REG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Interim Results
06/12/2023 07:15
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Custodian Property Income REIT plc (CREI)
Custodian Property Income REIT plc: Interim Results
06-Dec-2023 / 07:00 GMT/BST
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6 December 2023
Custodian Property Income REIT plc
(“Custodian Property Income REIT” or “the Company”)
Interim Results
Active management of diversified portfolio underpins strong performance
Custodian Property Income REIT (LSE: CREI), which seeks an enhanced income return by
investing in a diversified portfolio of smaller, regional properties with strong
income characteristics across the UK, today reports its interim results for the six
months ended 30 September 2023 (“the Period”).
Commenting on the results, David MacLellan, Chairman of Custodian Property Income
REIT, said: “The Company’s diversified and well managed investment portfolio has
shown its resilience during the Period, mitigating the risks posed by volatility in
real estate investment markets and driving a continued strong operational
performance. In addition, the Company’s conservative balance sheet and its
longer-term fixed rate debt profile have provided insulation against the challenge of
higher interest rates in the short to medium term.
“Our dividend remains fully covered and, in line with our objectives, I was pleased
to announce 2.75p (2022: 2.75p) of aggregate dividends for the Period. The Board
expects to continue to pay quarterly dividends per share of 1.375p to achieve a
target dividend per share for the year ending 31 March 2024 of no less than 5.5p.
“Over the last five years the Custodian Property Income REIT strategy has provided
shareholders with an income return per share of 28.4p, or an annual average of 5.7p.
This has always been fully covered by earnings, supported by a diverse, regional
property strategy, a conservative gearing policy as well as a hands-on and detailed
approach to both managing the assets themselves and buying and selling well.
“Negative sentiment towards real estate investment is currently weighing against
capital performance. This sentiment is driven primarily by the potential for
persistent inflationary pressure to mean ‘higher-for-longer’ interest rates,
uncertainty around the future of offices and the impact of the UK’s general economic
outlook on discretionary consumer expenditure. However, there is depth in
occupational demand and latent rental growth in the portfolio which offers the
prospect of growth for existing shareholders, as sentiment improves towards the
sector and gives us confidence that the Company will continue to perform well.”
Property highlights
• Portfolio valuation remained stable with a marginal 0.6% decline to £609.8m
(31 March 2023: £613.6m). The portfolio saw a £15.6m valuation decrease, driven
by current investor and market sentiment around the UK’s economic outlook and
high interest rates, tempered by a £6.1m uplift from asset management
initiatives.
• £12.2m was invested primarily in the refurbishment and redevelopment of seven
properties, which is expected to enhance the assets’ valuations and environmental
credentials and, once let, increase rents to give a yield on cost of more than
7%, ahead of the Company’s marginal cost of borrowing.
• Continued improvement in the environmental performance of the portfolio with the
weighted average energy performance certificate (“EPC”) rating improving to C
(56) from C (58) at 31 March 2023.
Financial highlights
• EPRA earnings per share for the Period increased 3.5% to 2.9p (2022: 2.8p) due to
rental growth and improvement in occupancy offsetting administrative cost
inflation and higher finance costs.
• Target dividend per share for the year ended 31 March 2024 of not less than 5.5p,
107% covered in H1, in line with the Company’s policy of paying fully covered
dividends.
• Fixed rate agreed debt facilities represent 76% of total drawn debt,
significantly mitigating interest rate risk and maintaining a beneficial margin
between the 4.2% aggregate cost of debt and the income returns the property
portfolio continues to generate.
• NAV per share 95.9p (31 March 2023: 99.3p).
Further information
Further information regarding the Company can be found at the Company's website
1 www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
2 www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260 1000
www.numiscorp.com
FTI Consulting
Richard Sunderland / Andrew Davis / Oliver Parsons Tel: +44 (0)20 3727 1000
3 custodianreit@fticonsulting.com
Custodian Property Income REIT plc interim results for the six months ended 30
September 2023
Property highlights
2023
£m Comments
31 March 2023: £613.6m, 30 September 2022: £685.4m
Portfolio value 609.8
Primarily relating to decreases in the following sectors:
Property valuation (15.6)
decreases: • Office – (£8.9m)
• Retail warehouse - (£5.2m)
Primarily comprising:
• £4.6m refurbishing offices in Manchester and Leeds
• £3.4m redeveloping an industrial unit in Redditch
• £1.3m buying the long-leasehold of a unit at a 10-unit
Capital expenditure 12.2 industrial asset in Knowsley
• £1.1m refurbishing an industrial unit in
Ashby-de-la-Zouch
• £1.0m reconfiguring retail assets in Shrewsbury and
Liverpool
Disposal proceeds 1.6 High street retail units in Bury St Edmunds and
Cirencester sold at auction in line with valuation
Financial highlights and performance summary
6 months 6 months 12 months
ended ended ended
30 Sept
30 Sept 2023 2022 31 Mar 2023
Comments
Returns
Rental growth and improvement
EPRA 4 1 earnings 2.9p 2.8p 5.6p in occupancy have offset
per share 5 2 administrative cost inflation
and higher finance costs
Basic and diluted
earnings per (0.6p) (3.2p) (14.9p) Current period loss reflects
share 6 3 valuation decreases of £15.6m
Loss before tax (£m) (2.7) (14.1) (65.8)
Target dividend per share for
Dividends per the year ended 31 March 2024
share 7 4 2.75p 2.75p 5.5p of not less than 5.5p,
in line with the Company’s
policy of paying fully covered
Dividend cover 8 5 107.1% 102.0% 102.2% dividends
NAV total return per (0.7%) (2.7%) (12.5%) 2.8% dividends paid and a 3.5%
share 9 6 capital decrease
Share price total Share price decreased from
return 10 7 (4.4%) (2.0%) (7.0%) 89.2p to 82.5p during the
Period
Capital values
NAV and EPRA 422.8 501.4 437.6
NTA 11 8 (£m) NAV decreased due to £15.6m of
NAV per share and 95.9p 113.7p 99.3p valuation decreases
NTA per share
Borrowings
Increased due to capital
Net gearing 12 9 29.6% 25.5% 27.4% expenditure during the Period
Majority fixed rate debt
Weighted average cost of drawn 4.2% 3.5% 3.8% insulating the Company from a 1%
debt facilities rise in base rates during the
Period
Costs
Ongoing charges ratio (“OCR”)
excluding direct property 1.23% 1.20% 1.23%
expenses 13 10
Environmental
EPCs updated across 39 properties
Weighted average EPC C (56) C (58) C (58) demonstrating continuing
rating 14 11 improvements in the environmental
performance of the portfolio
The Company presents alternative performance measures (“APMs”) to assist stakeholders
in assessing performance alongside the Company’s results on a statutory basis.
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 19.
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 15 12 is summarised below:
• To invest in a diverse portfolio of UK commercial real estate, principally
characterised by smaller, regional, core/core-plus properties that provide
enhanced income;
• 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 16 13 , 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 properties with the intention of owning the completed
development; and
• 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.
Richard Shepherd-Cross, Managing Director of the Company’s discretionary investment
manager, commented: "Our smaller-lot specialism has consistently delivered
significantly higher yields without exposing shareholders to additional risk”.
Weighting
by income
Weighting by income 30 September 2023
30 September 2023
Location
Sector West Midlands 20%
North-West 19%
Industrial 41% East Midlands 14%
Retail warehouse 22% South-East 13%
Office 16% Scotland 12%
Other 13% South-West 9%
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
Custodian Property Income REIT’s strategy is to invest in a diversified portfolio
which, at 30 September 2023, comprised 159 properties geographically spread
throughout the UK and across a diverse range of sectors, with a portfolio yielding
6.4% 17 14 . With an average property value of c.£4m and no one tenant accounting
for more than 1.75% of the Company’s rent roll, property specific risk and tenant
default risk are significantly mitigated.
This diversified strategy and strong focus on income has served to deliver relatively
stable returns against a background of weak sentiment towards commercial property
investment and volatility across the sector. Share price total return was -4.4% and
NAV total return -0.7% for the six months to 30 September 2023 with a fully covered
dividend providing a significant and defensive component of total returns.
Despite rising interest rates increasing the Company’s weighted average cost of debt
from 3.8% at 31 March 2023 to 4.2%, earnings have been resilient with EPRA EPS of
2.9p (2022: 2.8p) for the Period, supported by:
• Occupancy increasing since 31 March 2023 from 90.3% to 91.5%. Subject to the
conclusion of deals agreed, we expect occupancy to be above 93% by the end of the
financial year; and
• The rent roll growing from £42.1m at 31 March 2023 to £43.2m. The estimated
rental value (“ERV”) of the portfolio has also grown from £49.0m to £49.7m,
providing a reversionary potential of 15.0%.
In line with the Company’s objective to be the REIT of choice for institutional and
private investors seeking high and stable dividends from well diversified UK
commercial real estate, I was pleased to be able to announce that dividends per share
of 2.75p (2022: 2.75p) have been declared relating for the six months to 30 September
2023. The Board expects to continue to pay quarterly dividends per share of 1.375p
to achieve a fully covered target dividend per share for the year ending 31 March
2024 of no less than 5.5p.
The Board acknowledges the importance of income for shareholders and its objective is
to grow the dividend on a sustainable basis at a rate which is fully covered by
projected net rental income and does not inhibit the flexibility of the Company’s
investment strategy.
Portfolio
Since the Period end the Company has sold a children’s day nursery for £0.6m and has
a further four properties valued at £12.4m under offer to sell, which are expected to
generate sales proceeds of c.£14m. Further property sales are under active
consideration. Sale proceeds will be used to continue the Company’s ongoing capital
expenditure programme and reduce the drawn revolving credit facility to support net
earnings. The Company’s property investment strategy, which targets smaller regional
properties, often provides strategic options to re-lease or to sell at lease expiry.
This optionality exists because there is an active owner-occupier market for smaller
regional properties, which is much less the case for larger assets. As a result, two
of the four properties under offer are vacant buildings which are being sold ahead of
investment value to owner-occupiers or developers. Concluding sales without
foregoing rental income is strongly positive to earnings. The remaining pipeline of
sales are also accretive to earnings with sales forecast to be concluded at prices
reflecting yields, in aggregate, below the cost of the Company’s variable rate debt.
Net asset value
The NAV of the Company at 30 September 2023 was £422.8m, approximately 95.9p per
share, a decrease of 3.4p (3.4%) since 31 March 2023:
Pence per share £m
NAV at 31 March 2023 99.3 437.6
Valuation movements relating to:
- Asset management activity 1.4 6.1
- Other valuation movements (5.0) (21.8)
Net losses on investment property (3.6) (15.7)
EPRA earnings 2.9 13.0
Dividends paid 18 15 during the Period (2.7) (12.1)
NAV at 30 September 2023 95.9 422.8
Borrowings
The Company’s net gearing increased from 27.4% LTV at 31 March 2023 to 29.6% during
the Period.
The proportion of the Company’s drawn debt facilities with a fixed rate of interest
was 76% at 30 September 2023 (31 March 2023: 81%), significantly mitigating interest
rate risk for the Company and maintaining a beneficial margin between the weighted
average cost of debt of 4.2% (31 March 2023: 3.8%) and income returns from the
property portfolio. The Company’s debt is summarised in Note 14.
Board
After nine years of service, David Hunter retired as Non-Executive Chair of the
Company at the annual general meeting (“AGM”) on 8 August 2023, in line with its
succession plan. David chaired the board from the Company’s IPO in 2014. On behalf
of our shareholders, the Board would like to thank him for his significant
contribution to the development of the Company over that period.
Following a search process in line with the Company’s policy when hiring new board
members, I joined the Board on 9 May 2023 and assumed the Chair at the AGM in August
2023. I look forward to working with my colleagues on the Board to continue to
deliver the strategy as summarised in the Business Model and Strategy section of this
report.
Our policy on board diversity is summarised in the Annual Report. The Company
follows the AIC Corporate Governance Code but, at present, we do not meet the FCA’s
newly introduced ‘comply or explain’ targets for female and minority ethnic
representation. Custodian Property Income REIT is an investment company with no
Executive Directors and a small Board compared to equivalent size listed trading
companies. The Nominations Committee considers diversity in a broad sense, not
limited to gender or ethnicity, including socio-economic background and education.
17% of the Board are from working class backgrounds 19 16 and 67% attended
state-run school. The Board also welcomes the diversity offered by the Investment
Management team working with the Company, which has a 35% minority ethnic
representation and is 43% female.
ESG
As Richard Shepherd-Cross explains in the Investment Manager’s report, ESG
considerations are now central to the asset management of our portfolio and are vital
to protecting future value and income. The Company has made further pleasing
progress implementing its environmental policy during the Period, improving its
weighted average EPC score from C (58) to C (56) due to completing refurbishments and
new lettings, further detailed in the ESG Committee report.
General meeting voting
At the Company’s AGM on 8 August 2023 resolutions to re-elect Ian Mattioli and
Elizabeth McMeikan as Directors of the Company received votes against of 41.6% and
23.7% respectively, which comprised 9.8% and 5.8% respectively of total shareholders
due to a 23% turnout rate. I have since sought feedback from shareholders, which
identified that votes against were primarily a result of perceived ‘over-boarding’
due to Ian’s roles as CEO of Mattioli Woods plc and Chair of Kanabo Group plc, and
Elizabeth’s roles as Chair of Nichols plc and Non-Executive Director of Dalata Hotel
Group plc and McBride plc. These institutional shareholders applied stricter
internal voting policies than Institutional Shareholder Services which allow fewer
‘mandates’ and their voting policies do not acknowledge the generally lower time
commitments as Directors of investment companies or companies of a relatively small
size. The Nominations Committee is satisfied with Ian and Elizabeth’s attendance and
responsiveness to the demands of being Directors of the Company. I believe
additional roles offer Directors helpful insight and experience which benefits the
Boards on which they sit and I do not intend to ask my colleagues to reduce their
additional roles.
The Company’s Articles require that at every seventh AGM a Continuation Resolution be
proposed but at the 2020 AGM this was not brought to the attention of the Board and,
as a result, a Continuation Resolution was not proposed. On 21 November the Company
passed a Special Resolution at a General Meeting (“GM”) to release the Company and
its directors from an historical obligation to propose a Continuation Vote at the
2020 AGM and ratify this breach of the Company’s Articles. The Continuation
Resolution in 2020 was overlooked during a period of strong performance by the
Company relative to its peers and amidst the COVID-19 pandemic. Shareholders were
not pressing for such a resolution at that time and the Board is not aware of any
desire for a Continuation Resolution to be considered at this stage either. As a
result, the Board did not propose a replacement Continuation Resolution at the GM on
21 November 2023 and the next Continuation Resolution will be proposed at the
fourteenth AGM of the Company expected to be held in 2027.
Outlook
Over the last five years the Custodian Property Income REIT strategy has provided
shareholders an income return per share of 28.4p, or an annual average of 5.7p,
always fully covered by earnings, supported by both a diverse, regional property
strategy and a conservative gearing policy. Negative sentiment towards real estate
investment is currently weighing against capital performance. This sentiment is
driven primarily by the potential for persistent inflationary pressure to mean
‘higher-for-longer’ interest rates, uncertainty around the future of offices and the
impact of the UK’s general economic outlook on discretionary consumer expenditure.
However, as the Investment Manager sets out below, there is depth in occupational
demand and latent rental growth in the portfolio which offers the prospect of growth
for existing shareholders, as sentiment improves towards the sector.
David MacLellan
Chair
5 December 2023
Investment Manager’s report
Property market
The disconnect between the occupational and investment markets in UK real estate
continues to persist. While the impacts of high inflation and interest rates appear
to weigh heavily on investor sentiment, perhaps the greater influence has been the
marked re-rating of valuations in the final quarter of 2022, which still seems to
colour investors’ attitude to real estate investment. However, since the start of
2023 valuations have been reasonably stable across the market, with some sub-sectors
showing signs of recovery while others continue to drift, albeit at a much reduced
rate. The outcome for the NAV of Custodian Property Income REIT has been a marginal
decrease of 3.9% over the past three quarters.
By contrast, occupational demand has been consistently strong and our asset
management team has been able to capitalise on this to reduce vacancy and increase in
the portfolio rent roll.
It is the strength of the occupational market driving rental growth and low vacancy
that will ultimately support fully covered dividends and earnings growth. Income and
earnings remain our central focus, as it is income that will deliver positive total
returns for shareholders. On this basis we remain cautiously optimistic.
Custodian Property Income REIT has a diversified portfolio comprising 159 properties
with an average value of c.£4m and no one tenant in any single property accounting
for more than 1.75% of the Company’s rent roll. This spread significantly mitigates
property specific risk and tenant default risk.
Strong recent leasing activity demonstrates the resilience of Custodian Property
Income REIT’s well-diversified investment portfolio. 23 new leases/lease renewals
have been signed during the Period securing £2.8m of annual rent. Seven rent reviews
have been settled at a weighted average of uplift 16%.
EPRA earnings per share of 2.9p showed an annualised earnings yield 20 17 of 7.1%
at 30 September 2023 and 6.7% at the time of writing. As pricing for listed property
companies is increasingly out of step with NAV, we believe earnings yield is a more
reliable measure of value and comparator between different companies with differing
strategies, as income supports the greater part of total return. On this measure the
Company rates strongly against its close peers, offering an annual dividend per share
of 5.5p, fully covered by net earnings, representing a dividend yield 21 18 of 6.7%
at 30 September 2023 and 6.3% at the time of writing.
76% of the Company’s drawn debt facilities are at fixed rates of interest with the
balance drawn on a variable rate revolving credit facility. The Company’s weighted
average term and cost of drawn debt at 30 September 2023 were 5.2 years and 4.2%
respectively. Thanks to a strong balance sheet with significant covenant headroom
and no debt facility maturing until August 2025 the Company is under no immediate
pressure to sell and the relatively low cost of debt should remain accretive to
earnings over the medium-term.
Property portfolio performance
30 Sept 30 Sept 31 Mar
2023 2022 2023
Property portfolio value £609.8m £685.4m £613.6m
Separate tenancies 336 335 319
EPRA occupancy rate 91.5% 89.3% 90.3%
Assets 159 165 161
Weighted average unexpired lease term to first break or 4.8 years 4.8 years 5.0 years
expiry (“WAULT”)
EPRA topped-up net initial yield (“NIY”) 6.4% 5.8% 6.2%
Weighted average EPC rating C (56) C (58) C (58)
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
income 22 19 by income Valuation
30 31 March movement
September 30 September 2023 31 March Weighting Weighting
2023 £m by value by value
2023 £m 2023 30 31 March
£m September 2023
Sector 2023
Industrial 303.2 41% 295.1 40% 1.4 49% 48%
Retail 127.6 22% 131.8 23% (5.2) 21% 21%
warehouse
Other 78.1 16% 78.6 13% (1.5) 13% 13%
Office 67.5 13% 71.7 16% (8.9) 11% 12%
High
street 33.4 8% 36.4 8% (1.4) 6% 6%
retail
609.8 100% 613.6 100% (15.6) 100% 100%
For details of all properties in the portfolio please see
23 custodianreit.com/property/portfolio.
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 high street retail units in Bury St Edmunds and Cirencester during
the Period at auction in line with valuation for an aggregate consideration of £1.6m.
Since the Period end the Company has sold a day nursery in Chesham at valuation for
£0.55m and has a further £12.4m of property under offer which is expected to complete
before the end of the financial year, in aggregate, ahead of valuation.
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 ambitious 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.
We are aware of recent public concerns regarding 24 reinforced autoclaved aerated
concrete (“RAAC”). We have undertaken an internal portfolio review, identifying
assets constructed between the 1950’s and mid 1990’s (when RAAC use was prevalent)
and where concrete beams have been used in their construction. This review
identified a low number of assets, primarily small retail units, potentially using
RAAC for which we undertook a detailed review of pre-acquisition building surveys,
base build diagrams, sectional floor plans, structural surveys, licences to alter,
photographs as well as queries direct with building surveyors. In all circumstances
this review indicated that RAAC was not evident in the construction of the buildings.
Outlook
Rental growth from real assets, diversified by tenant, location and sector and
supported by a strong balance sheet provides a robust model to face down current
market volatility. Accordingly, we remain optimistic for returns from Custodian
Property Income REIT and confident that the smaller regional property portfolio will
continue to support fully covered dividends while offering a defensive strategy to
investors.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
5 December 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.
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 primary responsibilities of the ESG Committee (“the Committee”) are to agree the
Company’s environmental KPIs, monitor performance against those KPIs and ensure the
Investment Manager is managing the property portfolio in line with the ESG policy,
which commits the Company 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.
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 and during our period of
ownership. Sites are visited on a regular basis by the Investment Manager and any
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, our aim is that the safety
and well-being of occupants of our buildings is maximised.
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 it to:
• Improving the energy performance of our buildings - investing in lower carbon
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 performance against its KPIs are set out in the ESG Report linked
above.
EPC ratings
During the Period the Company has updated EPCs at 73 units across 39 properties for
properties where existing EPCs had expired or where works had been completed,
improving the weighted average EPC rating from C (58) at 31 March 2023 to C (56).
Some of the properties showing an improvement are detailed below:
• Redditch – a refurbishment of an industrial unit improved the EPC rating from C
(59) to A (12)
• Winsford - a refurbishment of an industrial unit improved the EPC rating from C
(67) to A (25)
The Company’s weighted average EPC rating is illustrated below:
Number of EPCs Weighted average EPC rating 25 20
EPC rating 30 Sept 23 31 Mar 23 30 Sep 23 31 Mar 23
A 15 12 4% 2%
B 93 82 26% 24%
C 154 161 44% 44%
D 54 50 15% 20%
E 31 32 9% 9%
F 7 7 2% 1%
G - - 0% 0%
354 344 100% 100%
Outlook
The Company will continue to work towards achieving its ESG targets over the course
of the remainder of the financial year, improving our understanding of the specific
impacts of climate change on the Company, seeking to influence tenant behaviour to
improve environmental outcomes and assessing our strategy towards creating a carbon
reduction pathway.
Approval
This report was approved by the Committee and signed on its behalf by:
Hazel Adam
Chair of the ESG Committee
5 December 2023
Financial review
A summary of the Company’s financial performance for the Period is shown below:
Period ended Period ended Year ended
Financial summary 30 Sept 2023 30 Sept 2022 31 Mar 2023
£000 £000
£000
Rental revenue 20,654 19,592 40,558
Other revenue 2,175 2,704 3,589
Expenses and net finance costs (9,844) (9,932) (19,359)
EPRA profits 12,985 12,364 24,788
Net loss on investment property (15,651) (26,451) (90,609)
Loss before tax (2,666) (14,087) (65,821)
EPRA EPS (p) 2.9 2.8 5.6
Dividend cover 107.1% 102.0% 102.2%
OCR excluding direct property costs 1.23% 1.20% 1.23%
Rental revenue increased by 5% compared to the period ended 30 September 2022, and on
an annualised basis, by 2% from the year ended 31 March 2023. During the Period the
Company’s rent roll increased by 2.9% from £42.0m at 31 March 2023 to £43.2m at 30
September 2023 driven primarily by occupancy improving from 90.3% to 91.5%.
During the Period we deployed £12.2m of variable rate debt on property redevelopments
and refurbishments, most of which will not be income producing until the end of the
financial year when the associated properties are let. SONIA increased from 4.2% to
5.2% during the Period and, in aggregate, these rising interest rates and deployment
of debt increased finance costs on the Company’s variable rate revolving credit
facility (“RCF”) facility. However, growth in the rent roll more than offset these
costs, increasing EPRA earnings per share to 2.9p (2022: 2.8p) and fully covering
dividends. This increase in recurring earnings demonstrates the robust nature of the
Company’s diverse property portfolio despite significant economic headwinds.
Sentiment towards real estate continued to be affected by concerns over the impact of
‘higher-for-longer’ interest rates on the outlook for medium-term earnings, resulting
in a £15.6m loss on investment property and an associated loss before tax of £2.7m
(2022: £65.8m loss).
Debt financing
The Company’s debt profile at 30 September 2023 is summarised below:
30 Sept 2023 30 Sept 2022 31 Mar 2023
Amount £185.0m £178.0m £173.5m
Net gearing 29.6% 25.5% 27.4%
Weighted average cost 4.2% 3.5% 3.8%
Weighted average maturity 5.2 years 6.0 years 5.9 years
Percentage of facilities at a fixed rate of 76% 79% 81%
interest
Of the Company’s £185m of drawn debt facilities 76% are at fixed rates of interest.
The Company’s weighted average term and cost of drawn debt at 30 September 2023 were
5.2 years and 4.2% respective (fixed rate only: 6.5 years and 3.4%). 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.
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 27.4% LTV at 31 March
2023 to 29.6% during the Period primarily due to £15.6m of valuation decreases and
£12.2m of capital expenditure.
At the Period end the Company had the following facilities available:
• A £45m 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
could be increased to £50m with Lloyds’ approval. This facility was renewed
after the Period-end with a three-year term and maximum £75m facility limit.
• 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 Real Estate Investors (“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 either 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 either 200% or 250% of
the facility’s quarterly interest liability.
At the Period end the Company had £126.2m (20.7% of the property portfolio) of
unencumbered assets which could be charged to the security pools to enhance the LTV
and interest cover on the individual loans, of which a further £15.2m in the process
of being charged.
On 10 November 2023 the Company and Lloyds agreed to extend the RCF for a term of
three years, with options to extend the term by a further year on each of the first
and second anniversaries of the renewal. The RCF includes an ‘accordion’ option with
the facility limit initially set at £50m, which can be increased up to £75m subject
to Lloyds’ agreement. The headline rates of annual interest now include a LIBOR
transition fee previously applied separately, increasing by 12bps to between 1.62%
and 1.92% above SONIA, determined by reference to the prevailing LTV ratio. As a
result there is no change to the aggregate margin from the renewal.
Dividends
During the Period the Company paid a fourth interim dividend per share for the
financial year ended 31 March 2023 of 1.375p, and the first quarterly dividend per
share for the financial year ending 31 March 2024 of 1.375p, relating to the quarter
ended 30 June 2023.
In line with the Company’s dividend policy the Board approved an interim dividend of
1.375p per share for the quarter ended 30 September 2023 which was paid on 30
November 2023 to shareholders on the register on 27 October 2023.
Ed Moore
for and on behalf of Custodian Capital Limited
Investment Manager
5 December 2023
Principal risks and uncertainties
The Company’s Annual Report for the year ended 31 March 2023 set out the principal
risks and uncertainties facing the Company at that time which are also summarised in
Note 2.6. This disclosure highlighted inflation as an emerging risk, which has
continued during the Period and interest rates have risen sharply as a result. This
prevailing macro-economic situation, potentially exacerbated by the ongoing conflict
in Israel, has continued to impact the Company in terms of the cost of materials and
labour in carrying out redevelopments, refurbishments and maintenance, and an
increase in the cost of its variable rate borrowing. These factors also present an
indirect risk through their impact on the UK economy in terms of growth and consumer
spending and the consequential impact on occupational demand for real estate. Since
the Period end inflation has decreased and as a result the medium-term interest rate
outlook has improved, but we believe these risks will pervade into the subsequent
financial year and that significant uncertainty remains.
We do not anticipate any changes to the other risks and uncertainties disclosed over
the remainder of the financial year.
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
Audited
Unaudited Unaudited
12 months
6 months 6 months
to 31 Mar
to 30 Sept 2023 to 30 Sept 2022
2023
Note £000 £000 £000
Revenue 4 22,829 22,296 44,147
Investment management fee (1,757) (2,086) (3,880)
Operating expenses of rental property
(3,526)
• rechargeable to tenants (2,082) (2,704)
• directly incurred (1,335) (1,119) (3,530)
Professional fees (394) (428) (911)
Directors’ fees (182) (167) (318)
Administrative expenses (327) (460) (822)
Depreciation (41) (8) (112)
Expenses (6,118) (6,972) (13,099)
Operating profit before net losses on
investment property
16,711 15,324 31,048
Unrealised losses on revaluation of
investment property:
- relating to gross property
revaluations
9 (15,632) (27,742) (91,551)
• relating to acquisition costs 9 - (3,404) (3,426)
Net valuation decrease (15,632) (31,146) (94,977)
(Loss)/profit on disposal of (19) 4,695 4,368
investment property
Net losses on investment property (15,651) (26,451) (90,609)
Operating profit/(loss) 1,060 (11,127) (59,561)
Finance income 5 30 - 22
Finance costs 6 (3,756) (2,960) (6,282)
Net finance costs (3,726) (2,960) (6,260)
Loss before tax (2,666) (14,087) (65,821)
Income tax 7 - - -
Loss and total comprehensive expense
for the Period, net of tax
(2,666) (14,087) (65,821)
Attributable to:
Owners of the Company (2,666) (14,087) (65,821)
Earnings per ordinary share:
Basic and diluted (p) 3 (0.6) (3.2) (14.9)
EPRA (p) 3 2.9 2.8 5.6
The loss for the Period arises from the Company’s continuing operations.
Condensed consolidated statement of financial position
At 30 September 2023
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2023 2022 2023
Note £000 £000 £000
Non–current assets
Investment property 9 609,757 685,423 613,587
Property, plant and equipment 10 1,677 747 1,113
Total non-current assets 611,434 686,170 614,700
Current assets
Trade and other receivables 11 4,819 6,019 3,748
Cash and cash equivalents 13 6,697 4,765 6,880
Total current assets 11,516 10,784 10,628
Total assets 622,950 696,954 625,328
Equity
Issued capital 15 4,409 4,409 4,409
Share premium 250,970 250,970 250,970
Merger reserve 18,931 18,931 18,931
Retained earnings 148,470 227,116 163,259
Total equity attributable to equity holders of the
Company
422,780 501,426 437,569
Non-current liabilities
Borrowings 14 138,748 176,596 172,102
Other payables 570 570 570
Total non-current liabilities 139,318 177,166 172,672
Current liabilities
Borrowings 14 44,941 - -
Trade and other payables 12 8,067 10,702 7,666
Deferred income 7,844 7,660 7,421
Total current liabilities 60,852 18,362 15,087
Total liabilities 200,170 195,528 187,759
Total equity and liabilities 622,950 696,954 625,328
These interim financial statements of Custodian Property Income REIT plc were
approved and authorised for issue by the Board of Directors on 5 December 2023 and
are signed on its behalf by:
David MacLellan
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
Audited
Unaudited Unaudited
12 months
6 months 6 months
to 31 Mar
to 30 Sept 2023 to 30 Sept 2022
2023
Note £000 £000 £000
Operating activities
Loss for the Period (2,666) (14,087) (65,821)
Net finance costs 5,6 3,726 2,960 6,260
Net revaluation loss 9 15,632 31,146 94,977
Loss/(profit) on disposal of 19 (4,695) (4,368)
investment property
Impact of lease incentives and costs 9 (1,201) (832) (1,677)
Amortisation 9 3 4 8
Depreciation 10 41 8 112
Cash flows from operating activities
before changes in working capital and
provisions 15,554 14,504 29,491
(Increase)/decrease in trade and other (1,071) (818) 2,954
receivables
Increase/(decrease) in trade and other 824 1,169 (2,104)
payables
Cash generated from operations 15,307 14,855 30,341
Interest and other finance charges 6 (3,630) (2,777) (6,072)
11,677 12,078
Net cash flows from operating 24,269
activities
Investing activities
Purchase of investment property - (52,818) (52,603)
Purchase of property, plant and (605) (755) (1,225)
equipment
Capital expenditure (12,179) (4,455) (11,333)
Acquisition costs - (3,404) (3,426)
Proceeds from the disposal of 1,575 14,899 28,767
investment property
Costs of disposal of investment (19) (80) (237)
property
Interest and finance income received 30 - 22
Net cash flows used in investing (11,198) (46,613) (40,035)
activities
Financing activities
New borrowings 14 11,500 63,000 58,500
New borrowings origination costs 14 (39) (437) -
Repayment of borrowings - (22,760) (23,228)
Dividends paid 8 (12,123) (12,127) (24,250)
Net cash flows (used in)/from (662) 27,676 (11,022)
financing activities
(183) (6,859)
Net decrease in cash and cash (4,744)
equivalents
Cash and cash equivalents at start of 6,880 11,624 11,624
the Period
Cash and cash equivalents at end of 6,697 4,765 6,880
the Period
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2023
Issued Merger Share Retained Total
reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
At 31 March 2023 (audited) 4,409 18,931 250,970 163,259 437,569
Profit and total comprehensive income
for the Period -
- - (2,666) (2,666)
Transactions with owners of the
Company, recognised directly in equity
Dividends 8 - - - (12,123) (12,123)
At 30 September 2023 (unaudited) 4,409 250,970
18,931 148,470 422,780
For the six months ended 30 September 2022
Issued Merger Share Retained Total
reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
At 31 March 2022 (audited) 4,409 18,931 250,970 253,330 527,640
Profit and total comprehensive income
for the Period -
- - (14,087) (14,087)
Transactions with owners of the
Company, recognised directly in equity
Dividends 8 - - - (12,127) (12,127)
At 30 September 2022 (unaudited) 4,409 250,970
18,931 227,116 501,426
Notes to the interim financial statements for the period ended 30 September 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 interim 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 interim financial statements were
authorised for issue in accordance with a resolution of the Directors on 5 December
2023.
2. Basis of preparation and accounting policies
1. Basis of preparation
The interim financial statements have been prepared in accordance with IAS 34 Interim
Financial Reporting. The interim financial statements do not include all the
information and disclosures required in the annual financial statements. The Annual
Report for the year ending 31 March 2024 will be prepared in accordance with
International Financial Reporting Standards adopted by the International Accounting
Standards Board (“IASB”) and interpretations issued by the International Financial
Reporting Interpretations Committee (“IFRIC”) of the IASB (together “IFRS”) as
adopted by the United Kingdom, and in accordance with the requirements of the
Companies Act applicable to companies reporting under IFRS.
The information relating to the Period is unaudited and does not constitute statutory
financial statements within the meaning of section 434 of the Companies Act 2006. A
copy of the statutory financial statements for the year ended 31 March 2023 has been
delivered to the Registrar of Companies. The auditor’s report on those financial
statements was not qualified, did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying the report and did not
contain statements under section 498(2) or (3) of the Companies Act 2006.
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. Significant accounting policies
The principal accounting policies adopted by the Company and applied to these interim
financial statements are consistent with those policies applied to the Company’s
Annual Report and financial statements.
3. Critical judgements and key sources of estimation uncertainty
Preparation of the interim 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 interim 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 Company's
accounting policies, other than those involving estimations, that have had a
significant effect on the amounts recognised within the interim 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
property valuers in determining the fair value of its investment properties. The
property 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.
4. Going concern
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 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 completion of the disposals currently under
offer;
• 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
• No movement in interest rates.
The Directors have assessed the Company’s prospects 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 Interim 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 period despite
economic headwinds and valuation decreases, with rents and occupancy increasing over
the last six months.
Sensitivities
Sensitivity analysis involves flexing these key assumptions, taking into account the
principal risks and uncertainties and emerging risks detailed in the Annual Report,
and assessing their impact on the following areas:
Covenant compliance
The Company operates the loan facilities summarised in Note 14. At 30 September 2023
the Company had the following headroom on lender covenants at a portfolio level with:
• Net gearing of 29.6% compared to a maximum LTV covenant of 35%, with £126.2m (21%
of the property portfolio) unencumbered by the Company’s borrowings; and
• 88% minimum headroom on interest cover covenants for the quarter ended 30
September 2023.
The Company agreed temporary reductions in interest cover covenants on two of its
facilities from 250% to 200% at 30 September 2023. These temporary waivers were put
in place whilst the process of charging £15.2m of unencumbered property with annual
passing rent of £1.3m to the associated charge pools to increase covenant headroom
was being completed.
Over the three year assessment period the Company’s forecast model projects a small
increase in net gearing with a small 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 11% 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 15% from the
30 September 2023 position to risk breaching the overall 35% LTV covenant for
assessment period.
The Board notes that the Summer 2023 IPF Forecasts for UK Commercial Property
Investment survey suggests an average 1.3% increase in rents during 2024 with capital
value increases of 0.8%. 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 over 150
assets and over 300 typically 'institutional grade' tenants across all commercial
sectors.
Liquidity
At 30 September 2023 the Company had:
• £6.7m of cash, with gross borrowings of £185m resulting in net gearing of 29.6%
and a weighted average debt facility maturity of six years; and
• An annual contractual rent roll of £43.2m, with interest costs on drawn loan
facilities of only c. £7.8m 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 next 12 months.
Since the Period end the Company has increased total funds available under the RCF
from £50m to £75m for a term of three years, with an option to extend the term by a
further two years, subject to Lloyds’ consent.
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 period 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.
Having due regard to these matters and after making appropriate enquiries, the
Directors have a reasonable expectation that the Company has adequate resources to
continue in operational existence for a period of at least 12 months from the date of
signing of these condensed consolidated financial statements and, therefore, the
Board continues to adopt the going concern basis in their preparation.
5. 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. Principal risks and uncertainties
The Company’s assets consist of direct investments in UK commercial property. Its
principal risks are therefore related to the UK commercial property market in
general, the particular circumstances of the properties in which it is invested and
their tenants. Principal risks faced by the Company are:
• Loss of contractual revenue;
• Decreases in property portfolio valuations;
• Reduced availability or increased costs of debt and complying with loan
covenants;
• Inadequate performance, controls or systems operated by the Investment Manager;
• Non-compliance with regulatory or legal changes;
• Business interruption from cyber or terrorist attack or pandemics;
• Failure to meet ESG compliance requirements or shareholder expectations; and
• Inflation in property costs and capital expenditure.
These risks, and the way in which they are mitigated and managed, are described in
more detail under the heading ‘Principal risks and uncertainties’ within the
Company’s Annual Report for the year ended 31 March 2023. The Company’s principal
risks and uncertainties have not changed materially since the date of that report.
3. Earnings per ordinary share
Basic earnings per share (“EPS”) amounts are calculated by dividing net profit for
the Period attributable to ordinary equity holders of the Company by the weighted
average number of ordinary shares outstanding during the Period.
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 Period 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.
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
2023
Net loss and diluted net loss
attributable to equity holders of the (2,666) (14,087)
Company (£000) (65,821)
Net loss on investment property 15,651 26,451 90,609
(£000)
EPRA net profit attributable to
equity holders of the Company (£000) 12,985 12,364
24,788
Weighted average number of ordinary
shares:
Issued ordinary shares at start of
the Period (thousands) 440,850 440,850
440,850
- -
Effect of shares issued during the -
Period (thousands)
Basic and diluted weighted average
number of shares (thousands) 440,850 440,850
440,850
Basic and diluted EPS (p) (0.6) (3.2) (14.9)
2.9 2.8
EPRA EPS (p) 5.6
4. Revenue
Audited
Unaudited 6 months Unaudited
12 months
to 30 Sept 6 months
2023 to 31 Mar
to 30 Sept 2022
£000 2023
£000
£000
Gross rental income from investment 20,654 19,592 40,558
property
Income from recharges to tenants 2,082 2,704 3,526
Other income 93 - 63
22,829 22,296 44,147
5. Finance income
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
£000 £000 2023
£000
Bank interest 30 - 22
30 - 22
6. Finance costs
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
£000 £000 2023
£000
Amortisation of arrangement fees on 126 183 220
debt facilities
Other finance costs 28 172 375
Bank interest 3,602 2,605 5,687
3,756 2,960 6,282
7. Income tax
The effective tax rate for the Period is lower than the standard rate of corporation
tax in the UK during the Period of 25.0%. The differences are explained below:
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
£000 £000 2023
£000
Loss before income tax (2,666) (14,087) (65,821)
Tax benefit on loss at a standard rate
of 25.0% (30 September 2022: 19.0%, 31
March 2023: 19.0%) (667) (2,677) (12,506)
Effects of:
REIT tax exempt rental losses 667 2,677 12,506
Income tax expense for the Period - - -
Effective income tax rate 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 Real Estate Investment Trust and hence profits and gains
from the property investment business are normally exempt from corporation tax.
8. Dividends
Unaudited Audited
6 months Unaudited 6 months 12 months
to 30 Sept to 30 Sept 2022 to 31 Mar
2023 £000 2023
£000 £000
Interim equity dividends paid on ordinary
shares relating to the periods ended:
31 March 2022: 1.375p - 6,065 6,065
30 June 2022: 1.375p - 6,062 6,062
30 September 2022: 1.375p - - 6,062
31 December 2022: 1.375p - - 6,061
31 March 2023: 1.375p 6,062 - -
30 June 2023: 1.375p 6,061 - -
12,123 12,127 24,250
All dividends paid are classified as property income distributions.
The Directors approved an interim dividend relating to the quarter ended 30 September
2023 of 1.375p per ordinary share in October 2023 which has not been included as a
liability in these interim financial statements. This interim dividend was paid on
30 November 2023 to shareholders on the register at the close of business on 27
October 2023.
9. Investment property
£000
At 31 March 2023 613,587
Impact of lease incentives and lease costs 1,201
Additions -
Capital expenditure 12,179
Disposals (1,575)
Amortisation of right-of-use asset (3)
Valuation decrease (15,632)
At 30 September 2023 609,757
£000
At 31 March 2022 665,186
Impact of lease incentives 1,677
Additions 56,033
Capital expenditure 9,954
Disposals (24,278)
Amortisation of right-of-use asset (8)
Valuation increase before acquisition costs (91,551)
Acquisition costs (3,426)
Valuation increase including acquisition costs (94,977)
At 30 September 2022 613,587
£483.5m (2022: £458.0m) of investment property was charged as security against the
Company’s borrowings at the Period end with a further £15.2m in the process of being
charged. £0.6m (2022: £0.6m) of investment property comprises right-of-use assets.
Investment property is stated at the Directors’ estimate of its 30 September 2023
fair value. Savills (UK) Limited (“Savills”) and Knight Frank LLP (“KF”),
professionally qualified independent property valuers, each valued approximately half
of the property portfolio as at 30 September 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 Period end valuation, the following inputs were used:
Weighted
Valuation Weighted
average EPRA
30 September passing rent average ERV Equivalent topped-up NIY
2023 range yield
Sector (£ per sq
£000 ft) (£ per sq
ft)
Industrial 303.2 7.0 2.0 – 18.0 6.7% 5.3%
Retail 127.6 14.4 6.1 – 26.7 7.5% 7.6%
warehouse
Other 78.1 19.1 2.7 – 66.7* 8.1% 6.9%
Office 67.4 19.0 4.9 – 35.8 9.6% 7.1%
High street 33.4 31.7 3.8 – 57.4 8.6% 9.6%
retail
*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 property valuers eg ERVs, expected capital expenditure and
yields. These assumptions are based on market observation and the property 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.
10. Property, plant and equipment
Unaudited at 30 Sept Unaudited at 30 Audited
2023 Sept 2022 at 31 Mar 2023
EV chargers and PV cells £000 £000 £000
Cost
Balance at the start of the 1,225 - -
period
Additions 605 755 1,225
1,830 755 1,225
Depreciation
At the start of the period (112) - -
During the period (41) (8) (112)
(153) (8) (112)
Net book value at the end of 1,677 747 1,113
the period
11. Trade and other receivables
Unaudited at 30 Sept Unaudited at 30 Audited
2023 Sept 2022 at 31 Mar 2023
£000 £000 £000
Trade receivables before expected
credit loss provision
2,788 8,233 2,498
Expected credit loss provision (547) (2,914) (1,143)
Trade receivables 2,241 5,319 1,355
Other receivables 2,096 445 2,100
Prepayments and accrued income 482 255 293
4,819 6,019 3,748
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 £1.8m (2022: £0.7m) 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.
Unaudited Audited
Unaudited
30 Sept 31 Mar
30 Sept 2022
2023 2023
Expected credit loss provision £000
£000 £000
Opening balance 1,143 2,739 2,739
(Decrease)/increase in provision relating to trade (596) 175 453
receivables that are credit-impaired
Utilisation of provisions - - (2,049)
Closing balance 547 2,914 1,143
12. Trade and other payables
Unaudited at 30 Sept Unaudited at 30 Sept Audited
2023 2022 at 31 Mar 2023
£000 £000 £000
Falling due in less than one
year:
Trade and other payables 902 4,507 972
Social security and other 816 621 498
taxes
Accruals 4,430 3,948 4,693
Rental deposits and 1,919 1,626 1,503
retentions
8,067 10,702 7,666
The Directors consider that the carrying amount of trade and other payables
approximates 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.
13. Cash and cash equivalents
Unaudited at 30 Sept Unaudited at 30 Sept Audited
2023 2022 at 31 Mar 2023
£000 £000 £000
Cash and cash 6,697 4,765 6,880
equivalents
Cash and cash equivalents at 30 September 2023 include £2.4m (2022: £2.4m, 31 March
2023: £1.6m) of restricted cash comprising: £1.8m (2022: £1.4m, 31 March 2023: £1.5m)
rental deposits held on behalf of tenants, £Nil (2022: £0.7m, 31 March 2023: £Nil)
disposal proceeds held in charged disposal accounts and £0.1m (2022: £Nil, 31 March
2023: £Nil) disposal deposit.
14. Borrowings
Costs incurred in the
arrangement of bank
borrowings
Bank borrowings £000
Total
£000
£000
Falling due within one year:
At 31 March 2023 - - -
Reclassification 33,500 (89) 33,411
New borrowings 11,500 - 11,500
Amortisation of arrangement - 30 30
fees
At 30 September 2023 45,000 (59) 44,941
Falling due in more than one
year:
At 31 March 2023 173,500 (1,398) 172,102
Reclassification (33,500) 89 (33,411)
New borrowings - - -
Costs incurred in the
arrangement of - (39) (39)
bank borrowings
Repayment of borrowings - - -
Amortisation - 96 96
At 30 September 2023 140,000 (1,252) 138,748
Total borrowings at 30 185,000 (1,311) 183,689
September 2023
Costs incurred in the
arrangement of bank borrowings
£000
Bank borrowings
Total
£000
£000
Falling due in more than one
year:
At 31 March 2022 115,000 (1,117) 113,883
New borrowings 63,000 (437) 62,563
Costs incurred in the
arrangement of -
bank borrowings
Amortisation - 150 150
Total borrowings at 30 178,000 (1,404) 176,596
September 2022
The Company’s borrowing facilities require minimum interest cover of either 200% or
250% of the net rental income of the security pool. The maximum LTV of the Company
combining the value of all property interests (including the properties secured
against the facilities) must be no more than 35%.
The Company’s borrowing position at 31 March 2023 is set out in the Annual Report for
the year ended 31 March 2023.
Since the Period end the Company has increased total funds available under the RCF
from £50m to £75m for a term of three years, with an option to extend the term by a
further two years, subject to Lloyds’ consent.
15. Issued capital and reserves
Ordinary shares
Share capital of 1p £000
At 31 March 2023 440,850,398 4,409
Issue of share capital - -
At 30 September 2023 440,850,398 4,409
Ordinary shares
Share capital of 1p £000
At 31 March 2022 440,850,398 4,409
Issue of share capital - -
At 30 September 2022 440,850,398 4,409
The Company has made no further issues of new shares since the Period end.
The following table describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Share premium Amounts subscribed for share capital in excess of nominal value
less any associated issue costs that have been capitalised.
Retained earnings All other net gains and losses and transactions with owners (e.g.
dividends) not recognised elsewhere.
A non-statutory reserve that is credited instead of a company’s
Merger reserve share premium account in circumstances where merger relief under
section 612 of the Companies Act 2006 is obtained.
16. Financial instruments
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 £609.8m
(2022: £665.2m).
Interest bearing loans and borrowings – level 3
At 30 September 2023 the gross value of the Company’s loans with Lloyds, SWIP and
Aviva all held at amortised cost was £185.0m.
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.
17. 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 period.
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. The Company’s Articles require one third of Directors to
retire and seek re-election each year. However, notwithstanding the provisions of
the Articles, all the Non-Executive Directors offer themselves for re-election at
each AGM in accordance with the provisions of the AIC Code.
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.
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 period the Investment Manager charged the Company £2.06m (2022: £2.34m)
comprising £1.80m (2022: £2.09m) in respect of annual management fees, £0.26m (2022:
£0.25m) in respect of administrative fees and £nil (2022: £nil) in respect of
marketing fees.
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 via their premiums for administering the policy.
18. Events after the reporting date
Since the Period end the Company has:
• Sold a day nursery in Chesham at valuation for £0.55m; and
• Refinanced its RCF as described in Note 14.
19. Additional disclosures
NAV per share total return
An alternative measure of performance taking into account both capital returns and
dividends by assuming 26 dividends declared are reinvested at NAV at the time the
shares are quoted 27 ex-dividend, shown as a percentage change from the start of the
period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
2023
Net assets (£000) 422,780 501,426 437,569
Shares in issue at the period end 440,850 440,850 440,850
(thousands)
NAV per share at the start of the period 99.3 119.7 119.7
(p)
Dividends per share paid during the 2.75 2.75 5.5
period (p)
NAV per share at the end of the period 95.9 113.7 99.3
(p)
NAV per share total return (0.7%) (2.7%) (12.5%)
Share price total return
An alternative measure of performance taking into account both share price returns
and dividends by assuming 28 dividends declared are reinvested at the ex-dividend
share price, shown as a percentage change from the start of the period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
2023
Share price at the start of the period 89.2 101.8 101.8
(p)
Dividends per share for the period (p) 2.75 2.75 5.5
Share price at the end of the period (p) 82.5 97.0 89.2
Share price total return (4.4%) (2.0%) (7.0%)
Dividend cover
The extent to which dividends relating to the Period are supported by recurring net
income, indicating whether the level of dividends is sustainable.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
Group 2023
Dividends paid relating to the period 6,061 6,062 18,185
Dividends approved relating to the 6,062 6,062 6,062
year
12,123 12,124 24,247
(14,087)
Loss after tax (2,666) (65,821)
One-off costs - - -
Net loss on investment property 15,651 26,451 90,609
12,985 12,364 24,788
Dividend cover 107.1% 102.0% 102.2%
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.
Unaudited at 30 Sept 2023 Unaudited at 30 Sept Audited
2022 at 31 Mar 2023
£000
£000 £000
Gross borrowings 185,000 178,000 173,500
Cash (6,697) (4,765) (6,880)
Deposits 1,919 1,626 1,503
Net borrowings 180,222 174,861 168,123
Investment property 609,757 685,423 613,587
Net gearing 29.6% 25.5% 27.4%
Weighted average cost of debt
The interest rate payable on bank borrowings at the period end weighted by the amount
of borrowings at that rate as a proportion of total borrowings
Amount drawn
30 September 2023
£m Interest rate
Weighting
Lloyds RCF 45.0 6.840% 1.66%
Variable rate 45.0 6.840%
SWIP £20m loan 20.0 3.935% 0.43%
SWIP £45m loan 45.0 2.987% 0.73%
Aviva
• £35m tranche 35.0 3.020% 0.57%
• £15m tranche 15.0 3.260% 0.26%
• £25m tranche 25.0 4.100% 0.55%
Fixed rate 140.0 3.359%
Weighted average drawn facilities 185.0 4.20%
Amount drawn
31 March 2023
£m Interest rate
Weighting
Lloyds RCF 33.5 5.830% 1.13%
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%
Fixed rate 140.0
Weighted average rate on drawn facilities 173.5 3.84%
Amount drawn
30 September 2022
£m Interest rate
Weighting
Lloyds RCF 38.0 3.790% 0.81%
Variable rate 38.0
SWIP £20m loan 20.0 3.935% 0.44%
SWIP £45m loan 45.0 2.987% 0.76%
Aviva
• £35m tranche 35.0 3.020% 0.59%
• £15m tranche 15.0 3.260% 0.27%
• £25m tranche 25.0 4.100% 0.58/%
Fixed rate 140.0
Weighted average rate on drawn facilities 178.0 3.45%
EPRA EPS
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 Period are supported by
recurring net income.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
£000 £000 2023
£000
Loss for the Period after taxation (2,666) (14,087) (65,821)
Net losses on investment property 15,651 26,451 90,609
12,985
EPRA earnings 12,364 24,788
Weighted average number of shares in
issue (thousands)
440,850 440,850 440,850
EPRA EPS (p) 2.9 2.8 5.6
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.
Unaudited at 30 Sept Unaudited as 30 Sept Audited
2023 2022 at 31 Mar 2023
£000 £000 £000
Annualised potential rental 4,243 5,236 4,743
value of vacant premises
Annualised potential rental
value for the property 49,744 49,183 48,976
portfolio
EPRA vacancy rate 8.5% 10.7% 9.7%
EPRA Net Tangible Assets (“NTA”)
Assumes that the Company buys and sells assets for short-term capital gains, thereby
crystallising certain deferred tax balances.
Unaudited at 30 Sept Unaudited at 30 Sept Audited
2023 2022 at 31 Mar 2023
£000 £000 £000
Group and Company
IFRS NAV 422,780 501,425 437,569
Fair value of financial - - -
instruments
Deferred tax - - -
EPRA NTA 422,780 501,425 437,569
Closing number of shares in 440,850 440,850 440,850
issue (thousands)
EPRA NTA per share (p) 95.9 113.7 99.3
EPRA topped-up NIY
Annualised cash rents at the period-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 estimated non-recoverable property operating
expenses, divided by property valuation plus estimated purchaser’s costs.
Unaudited at 30 Unaudited at 30 Audited
Sept 2023 Sept 2022 at 31 Mar
2023
£000 £000
Group and Company £000
Investment property 609,757 685,423 613,587
Allowance for estimated purchaser’s 39,634 44,552 39,883
costs 29 21
Gross-up property portfolio valuation 649,391 729,975 653,470
Annualised net rental income 43,162 42,971 42,050
Property outgoings 30 22 (1,679) (947) (1,875)
Annualised net rental income 41,483 42,024 40,175
EPRA topped-up NIY 6.4% 5.8% 6.2%
Directors’ responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of the Company for the
Period from 1 April 2023 to 30 September 2023.
We confirm that to the best of our knowledge:
a. The condensed interim financial statements have been prepared in accordance with
IAS 34 ‘Interim Financial Reporting’ as adopted by the United Kingdom;
b. The condensed set of financial statements, which has been prepared in accordance
with the applicable set of accounting standards, gives a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company, or
the undertakings included in the consolidation as a whole as required by DTR
4.2.4R;
c. The interim financial statements include a fair review of the information
required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months of
the financial year, and their impact on the Condensed Financial Statements, and a
description of the principal risks and uncertainties for the remaining six months
of the financial year; and
d. The interim financial statements include a fair review of the information
required by DTR 4.2.8R of the Disclosure and Transparency Rules, being material
related party transactions that have taken place in the first six months of the
current financial year and any material changes in the related party transactions
described in the last Annual Report.
A list of the current directors of Custodian Property Income REIT plc is maintained
on the Company’s website at 31 custodianreit.com.
By order of the Board
David MacLellan
Chair
5 December 2023
Independent review report to Custodian Property Income REIT plc
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30 September
2023 which comprises the Condensed consolidated statement of comprehensive income,
the Condensed consolidated statement of financial position, the Condensed
consolidated statements of changes in equity, the Condensed consolidated statement of
cash flows and related notes 1 to 19.
Based on our review, nothing has come to our attention that causes us to believe that
the condensed set of financial statements in the half-yearly financial report for the
six months ended 30 September 2023 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct
Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 “Review of Interim Financial Information Performed by the
Independent Auditor of the Entity” issued by the Financial Reporting Council for use
in the United Kingdom (ISRE (UK) 2410). A review of interim financial information
consists of making inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2.1, the annual financial statements of the Company are prepared
in accordance with United Kingdom adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial report
has been prepared in accordance with United Kingdom adopted International Accounting
Standard 34, “Interim Financial Reporting”.
Conclusion relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an
audit as described in the Basis for Conclusion section of this report, nothing has
come to our attention to suggest that the directors have inappropriately adopted the
going concern basis of accounting or that the directors have identified material
uncertainties relating to going concern that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with ISRE
(UK) 2410; however future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report in
accordance with the Disclosure Guidance and Transparency Rules of the United
Kingdom’s Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible for
assessing the Company’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for expressing to
the Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our Conclusion, including our Conclusion Relating to
Going Concern, are based on procedures that are less extensive than audit procedures,
as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with ISRE (UK) 2410. Our work
has been undertaken so that we might state to the Company those matters we are
required to state to it in an independent review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 December 2023
- Ends -
═════════════════════════════════════════════════════════════════════════════════════
32 1 The European Public Real Estate Association (“EPRA”).
33 2 Profit after tax, excluding net gains or losses on investment property,
divided by weighted average number of shares in issue.
34 3 Profit after tax divided by weighted average number of shares in issue.
35 4 Dividends paid and approved for the Period.
36 5 Profit after tax, excluding net gains or losses on investment property,
divided by dividends paid and approved for the Period.
37 6 Net Asset Value (“NAV”) movement including dividends paid during the Period
on shares in issue at 31 March 2023.
38 7 Share price movement including dividends paid during the Period.
39 8 EPRA net tangible assets (“NTA”) does not differ from the Company’s IFRS NAV
or EPRA NAV.
40 9 Gross borrowings less cash (excluding deposits) divided by property portfolio
value.
41 10 Expenses (excluding operating expenses of rental property) divided by
average quarterly NAV.
42 11 Weighted by floor area. For properties in Scotland, English equivalent EPC
ratings have been obtained.
43 12 A full version of the Company’s Investment Policy is available at
www.custodianreit.com/wp-content/uploads/2023/09/CREIT-Investment-policy-8_8_23.pdf.
44 13 A risk score of two represents “lower than average risk”.
45 14 EPRA topped-up net initial yield.
46 15 Dividends of 2.75p per share were paid during the Period on shares in issue
throughout the Period.
47 16 As defined by the Social Mobility Commission.
48 17 Annualised EPRA earnings per share divided by the prevailing share price
(82.5p.at 30 September 2023, 86.8p at 5 December 2023).
49 18 Annual target dividend per share of 5.5p divided by the prevailing share
price (82.5p.at 30 September 2023, 86.8p at 5 December 2023).
50 19 Current passing rent plus ERV of vacant properties.
51 20 Weighted by floor area.
52 21 Assumed at 6.5% of investment property valuation.
53 22 Non-recoverable directly incurred operating expenses of rental property,
excluding letting and rent review fees.
═════════════════════════════════════════════════════════════════════════════════════
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: 1.2. Half yearly financial reports and audit
reports/limited reviews
Sequence No.: 289893
EQS News ID: 1790015
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
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