of control of goods or services. 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. Rental income excludes service charges and other costs directly recoverable
from tenants which are recognised within ‘income from recharges to 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. The hive up of the trade and assets of DRUM REIT during the year was undertaken at their
carrying value on the date of hive-up. Trade since the date of the hive-up has been included in the
parent company results, whilst trade before hive-up has been excluded. Prior year comparatives have not
been amended.
Non-listed equity investments
Non-listed equity investments are classified at fair value through profit and loss and are subsequently
measured using level 3 inputs, meaning valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
Property, plant and equipment
Plant, machinery, fixtures and fittings are stated at cost less accumulated depreciation and accumulated
impairment loss.
Depreciation is recognised so as to write off the cost of assets (less their residual values) over their
useful lives, using the straight-line method, on the following bases:
EV chargers 10 years
Photovoltaic cells 20 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
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 held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes and are readily convertible into a known amount of cash and are subject to an
insignificant risk of changes in value.
Other financial assets
Financial assets and financial liabilities are recognised in the balance sheet when the Company becomes a
party to the contractual terms of the instrument.
The Company’s financial assets include cash and cash equivalents and trade and other receivables.
Interest resulting from holding financial assets is recognised in profit or loss on an accruals basis.
Trade receivables are initially recognised at their transaction price and subsequently measured at
amortised cost as the business model is to collect the contractual cash flows due from tenants. An
impairment provision is created based on expected credit losses, which reflect the Company’s historical
credit loss experience and an assessment of current and forecast economic conditions at the reporting
date.
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.
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 included in accruals 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
Where an investment property is held under a leasehold interest, the headlease is initially recognised as
an asset at cost plus the present value of minimum ground rent payments. The corresponding rental
liability to the head leaseholder is included in the balance sheet as a liability. Lease payments are
apportioned between the finance charge and the reduction of the outstanding liability so as to produce a
constant periodic rate of interest on the remaining lease liability.
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.
6. 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
No significant judgements have been made in the process of applying the Group’s and parent company's
accounting policies, other than those involving estimations, that have had a significant effect on the
amounts recognised within the financial statements.
Estimates
The accounting estimates with a significant risk of a material change to the carrying values of assets and
liabilities within the next year are:
• Valuation of investment 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 valuers in determining the fair value of its
investment properties. The valuers make reference to market evidence of transaction prices for
similar properties. The valuations are based upon assumptions including future rental income,
anticipated capital expenditure and maintenance costs (particularly in the context of mitigating the
impact of climate change) and appropriate discount rates (ie property yields). The key sources of
estimation uncertainty within these inputs above are future rental income and property yields.
Reasonably possible changes to these inputs across the portfolio would have a material impact on its
valuation.
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. Any shares
issued after the year end are disclosed in Note 21.
The Company is a FTSE EPRA/NAREIT index series constituent 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 as alternative
indicators of performance.
Year Year
ended ended
31 March 31 March
2023 2022
Group
Net (loss)/profit and diluted net profit attributable to equity holders of the Company
(£000)
(65,821) 122,325
Net loss/(profit) on investment property (£000) 90,609 (97,073)
EPRA net profit attributable to equity holders of the Company (£000) 24,788 25,252
Weighted average number of ordinary shares:
Issued ordinary shares at start of the year (thousands) 440,850 420,053
Effect of shares issued during the year (thousands) - 8,649
Basic and diluted weighted average number of shares (thousands) 440,850 428,702
Basic and diluted EPS (p) (14.9) 28.5
EPRA EPS (p) 5.6 5.9
4. Revenue
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Gross rental income from investment property 40,558 39,039 39,758 37,638
Income from recharges to tenants 3,526 852 3,526 852
Other income 63 - 63 -
44,147 39,891 43,347 38,490
5. Operating profit
Operating profit is stated after (crediting)/charging:
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Profit on disposal of investment property (4,368) (5,369) (4,368) (5,369)
Investment property valuation decrease/(increase) 94,977 (91,704) 95,266 (84,383)
Fees payable to the Company’s auditor and its associates for the audit
of the Company’s annual financial statements
154 138 154 138
Fees payable to the Company’s auditor and its associates for other 35 25 35 25
services
Administrative fee payable to the Investment Manager 581 459 581 459
Directly incurred operating expenses of vacant rental property 1,857 1,826 1,857 1,611
Directly incurred operating expenses of let rental property 1,286 1,444 1,286 1,418
Amortisation of right-of-use asset 8 7 8 7
Fees payable to the Company’s auditor, Deloitte LLP, are further detailed in the Audit and Risk Committee
report.
6. Finance income
Group Company
Year Year Year Year
ended ended
ended ended
31 March 31 March
31 March 31 March
2023 2023
2022 2022
£000 £000
£000 £000
Bank interest 22 - 22 -
Finance income - - - -
22 - 22 -
7. Finance costs
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Amortisation of arrangement fees on debt facilities 220 364 187 337
Other finance costs 375 307 375 302
Bank interest 5,687 4,156 5,543 3,976
6,282 4,827 6,105 4,615
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:
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Profit before income tax (65,821) 122,325 (57,671) 114,175
Tax charge on profit at a standard rate of 19.0% (2022: 19.0%) (12,506) 23,242 (10,957) 21,693
Effects of:
REIT tax exempt rental profits and gains 12,506 (23,242) 10,957 (21,693)
Income tax expense - - - -
Effective income tax rate 0.0% 0.0% 0.0% 0.0%
The standard rate of UK corporation tax increased to 25% on 1 April 2023.
The Company operates as a REIT and hence profits and gains from the property investment business are
normally exempt from corporation tax.
9. Dividends
Year Year
ended ended
31 March 31 March
2023 2022
£000 £000
Group and Company
Interim dividends paid on ordinary shares relating to the quarter ended:
Prior year
- 31 March 2022: 1.375p (2021: 1.25p) 6,065 5,257
- 31 March 2022: nil (2021: 0.5p) - 2,102
Current year
- 30 June 2022: 1.375p (2021: 1.25p) 6,062 5,257
- 30 September 2022: 1.375p (2021: 1.25p) 6,062 5,511
- 31 December 2022: 1.375p (2021: 1.375p) 6,061 6,062
24,250 24,191
The Company paid a fourth interim dividend relating to the quarter ended 31 March 2023 of 1.375p per
ordinary share (totalling £6.1m) on 31 May 2023 to shareholders on the register at the close of business
on 12 May 2023 which has not been included as liabilities in these financial statements.
10. Investment property
Group Company
£000 £000
At 31 March 2021 551,922 551,922
Impact of lease incentives 1,112 1,157
Additions 65,495 23,801
Amortisation of right-of-use asset (7) (7)
Capital expenditure and development 3,515 3,510
Disposals (48,555) (48,555)
Valuation increase before acquisition costs 93,977 86,656
Acquisition costs (2,273) (2,273)
Valuation increase including acquisition costs 91,704 84,383
At 31 March 2022 665,186 616,211
Impact of lease incentives 1,677 1,690
Additions 56,033 56,033
Transfers from group companies - 49,251
Amortisation of right-of-use asset (8) (8)
Capital expenditure and development 9,954 9,954
Disposals (24,278) (24,278)
Valuation decrease before acquisition costs (91,551) (91,840)
Acquisition costs (3,426) (3,426)
Valuation decrease including acquisition costs (94,977) (95,266)
At 31 March 2023 613,587 613,587
£447.3m (2022: £458.0m) of investment property was charged as security against the Company’s borrowings at
the year end. £0.6m (2022: £0.6m) of investment property comprises right-of-use assets.
The carrying value of investment property at 31 March 2023 comprises £526.1m freehold (2022: £444.1m) and
£87.5m leasehold property (2022: £107.4m).
Company only investment property additions during the year of £105.3m include £49.3m transferred from
Custodian Real Estate (DROP) Limited, a subsidiary, as part of the hive-up of the trade and assets of DRUM
REIT.
Investment property is stated at the Directors’ estimate of its 31 March 2023 fair value. Savills (UK)
Limited (“Savills”) and Knight Frank LLP (“KF”), professionally qualified independent valuers, each valued
approximately half of the property portfolio as at 31 March 2023 in accordance with the Appraisal and
Valuation Standards published by the Royal Institution of Chartered Surveyors (“RICS”). Savills and KF
have recent experience in the relevant locations and categories 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 following
inputs were used:
Weighted
Valuation Weighted
average passing rent Topped-up NIY
31 March 2023 average ERV range Equivalent yield
Sector (£ per sq ft)
£000 (£ per sq ft)
Industrial 295.1 6.7 4.8 – 18.0 6.6% 5.1%
Retail warehouse 131.8 14.3 7.0 – 17.5 7.3% 7.2%
Other 78.6 19.5 2.9 – 71.2* 8.0% 6.8%
Office 71.7 18.7 8.5 – 35.8 8.9% 6.4%
High street retail 36.4 30.7 3.8 – 57.4 8.6% 9.6%
*Drive-through restaurants’ ERV per sq ft are based on building floor area rather than area inclusive of
drive-through lanes.
Valuation reports are based on both information provided by the Company eg 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 valuers e.g. ERVs, expected capital
expenditure and yields. These assumptions are based on market observation and the valuers’ 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.
11. Property, plant and equipment
EV chargers and PV cells
At 31 March 2023 At 31 March 2022 At 31 March 2021
£000 £000 £000
Group and Company
Cost
Balance at the start of the year - - -
Additions 1,225 - -
1,225 - -
Depreciation
At the start of the year - - -
During the year (112) - -
(112) - -
Net book value at the end of the year 1,113 - -
12. Investments
Shares in subsidiaries
Company
31 March 31 March
Country of Principal Ordinary 2023 2022
registration and activity shares held
Company incorporation £000 £000
number
Name
Custodian REIT Limited 08882372 England and Wales Non-trading 100% - -
Custodian Real Estate (Beaumont 04364589 England and Wales Dissolved 100% - 4
Leys) Limited*
Custodian Real Estate (Leicester)
Limited* 04312180 England and Wales Dissolved 100% - 497
Custodian Real Estate (JMP4) 11187952 England and Wales Dissolved 100% - 2,904
Limited
Custodian Real Estate (DROP
Holdings) Limited (formerly DRUM 9511797 England and Wales In Liquidation 100% - 19,133
Income Plus REIT plc)
Custodian Real Estate (DROP)
Limited (formerly DRUM Income Plus 9515513 England and Wales In Liquidation 100% - -
Limited)*
- 22,538
* Held indirectly
The trade and assets of Custodian Real Estate (DROP Holdings) Limited and Custodian Real Estate (DROP)
Limited were hived up into the Company in June 2022 via an intercompany transfer. In November 2022
Custodian Real Estate (DROP Holdings) Limited and Custodian Real Estate (DROP) Limited went through a
‘pre-liquidation’ exercise which culminated in a non-cash dividend of £28.0m being declared from Custodian
Real Estate (DROP Holdings) Limited to the Company to clear the associated intercompany balance. The
declaration of this dividend resulted in a corresponding impairment to the Company’s investment in
Custodian Real Estate (DROP Holdings) Limited of £19.1m. Custodian Real Estate (DROP Holdings) Limited
and Custodian Real Estate (DROP) Limited were then entered into a solvent liquidation process in December
2022.
Custodian Real Estate (Beaumont Leys) Limited, Custodian Real Estate (Leicester) Limited and Custodian
Real Estate (JMP4) Limited have made distributions totalling £3.4m in advance of completing their
liquidations during the year which resulted in a corresponding impairment to the Company’s investments in
those companies.
The Company’s non-trading 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.
Non-listed equity investments
Group and
Company
31 March 31 March
Country of registration and Principal Ordinary 2023 2022
incorporation activity shares held
Company number £000 £000
Name
AGO Hotels 12747566 England and Wales Operator of 4.5% - -
Limited hotels
- -
The Company was allotted 4.5% of the ordinary share capital of AGO Hotels Limited on 31 January 2021 as
part of a new letting of its hotel asset in Portishead.
13. Trade and other receivables
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Falling due in less than one year:
Trade receivables 1,355 3,094 1,355 2,642
Other receivables 2,100 1,960 2,100 576
Prepayments and accrued income 293 147 293 147
3,748 5,201 3,748 3,365
The Company regularly monitors the effectiveness of the criteria used to identify whether there has been a
significant increase in credit risk, for example a deterioration in a tenant’s or sector’s outlook or rent
payment performance, and revises them as appropriate to ensure that the criteria are capable of
identifying significant increases in credit risk before amounts become past due.
Tenant rent deposits of £1.5m (2022: £1.1m) are held as collateral against certain trade receivable
balances.
The Company considers the following as constituting an event of default for internal credit risk
management purposes as historical experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
• When there is a breach of financial covenants by the debtor; or
• Available information indicates the debtor is unlikely to pay its creditors.
Such balances are provided for in full. For remaining balances the Company has applied an expected credit
loss (“ECL”) matrix based on its experience of collecting rent arrears.
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
Expected credit loss provision £000 £000 £000 £000
Opening balance 2,739 3,030 2,739 3,030
Increase/(decrease) in provision relating to trade receivables that 453 (291) 453 (291)
are credit-impaired
Utilisation of provisions (2,049) - (2,049) -
Closing balance 1,143 2,739 1,143 2,739
The significant utilisation of the expected credit loss provision during the year was a result of clearing
down a large proportion of provisions made during FY21 as a result of the COVID-19 pandemic. Remaining
provisions against these historical arrears are expected to be utilised during FY24.
14. Trade and other payables
Group Company
31 March 31 March
31 March 2023 31 March 2023
2022 2022
£000 £000
£000 £000
Falling due in less than one year:
Trade and other payables 972 3,960 972 1,973
Social security and other taxes 498 456 498 366
Accruals 4,693 4,226 4,693 4,100
Rental deposits 1,503 1,141 1,503 1,141
Amounts due to subsidiary undertakings - - - 3,405
7,666 9,783 7,666 10,985
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 are due on demand.
15. Cash and cash equivalents
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Cash and cash equivalents 6,880 11,624 6,880 9,217
Group and Company cash and cash equivalents at 31 March 2023 include £1.6m (2022: £1.7m) of restricted
cash comprising: £1.5m (2022: £1.1m) rental deposits held on behalf of tenants, £nil (2022: £0.3) exchange
deposits on pipeline acquisitions and £0.1m (2022: £0.3m) retentions held in respect of development
fundings.
16. Borrowings
The table below sets out changes in liabilities arising from financing activities during the year.
Group Company
Costs incurred in the Costs incurred in the
arrangement of arrangement of
borrowings borrowings
Borrowings £000 Total Borrowings £000 Total
£000 £000
£000 £000
Falling due within one
year:
At 31 March 2021 - - - - - -
Borrowings arising from
the acquisition of DRUM 22,760 (60) 22,700 - - -
REIT
Amortisation of - 27 27 - - -
arrangement fees
At 31 March 2022 22,760 (33) 22,727 - - -
Repayment of borrowings (22,760) (22,760) - - -
Amortisation of - 33 33 - - -
arrangement fees
At 31 March 2023 - - - - - -
Falling due in more than one year:
At 31 March 2021 140,000 (1,396) 138,604 140,000 (1,396) 138,604
Repayment of borrowings (25,000) - (25,000) (25,000) - (25,000)
Arrangement fees incurred - (57) (57) - (57) (57)
Amortisation of arrangement fees - 336 336 - 336 336
115,000 (1,117) 113,883 115,000 (1,117) 113,883
At 31 March 2022
Additional borrowings 58,500 - 58,500 58,500 - 58,500
Arrangement fees incurred - (468) (468) - (454) (454)
Amortisation of arrangement fees - 187 187 - 173 173
At 31 March 2023 173,500 (1,398) 172,102 173,500 (1,398) 172,102
Total borrowings:
At 31 March 2023 173,500 (1,398) 172,102 173,500 (1,398) 172,102
In June 2022 the Company arranged a £25m tranche of 10 year debt with Aviva at a fixed rate of interest of
4.10% per annum to refinance a £25m variable rate revolving credit facility with Royal Bank of Scotland
(“RBS”) which was due to expire in September 2022.
At the year end the Company has the following facilities available:
• A £40m RCF with Lloyds with interest of between 1.5% and 1.8% above SONIA and is repayable on
17 September 2024. The RCF limit can be increased to £50m with Lloyds’ consent, with £33.5m drawn at
the year end;
• A £20m term loan with Scottish Widows plc with interest fixed at 3.935% and is repayable on
13 August 2025;
• A £45m term loan with Scottish Widows plc with interest fixed at 2.987% and is repayable on 5 June
2028; and
• A £75m term loan facility with Aviva comprising:
• A £35m tranche repayable on 6 April 2032, with fixed annual interest of 3.02%;
• A £15m tranche repayable on 3 November 2032 with fixed annual interest of 3.26%; and
• A £25m tranche repayable on 3 November 2032 with fixed annual interest of 4.10%.
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 income from each discrete security pool, over the
preceding three months, to exceed 250% of the facility’s quarterly interest liability.
The Company’s debt facilities contain market-standard cross-guarantees such that a default on an
individual facility will result in all facilities falling into default.
17. Share capital
Group and Company
Ordinary shares
of 1p
Issued and fully paid share capital £000
At 1 April 2021 420,053,344 4,201
Issue of share capital 20,797,054 208
At 31 March 2022 440,850,398 4,409
Issue of share capital - -
At 31 March 2023 440,850,398 4,409
During the year ending 31 March 2022, the Company issued 550,000 shares for cash consideration of 101.5p
per share and issued 20,247,040 shares as consideration for the acquisition of DRUM Property Income REIT
plc at their market value of 94.5p per share.
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 31 August 2022, the Board was given authority to issue up to 146,950,133
shares, pursuant to section 551 of the Companies Act 2006 (“the Authority”). The 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. No ordinary shares have been issued under the Authority since 31 August
2022. The Authority expires on the earlier of 15 months from 31 August 2022 and the subsequent AGM, due
to take place on 8 August 2023.
In addition, the Company was granted authority to make market purchases of up to 44,085,039 ordinary
shares under section 701 of the Companies Act 2006. No market purchases of ordinary shares have been
made.
Company Group Group and Company
Retained earnings Share premium account
Retained earnings £000 Merger reserve
£000
Other reserves £000 £000
At 1 April 2021 155,196 155,196 250,469 -
Shares issued during the year - - 552 18,931
Costs of share issue - - (51) -
Profit for the year 114,175 122,325 - -
Dividends paid (24,191) (24,191) - -
At 31 March 2022 245,180 253,330 250,970 18,931
Shares issued during the year - - - -
Costs of share issue - - - -
Loss for the year (57,671) (65,821) - -
Dividends paid (24,250) (24,250) - -
At 31 March 2023 163,259 163,259 250,970 18,931
The nature and purpose of each reserve within equity are:
• 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.
• Merger reserve - A non-statutory reserve that is credited instead of a company's share premium account
in circumstances where merger relief under section 612 of the Companies Act 2006 is obtained.
18. Commitments and contingencies
Company as lessor
Operating leases, in which the Company is the lessor, relate to investment property owned by the Company
with lease terms of between 0 to 15 years. The aggregated future minimum rentals receivable under all
non-cancellable operating leases are:
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Not later than one year 37,930 36,512 37,930 33,565
Year 2 33,519 32,830 33,519 30,332
Year 3 28,669 27,986 28,669 25,819
Year 4 25,193 23,367 25,193 21,975
Year 5 19,839 19,764 19,839 18,546
Later than five years 71,446 67,843 71,446 62,418
216,596 208,302 216,596 192,655
The following table presents rent amounts reported in revenue:
Group Company
31 March 31 March 31 March 31 March
2023 2022 2023 2022
£000 £000 £000 £000
Lease income on operating leases 40,371 38,884 39,571 37,483
Therein lease income relating to variable lease payments that do not 187 155 187 155
depend on an index or rate
40,558 39,039 39,758 37,638
19. 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,
Ed Moore, is also a director of the Investment Manager.
Compensation paid to the directors, who are also considered ‘key management personnel’ in addition to the
key Investment Manager personnel, is disclosed in the Remuneration report. The directors' remuneration
report also satisfies the disclosure requirements of paragraph 1 of Schedule 5 to the Accounting
Regulations.
Investment Management Agreement
The Investment Manager is engaged as AIFM under an IMA with responsibility for the 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 and interim financial statements of the Company.
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 £200m
divided by 4;
• 0.75% of the NAV of the Company as at the relevant quarter day which is in excess of £200m but below
£500m divided by 4;
• 0.65% of the NAV of the Company as at the relevant quarter day which is in excess of £500m but below
£750m divided by 4; plus
• 0.55% of the NAV of the Company as at the relevant quarter day which is in excess of £750m divided by
4.
In June 2023 the rates applicable to each NAV hurdle for calculating the Administrative fees payable to
the Investment Manager under the IMA were amended, with effect from 1 April 2022, to:
• 0.125% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200m
divided by 4;
• 0.115% (2022: 0.08%) of the NAV of the Company as at the relevant quarter day which is in excess of
£200m but below £500m divided by 4;
• 0.02% (2022: 0.05%) of the NAV of the Company as at the relevant quarter day which is in excess of
£500m but below £750m divided by 4; plus
• 0.015% (2022: 0.03%) of the NAV of the Company as at the relevant quarter day which is in excess of
£750m divided by 4.
The IMA is terminable by either party by giving not less than 12 months’ prior written notice to the
other. 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 marketing fee of 0.25% (2022: 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 £4.46m (2022: £4.41m) comprising £3.88m (2022:
£3.86m) in respect of annual management fees, £0.58m (2022: £0.46m) in respect of administrative fees and
£nil (2022: £nil) in respect of marketing fees. During the prior year the Investment Manager charged the
Company a transaction fee of £0.09m relating to work carried out on the acquisition of DRUM REIT.
Mattioli Woods arranges insurance on behalf of the Company’s tenants through an insurance broker and the
Investment Manager is paid a commission by the Company’s tenants for administering the policy.
20. 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
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 it. The Company has a medium-term
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 27.4% (2022: 19.1%).
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
• An RCF whose flexibility allows the Company to manage the risk of changes in interest rates by paying
down variable borrowings using the proceeds of equity issuance, property sales or arranging fixed-rate
debt.
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 2023, the RCF was drawn at £33.5m. Assuming this amount was
outstanding for the whole year and based on the exposure to interest rates at the reporting date, if SONIA
had been 1.0% higher/lower and all other variables were constant, the Company’s profit for the year ended
31 March 2023 would decrease/increase by £0.3m.
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 16). The Company would breach its overall borrowing covenant if the valuation of its
property portfolio fell by 19% (2022: 45%).
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 a debtor is in breach of
its financial covenants, available information indicates a debtor can’t pay or where balances are
significantly past due.
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 2023,
which comprise trade receivables plus unrestricted cash, was £6.6m (2022: Group - £13.0m, Company -
£10.1m).
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.
Cash of £6.9m (2022: £11.6m) is held with Lloyds Bank plc which has a credit rating of A1 45 41 .
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.
31 March 2023
31 March 2023 31 March 2023
Group and Company Interest rate % 0-3 months 3 months – 1 year 31 March 2023 5 years +
1-5 years
£000 £000 £000
£000
Trade and other payables N/a 7,168 - 151 420
Borrowings:
Variable rate 5.98 501 1,502 34,439 -
Fixed rate 3.935 197 590 21,082 -
Fixed rate 2.987 336 1,008 5,377 45,250
Fixed rate 3.020 264 793 4,228 39,248
Fixed rate 3.260 122 367 1,956 17,249
Fixed rate 4.100 154 461 2,462 25,367
8,742 4,722 69,694 127,535
31 March 2022
31 March 2022 31 March 2022
31 March 2022 (as restated)
Group Interest rate % (as restated) (as restated)
0-3 months 3 months – 1 year (as restated) 5 years +
1-5 years
£000 £000 £000
£000
Trade and other payables N/a 9,327 - 151 420
Borrowings:
Variable rate 2.441 139 22,839 - -
Fixed rate 3.935 197 590 22,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
10,385 25,597 34,368 107,948
31 March 2022 31 March 2022 31 March 2022
31 March 2022
Company Interest rate % (as restated) (as restated) (as restated)
0-3 months 3 months – 1 year (as restated) 5 years +
1-5 years
£000 £000 £000
£000
Trade and other payables N/a 10,619 - 151 420
Borrowings:
Fixed rate 3.935 197 590 22,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
11,538 2,758 34,368 107,948
The tables relating to the year ended 31 March 2022 above have been restated due to a reclassification of
certain current liabilities as financial instruments included in error (social security and other tax
payables of £456k and £366k for group and company respectively), and the correction of loan amounts
(removal of average value of RCF of £16,948k, inclusion of repayment amounts of £20,000k in both group and
company only relating to the fixed rate loan at 3.395%, and £22,700k additionally in the group relating to
the variable rate loan at 2.441%).
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 liabilities 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 independent firms 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 2023, the fair value of the Company’s investment properties was £613.6m (2022: £665.2m).
Interest bearing loans and borrowings – level 3
At 31 March 2023 the gross value of the Company’s loans with Lloyds, SWIP and Aviva all held at amortised
cost was £173.5m (2022: £137.8m). The difference between the carrying value of Company’s loans and their
fair value is detailed in Note 22.
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.
21. Events after the reporting date
Property transactions
Since the year end the Company has sold a retail unit in Cirencester at valuation for £0.7m.
22. Alternative performance measures
NAV per share total return
An alternative measure of performance taking into account both capital returns and dividends by assuming
46 dividends declared are reinvested at NAV at the time the shares are quoted 47 ex-dividend, shown as a
percentage change from the start of the year.
Year ended Year ended
31 March 31 March
2023 2022
Group
Net assets (£000) 437,569 527,640
Shares in issue at 31 March (thousands) 440,850 440,850
NAV per share at the start of the year (p) 119.7 97.6
Dividends per share paid during the year (p) 5.5 5.625
NAV per share at the end of the year (p) 99.3 119.7
(12.5%)
NAV per share total return 28.4%
Share price total return
An alternative measure of performance taking into account both share price returns and dividends by
assuming 48 dividends declared are reinvested at the ex-dividend share price, shown as a percentage
change from the start of the year.
Year ended Year ended
31 March 31 March
2023 2022
Group
Share price at the start of the year (p) 101.8 91.8
Dividends per share paid during the year (p) 5.5 5.625
Share price at the end of the year (p) 89.2 101.8
(7.0%)
Share price total return 17.0%
Dividend cover
The extent to which dividends relating to the year are supported by recurring net income, indicating
whether the level of dividends is sustainable.
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Group
Dividends paid relating to the year 18,185 16,830
Dividends approved relating to the year 6,062 6,062
24,247 22,892
(Loss)/profit after tax (65,821) 122,325
One-off costs - -
Net loss/(profit) on investment property 90,609 (97,073)
24,788 25,252
Dividend cover 102.2% 110.3%
Weighted average cost of debt
The interest rate payable on bank borrowings at the year end weighted by the amount of borrowings at that
rate as a proportion of total borrowings.
Amount drawn
31 March 2023
£m Interest rate
Weighting
RCF 33.5 5.830% 1.13%
Total variable rate 33.5
SWIP £20m loan 20.0 3.935% 0.45%
SWIP £45m loan 45.0 2.987% 0.78%
Aviva
• £35m tranche 35.0 3.020% 0.61%
• £15m tranche 15.0 3.260% 0.28%
• £25m tranche 25.0 4.100% 0.59%
Total fixed rate 140.0
Weighted average drawn facilities 173.5 3.84%
Amount drawn
31 March 2022
£m Interest rate
Weighting
RCF 23.0 2.441% 0.40%
Total variable rate 23.0
SWIP £20m loan 20.0 3.935% 0.56%
SWIP £45m loan 45.0 2.987% 0.96%
Aviva
• £35m tranche 35.0 3.020% 0.76%
• £15m tranche 15.0 3.260% 0.35%
Total fixed rate 115.0
Weighted average rate on drawn facilities 138.0 3.02%
Net gearing
Gross borrowings less cash (excluding rent deposits), divided by property portfolio value. This ratio
indicates whether the Company is meeting its investment objective to target 25% loan-to-value in the
medium-term to balance enhancing shareholder returns without facing excessive financial risk.
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Group
Gross borrowings 173,500 137,760
Cash (6,880) (11,624)
Cash held on behalf of tenants 1,503 1,141
Net borrowings 168,123 127,277
Investment property 613,587 665,186
Net gearing 27.4% 19.1%
Ongoing charges
A measure of the regular, recurring costs of running an investment company expressed as a percentage of
average NAV, and indicates how effectively costs are controlled in comparison to other property investment
companies.
Year ended Year ended
31 March 31 March
2023 2022
Group £000 £000
Average quarterly NAV during the year 489,075 462,501
Expenses 13,099 9,812
Operating expenses of rental property rechargeable to tenants (3,526) (852)
9,573 8,960
Operating expenses of rental property directly incurred (3,530) (3,422)
One-off costs - -
6,043 5,538
OCR 1.96% 1.94%
OCR excluding direct property expenses 1.23% 1.20%
EPRA performance measures
The Company uses EPRA alternative performance measures based on its Best Practice Recommendations to
supplement IFRS measures, in line with best practice in the sector. The measures defined by EPRA are
designed to enhance transparency and comparability across the European real estate sector. The Board
supports EPRA’s drive to bring parity to the comparability and quality of information provided in this
report to investors and other key stakeholders. EPRA alternative performance measures are adopted
throughout this report and are considered by the directors to be key business metrics.
EPRA earnings per share
A measure of the Company’s operating results excluding gains or losses on investment property, giving an
alternative indication of performance compared to basic EPS which sets out the extent to which dividends
relating to the year are supported by recurring net income.
Year ended Year ended
31 March 31 March
2023 2022
£000 £000
Group
(Loss)/profit for the year after taxation (65,821) 122,325
Net (profit)/loss on investment property 90,609 (97,073)
EPRA earnings 24,788 25,252
Weighted average number of shares in issue (thousands) 440,850 428,702
EPRA earnings per share (p) 5.6 5.9
EPRA NAV per share metrics
EPRA NAV metrics make adjustments to the IFRS NAV to provide stakeholders with additional information on
the fair value of the assets and liabilities of a real estate investment company, under different
scenarios.
EPRA Net Reinstatement Value (“NRV”)
NRV assumes the Company never sells its assets and aims to represent the value required to rebuild the
entity.
31 March 31 March
2023 2022
Group £000 £000
IFRS NAV 437,569 527,640
Fair value of financial instruments - -
Deferred tax - -
EPRA NRV 437,569 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NRV per share (p) 99.3 119.7
EPRA Net Tangible Assets (“NTA”)
Assumes that the Company buys and sells assets for short-term capital gains, thereby crystallising certain
deferred tax balances.
31 March 31 March
2023 2022
Group £000 £000
IFRS NAV 437,569 527,640
Fair value of financial instruments - -
Deferred tax - -
Intangibles - -
EPRA NTA 437,569 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NTA per share (p) 99.3 119.7
EPRA Net Disposal Value (“NDV”)
Represents the shareholders’ value under a disposal scenario, where deferred tax, financial instruments
and certain other adjustments are calculated to the full extent of their liability, net of any resulting
tax.
31 March 31 March
2023 2022
Group £000 £000
IFRS NAV 437,569 527,640
Fair value of fixed rate debt below book value 7,636 -
Deferred tax - -
EPRA NDV 445,205 527,640
Number of shares in issue (thousands) 440,850 440,850
EPRA NDV per share (p) 101.0 119.7
At 31 March 2023 the Company’s gross fixed-rate debt included in the balance sheet at amortised cost was
£173.5m (2022: £137.8m) and its fair value is considered to be £163.9m. This fair value has been
calculated based on prevailing mark-to-market valuations provided by the Company’s lenders, and excludes
‘break’ costs chargeable should the Company settle loans ahead of their contractual expiry. These
mark-to-market values were not available in the prior year so the fair value in excess of book value is
shown as £nil in the table above.
EPRA NIY and EPRA ‘topped-up’ NIY
EPRA NIY represents annualised rental income based on cash rents passing at the balance sheet date, less
non-recoverable property operating expenses, divided by the property valuation plus estimated purchaser’s
costs. The EPRA ‘topped-up’ NIY is calculated by making an adjustment to the EPRA NIY in respect of the
expiration of rent free periods (or other unexpired lease incentives such as discounted rent periods and
stepped rents). These measures offer comparability between the rent generating capacity of portfolios.
31 March 31 March
2023 2022
Group £000 £000
Investment property 613,587 665,186
Allowance for estimated purchasers’ costs 49 42 39,883 43,237
Gross-up property portfolio valuation 653,470 708,423
Annualised cash passing rental income 50 43 39,908 37,367
Property outgoings 51 44 (1,875) (1,719)
Annualised net rental income 38,033 35,648
Impact of expiry of current lease incentives 52 45 2,144 3,126
Annualised net rental income on expiry of lease incentives 40,177 38,773
EPRA NIY 5.8% 5.0%
EPRA ‘topped-up’ NIY 6.2% 5.5%
EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of the whole property portfolio
and offers insight into the additional rent generating capacity of the portfolio.
31 March 31 March
2023 2022
Group £000 £000
Annualised potential rental value of vacant premises 4,743 4,643
Annualised potential rental value for the property portfolio 48,976 45,580
EPRA vacancy rate 9.7% 10.2%
EPRA cost ratios
EPRA cost ratios reflect overheads and operating costs as a percentage of gross rental income and indicate
how effectively costs are controlled in comparison to other property investment companies.
Year ended Year ended
31 March 31 March
2023 2022
Group £000 £000
Directly incurred operating expenses and other expenses 9,461 8,960
Ground rent costs (37) (37)
EPRA costs (including direct vacancy costs) 9,424 8,923
Property void costs (1,828) (1,525)
EPRA costs (excluding direct vacancy costs) 7,596 7,398
Gross rental income 40,558 39,039
Ground rent costs (37) (37)
Rental income net of ground rent costs 40,521 39,002
EPRA cost ratio (including direct vacancy costs) 23.3% 22.9%
EPRA cost ratio (excluding direct vacancy costs) 18.7% 19.0%
EPRA LTV
An alternative measure of gearing including all payables and receivables. This ratio indicates whether
the Company is complying with its investment objective to target 25% loan-to-value in the medium-term to
balance enhancing shareholder returns without facing excessive financial risk.
Year ended Year ended
31 March 31 March
2023 2022
Group £000 £000
Gross borrowings 173,500 137,760
Trade and other receivables 3,748 5,201
Trade and other payables (7,666) (9,783)
Deferred income (7,421) (7,408)
Cash 6,880 11,624
Cash held on behalf of tenants (1,503) (1,141)
Net borrowings 167,538 136,253
Investment property 613,587 665,186
EPRA LTV 27.3% 20.5%
EPRA capital expenditure
Capital expenditure incurred on the Company’s property portfolio during the year. This ratio offers
insight into the proportion of cash deployment relating to acquisitions compared to the like-for-like
portfolio.
31 March 31 March
2023 2022
Group £000 £000
Acquisitions 56,033 65,495
Development 3,580 -
Like-for-like portfolio 4,066 3,515
Total capital expenditure 63,679 69,010
EPRA like-for-like rental growth
Like-for-like rental growth of the property portfolio by sector which offers an alternative view on the
‘run-rate’ of revenues at the year end.
31 March 2023
Retail warehouse
Industrial Retail Other Office Total
£000
Group £000 £000 £000 £000 £000
Like-for-like rent 14,377 8,074 3,405 5,184 5,597 36,637
Acquired properties 824 1,377 217 139 - 2,557
Sold properties 583 - 34 57 690 1,364
15,784 9,451 3,656 5,380 6,287 40,558
31 March 2022
Retail warehouse
Industrial Retail Other Office Total
£000
Group £000 £000 £000 £000 £000
Like-for-like rent 14,637 7,887 3,167 5,397 4,168 35,256
Acquired properties 218 182 538 - 1,074 2,012
Sold properties 976 100 149 546 - 1,771
15,831 8,169 3,854 5,943 5,242 39,039
Investment policy
The Company’s investment objective is 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’s investment policy is:
a) To invest in a diversified portfolio of UK commercial real estate properties principally characterised
by individual values of less than £15m at acquisition 53 46 .
b) The property portfolio should not exceed a maximum weighting to any one property sector, or to any
geographic region, of greater than 50%.
c) 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.
d) No one tenant or property should account for more than 10% of the total rent roll of the Company’s
portfolio at the time of purchase, except:
(i) in the case of a single tenant which is a governmental body or department for which no percentage
limit to proportion of the total rent roll shall apply; or
(ii) in the case of a single tenant rated by Dun & Bradstreet with a credit risk score higher than 2, in
which case the exposure to such single tenant may not exceed 5% of the total rent roll (a risk score of 2
represents “lower than average risk”).
e) The Company will not undertake speculative development (that is, development of property which has not
been leased or pre-leased), save for redevelopment and refurbishment of existing holdings, but may 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.
Substantial redevelopments and refurbishments of existing properties which expose the Company to
development risk would not exceed 10% of the Company’s gross assets.
f) The Company may use gearing, including to fund the acquisition of property and cash flow requirements,
provided that the maximum gearing shall not exceed 35% of the Company’s total assets at the time of
borrowing aggregate market value of all the properties of the Company. Over the medium-term the Company is
expected to target borrowings of 25% of the Company’s total assets aggregate market value of all the
properties of the Company at the time of borrowing.
g) The Company reserves the right to use efficient portfolio management techniques, such as interest rate
hedging and credit default swaps, to mitigate market volatility.
h) Uninvested cash or surplus capital or assets may be invested on a temporary basis in:
(i) cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations
with banks or other counterparties having a single-A (or equivalent) or higher credit rating as determined
by an internationally recognised rating agency; or
(ii) any “government and public securities” as defined for the purposes of the FCA rules.
i) Gearing, calculated as borrowings as a percentage of the aggregate market value of all the properties
of the Company and its subsidiaries, may not exceed 35% at the time such borrowings are incurred.
Glossary of terms
Explanation
Term
The AIC Code addresses the Principles and Provisions set out in the
UK Corporate Governance Code, as well as setting out additional
2019 AIC Corporate Governance Code for provisions on issues that are of specific relevance to the Company
Investment Companies (AIC Code) and provide more relevant information to shareholders.
External investment manager with appropriate FCA permissions to
Alternative Investment Fund Manager manage an ‘alternative investment fund’
(AIFM)
Alternative performance measures
(APMs) Assess Company performance alongside IFRS measures
Building Research Establishment
Environmental Assessment Method A set of assessment methods and tools designed to help understand
(BREEAM) and mitigate the environmental impacts of developments
A project focused on carbon risk assessment for the European real
estate industry’s push to decarbonise, building a methodology to
empirically quantify the different scenarios and their impact on
the investor portfolios and identify which properties will be at
Carbon Risk Real Estate Monitor risk of stranding due to the expected increase in the stringent
(CRREM) building codes, regulation, and carbon prices. It also enables an
analysis of the effects of refurbishing single properties on the
total carbon performance of a company
Core real estate Generally offer the lowest risk and target returns, requiring
little asset management and fully let on long leases.
Generally offer low-to-moderate risk and target returns, typically
Core-plus real estate high-quality and well-occupied properties but also providing asset
management opportunities.
EPRA earnings divided by dividends paid and approved for the year
Dividend cover
Earnings per share (EPS)
Profit before tax dividend by number of shares in issue
Required certificate whenever a property is built, sold or rented.
An EPC gives a property an energy efficiency rating from A (most
efficient) to G (least efficient). An EPC contains information
Energy performance certificate (EPC) about a property’s energy use and typical energy costs, and
recommendations about how to reduce energy use and save money
ERV of occupied space as a percentage of the ERV of the whole
EPRA occupancy property portfolio
EPRA BPR and sBPR facilitate comparison with the Company’s peers
through consistent reporting of key real estate specific and
EPRA (Sustainability) Best Practice environmental performance measures
Recommendations (BPR), (sBPR)
Annualised cash rents at the year-end date, adjusted for the
expiration of lease incentives (rent free periods or other lease
incentives such as discounted rent periods and stepped rents), less
EPRA topped-up net initial yield estimated non-recoverable property operating expenses, divided by
property valuation plus estimated purchaser’s costs
The external valuers’ opinion of the open market rent which, on the
date of valuation, could reasonably be expected to be obtained on a
Estimated rental value (ERV) new letting or rent review of a property
Weighted average of annualised cash rents at the year-end date and
ERV, less estimated non-recoverable property operating expenses,
Equivalent yield divided by property valuation plus estimated purchaser’s costs
Unbiased, probability-weighted amount of doubtful debt provision,
using reasonable and supportable information that is available
Expected credit loss (ECL) without undue cost or effort at the reporting date
GRESB independently benchmarks ESG data to provide financial
Global Real Estate Sustainability markets with actionable insights, ESG data and benchmarks
Benchmark (GRESB)
Gasses in the earth’s atmosphere which trap heat and lead directly
Greenhouse gas (GHG) to climate change
Investment management agreement (IMA) The Investment Manager is engaged under an IMA to manage the
Company’s assets, subject to the overall supervision of the
Directors
Published, FCA approved policy that contains information about the
policies which the Company will follow relating to asset
Investment policy allocation, risk diversification, and gearing, and that includes
maximum exposures. This is a requirement of Listing Rule 15
The Company’s environmental and performance targets are measured by
KPIs which provide a strategic way to assess its success towards
Key performance indicator (KPI) achieving its objectives
Comparisons adjusted to exclude assets bought or sold during the
Like-for-like current or prior year
Market Abuse Regulation (MAR) Regulations to which the Company’s code for directors’ share
dealings is aligned
Minimum Energy Efficiency Standards
(MEES) MEES regulations set a minimum energy efficiency level for rented
properties.
Equity attributable to owners of the Company
Net asset value (NAV)
The movement in EPRA Net Tangible Assets per share plus the
dividend paid during the period expressed as a percentage of the
NAV per share total return EPRA net tangible assets per share at the beginning of the period
Gross borrowings less cash (excluding rent deposits), divided by
Net gearing / loan-to-value (LTV) property portfolio value
Annualised cash rents at the year-end date, adjusted for the
expiration of lease incentives, divided by property valuation plus
Net initial yield (NIY) estimated purchaser’s costs
Annualised cash rents at the year-end date, adjusted for the
expiration of lease incentives, less estimated non-recoverable
Net rental income property operating expenses including void costs and net service
charge expenses
NAV adjusted to reflect the fair value of trading properties and
Net tangible assets (NTA) derivatives and to exclude deferred taxation on revaluations
Expenses (excluding operating expenses of rental property recharged
to tenants) divided by average quarterly NAV, representing the
Ongoing charges ratio (OCR) Annual running costs of the Company
Annualised cash rents at the year-end date, adjusted for the
Passing rent expiration of lease incentives
A property company which qualifies for and has elected into a tax
regime which is exempt from corporation tax on profits from
Real Estate Investment Trust (REIT) property rental income and UK capital gains on the sale of
investment properties
Variable rate loan which can be drawn down or repaid periodically
Revolving credit facility (RCF) during the term of the facility
Expected future increase in rents once reset to market rate
Reversionary potential
Share price movement including dividends paid during the year
Share price total return
Sterling Overnight Index Average
(“SONIA”) Base rate payable on variable rate bank borrowings before the
bank’s margin
SECR requirements aim to put green credentials into the public
Streamlined Energy and Carbon Report domain and help organisations achieve the benefits of environmental
(SECR) reporting
Generally moderate-to-higher risk and target returns, often
representing properties requiring significant levels of asset
Value add real estate management to improve the building and secure new lettings.
The total loan interest cost per annum, based on prevailing rates
Weighted average cost of drawn debt on variable rate debt, divided by the total debt in issue
facilities
Weighted average unexpired lease term
to first break or expiry (WAULT) Average unexpired lease term across the investment portfolio
weighted by contracted rent
Distribution of the Annual Report and accounts to members
The financial information set out above does not constitute the Company's statutory accounts for the years
ended 31 March 2023 or 2022, but is derived from those accounts. Statutory accounts for 2022 have been
delivered to the Registrar of Companies and those for 2023 will be delivered following the Company's AGM.
The auditor has reported on the 2023 accounts: their report was unqualified, did not draw attention to any
matters by way of emphasis and did not contain statements under 54 s498(2) or 55 (3) of the Companies
Act 2006. The Annual Report and accounts will be posted to shareholders in due course, and will be
available on our website (custodianreit.com) and for inspection by the public at the Company’s registered
office address: 1 New Walk Place, Leicester LE1 6RU during normal business hours on any weekday. Further
copies will be available on request.
- Ends -
══════════════════════════════════════════════════════════════════════════════════════════════════════════
56 1 Before acquisition costs of £3.4m.
57 2 Before acquisition costs of £3.4m.
58 3 Net of disposal costs of £0.2m.
59 4 The European Public Real Estate Association (“EPRA”).
60 5 Profit after tax, excluding net gains or losses on investment property, divided by weighted
average number of shares in issue.
61 6 Profit after tax divided by weighted average number of shares in issue.
62 7 Dividends paid and approved for the year.
63 8 Profit after tax, excluding net gains or losses on investment property, divided by dividends paid
and approved for the year.
64 9 Net Asset Value (“NAV”) movement including dividends paid during the year on shares in issue at 31
March 2022.
65 10 Share price movement including dividends paid during the year.
66 11 EPRA net tangible assets (“NTA”) does not differ from the Company’s IFRS NAV or EPRA NAV.
67 12 Gross borrowings less cash (excluding rent deposits) divided by property portfolio value.
68 13 Expenses (excluding operating expenses of rental property recharged to tenants) divided by
average quarterly NAV.
69 14 Expenses (excluding operating expenses of rental property) divided by average quarterly NAV.
70 15 Weighted by passing rent or ERV if vacant. For properties in Scotland, English equivalent EPC
ratings have been obtained.
71 16 A full version of the Company’s Investment Policy is shown in the Investment Policy section of
this Annual Report and available at
custodianreit.com/wp-content/uploads/2022/09/CREIT-Investment-policy-updated-31_8_22.pdf.
72 17 The Board proposes removing this upper lot-size limit at the Company’s forthcoming AGM, subject
to FCA approval.
73 18 A risk score of two represents “lower than average risk”.
74 19 Source: Knight Frank LLP.
75 20 Source: Numis Securities Limited.
76 21 Dividends totalling 5.5p per share (1.375p relating to the prior year and 4.125p relating to the
year) were paid on shares in issue throughout the year.
77 22 Annualised cash rents at the year-end, less estimated non-recoverable property operating
expenses, divided by the gross property valuation plus estimated purchaser’s costs. Considered an APM.
78 23 Weighted average of annualised cash rents at the year-end date and ERV, less estimated
non-recoverable property operating expenses, divided by property valuation plus estimated purchaser’s
costs. Considered an APM.
79 24 Annualised cash rents at the year-end date, adjusted for the expiration of lease incentives, less
estimated non-recoverable property operating expenses, divided by property valuation plus estimated
purchaser’s costs. Considered an APM.
80 25 As defined by the Social Mobility Commission.
81 26 Weighted average of annualised cash rents at the year-end date and ERV, less estimated
non-recoverable property operating expenses, divided by property valuation plus estimated purchaser’s
costs. Source: Knight Frank.
82 27 Annualised cash rents at the year -end date, adjusted for the expiration of lease incentives,
less estimated non-recoverable property operating expenses, divided by property valuation plus estimated
purchaser’s costs.
83 28 Annualised cash rents at the year-end, less estimated non-recoverable property operating
expenses, divided by the property valuation plus estimated purchaser’s costs.
84 29 Current passing rent plus ERV of vacant properties.
85 30 Passing rent divided by property valuation plus purchaser’s costs.
86 31 Reversionary rent divided by purchase price plus assumed purchasers’ costs.
87 32 Excluding assets with no car parking facilities.
88 33 Equating to 56 x 75kW ‘Rapid’ Chargers.
89 34 Equating to 140 x 7kW ‘Fast’ Chargers.
90 35 Utilities and waste directly related to the Company’s operations.
91 36 For properties owned for the years ending 31 March 2022 and 2023.
92 37 Utilities and waste directly related to tenant operations.
93 38 One EPC letter represents 25 energy performance asset rating points.
94 39 As defined by the Committee on Climate Change.
95 40 As defined by the Corporation Tax Act 2010.
96 41 Source: Moody’s.
97 42 Assumed at 6.5% of investment property valuation.
98 43 Annualised cash rents at the year date
99 44 Non-recoverable directly incurred operating expenses of rental property, excluding letting and
rent review fees.
100 45 Adjustment for the expiration of lease incentives.
101 46 The Board proposes removing this upper lot-size limit at the Company’s forthcoming AGM, subject
to FCA approval.
══════════════════════════════════════════════════════════════════════════════════════════════════════════
Dissemination of a Regulatory Announcement that contains inside information in accordance with the Market
Abuse Regulation (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
══════════════════════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 250970
EQS News ID: 1657409
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
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