REG-Custodian REIT plc Custodian REIT plc : Interim Results
30/11/2021 07:05
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Custodian REIT plc (CREI)
Custodian REIT plc : Interim Results
30-Nov-2021 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to
REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
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6
30 November 2021
Custodian REIT plc
("Custodian REIT" or "the Company")
Interim Results
Custodian REIT (LSE: CREI), the UK commercial real estate investment company focused on
smaller lot-sizes, today reports its interim results for the six months ended 30 September
2021 ("the Period").
Property highlights
• Property portfolio value of £565.3m (31 March 2021: £551.9m, 2020 1 1 : £532.3m)
• £32.3m aggregate valuation increase comprising a £2.3m property valuation uplift from
asset management initiatives and £30.0m of general valuation increases, primarily due
to hardening yields in the industrial and logistics sector
• £12.5m 2 2 invested in three property acquisitions
• £4.2m profit on disposal 3 3 from the disposal of 10 properties for aggregate
consideration of £38.5m comprising:
◦ A portfolio of seven industrial assets for £32.6m, £5.1m (19%) above the
properties' 31 March 2021 valuation, when terms of the sale were agreed, and
£2.9m (10%) above the 30 June 2021 valuation, representing a net initial yield
("NIY") on sale price of 5.9%;
◦ A retail warehouse in Galashiels to a special purchaser for £4.5m, £1.8m (67%)
ahead of the 30 June 2021 valuation, representing a NIY on sale price of 5.73%;
and
◦ Two smaller assets in the retail and other sectors £0.1m above valuation for
aggregate consideration of £1.4m
• Since the Period end:
◦ An aggregate £46.5m invested in a portfolio of 10 office, retail and industrial
assets through the corporate acquisition of DRUM Income Plus REIT plc ("DRUM
REIT"), and separately, an industrial unit in York; and
◦ Three properties sold for consideration of £14.1m
Financial highlights and performance summary
• 95% of rent collected relating to the six-month period, adjusted for contractual rent
deferrals (year to 31 March 2021: 91%, 2020: 88%)
• EPRA 4 4 earnings per share 5 5 for the six-month period increased to 3.0p (2020:
2.6p) due to the movement in the doubtful debt provision during the six-month period
changing from a £2.9m increase in 2020 to a £0.1m decrease during the Period
• Basic and diluted earnings per share 6 6 increased to 11.4p (2020: -3.8p) primarily
due to property portfolio valuation increases of £32.3m (2020: £27.4m decrease)
• Profit before tax of £48.1m (2020: loss of £16.1m)
• Aggregate dividends per share of 2.5p declared for the Period (2020: 2.0p)
• Target quarterly dividend per share increased by 10% to 1.375p commencing from the
quarter ending 31 December 2021, resulting in target dividends per share of no less
than 5.25p for the year ending 31 March 2022 and 5.5p for the year ending 31 March
2023, based on rent collection levels remaining in line with expectations
• NAV per share 106.0p (31 March 2021: 97.6p, 2020: 95.2p)
• NAV per share total return 7 7 of 11.7% (2020: -3.7%) comprising 3.1% income (2020:
2.6%) and a 8.6% capital change (2020: -6.3% capital change)
• £0.6m of new equity 8 8 raised at a premium of 5.9% to dividend adjusted NAV
Unaudited Unaudited Audited
6 months to 6 months to 12 months to 31 Mar
30 Sept 2021 30 Sept 2020 2021
Total return
Share price total return 9 9 4.7% (7.7%) 2.3%
Capital values
NAV and EPRA NTA 10 10 (£m) 445.9 399.7 409.9
NAV per share and EPRA NTA per share (p) 106.0 95.2 97.6
Share price (p) 93.1 88.8 91.8
Net gearing 11 11 19.6% 23.4% 24.9%
EPRA vacancy rate 12 12 8.4% 7.1% 8.4%
Weighted average energy performance C (62) C (66) C (63)
certificate ("EPC") rating 13 13
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. 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 18.
David Hunter, Chairman of Custodian REIT, said:
"The UK property market has shown significant resilience since the outbreak of the
COVID-19 pandemic. The subsequent recovery, in certain sectors, since the successful
vaccination roll-out has been marked with the Company's rent collections improving to 95%,
net of contractual deferrals, and EPRA earnings per share increasing to 3.0p (2020: 2.6p)
reflecting this improvement and the stabilisation of the Company's rent roll.
"As a result of this recovery I was very pleased to be able to declare dividends per share
of 2.5p (2020: 2.0p) for the Period and, from the quarter ending 31 December 2021, the
Board intends to increase quarterly dividends per share to 1.375p to achieve an annualised
target dividend per share of no less than 5.5p, based on rent collection levels remaining
at least in line with expectations.
"The COVID-19 pandemic has reinforced Custodian REIT's strategy which, over and above
decisions in relation to investment approach, has always placed income and financial
resilience at the heart of the Company's objectives. When allied to the appropriate
property strategy this focus underpins sustainable dividends, which in turn support
long-term total return."
Further information
Further information regarding the Company can be found at the Company's website
14 www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
15 www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260 1000
www.numiscorp.com
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Custodian REIT plc interim results for the six months ended 30 September 2021
Chairman's statement
The UK property market has shown significant resilience since the outbreak of the COVID-19
pandemic. The subsequent recovery, in certain sectors, since the successful vaccination
roll-out has been marked with the Company enjoying a £32.3m valuation increase during the
six months ended 30 September 2021. EPRA earnings per share increased to 3.0p (2020:
2.6p) reflecting the stabilisation of the Company's rent roll and the Company's rent
collections improving to 95%, net of contractual deferrals, which provided 120% cover for
dividends relating to the Period.
The recent volatility in markets has emphasised the importance of having a
well-diversified, income focused property portfolio. I was very pleased to be able to
announce that despite the inevitable disruption to cash collection caused by the COVID-19
pandemic, dividends per share of 2.5p (2020: 2.0p) have been declared relating to the
Period. From the quarter ending 31 December 2021 the Board intends to increase quarterly
dividends per share to 1.375p to achieve a target dividend per share for the year ending
31 March 2022 of no less than 5.25p and for the year ending 31 March 2023 of no less than
5.5p, based on rent collection levels remaining at least in line with expectations.
While it is clear that a renewed spread of the pandemic, possibly through further
variants, will lead to a reintroduction of some restrictions, the UK Government has made
it clear that they are committed to avoiding a return to lockdown, if at all possible. We
will approach any such event in the same manner as previous restrictions, optimising rent
collection through close liaison with our tenants. The Company's strategy of direct rent
collection ensures a close understanding of tenant needs and an ability to react
appropriately to these, to mutual benefit.
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.
These have been testing times which have necessitated an exceptional effort from the
Investment Manager, both in the collection of rents and in operating remotely as a team.
I would like to acknowledge the results of their efforts. I also thank my fellow Board
members who have been flexible and supportive during a period which has required numerous
formal and informal additional Board meetings.
Net asset value
The NAV of the Company at 30 September 2021 was £445.9m, approximately 106.0p per share,
an increase of 8.4p (8.6%) since 31 March 2021:
Pence per share £m
NAV at 31 March 2021 97.6 409.9
Issue of equity - 0.5
Valuation movements relating to:
- Asset management activity 0.5 2.3
- Other valuation movements 7.2 30.0
Valuation increase before acquisition costs 7.7 32.3
Impact of acquisition costs (0.3) (1.1)
Valuation increase including acquisition costs 7.4 31.2
Profit on disposal of investment property 1.0 4.2
Net valuation movement 8.4 35.4
Revenue 4.8 20.2
Expenses and net finance costs (1.8) (7.5)
Dividends paid 16 14 during the Period (3.0) (12.6)
NAV at 30 September 2021 106.0 445.9
Borrowings and cash
The Company operates the following debt facilities:
• A £35m revolving credit facility ("RCF") with Lloyds Bank plc ("Lloyds") with interest
of between 1.5% and 1.8% above three-month LIBOR, determined by reference to the
prevailing LTV ratio, and expiring on 17 September 2024. The RCF facility limit can
be increased to £50m with Lloyds' consent;
• A £20m term loan with Scottish Widows plc with interest fixed at 3.935% and repayable
on 13 August 2025;
• A £45m term loan with Scottish Widows plc with interest fixed at 2.987% and repayable
on 5 June 2028; and
• A £50m term loan with Aviva Real Estate Investors ("Aviva") comprising:
a. £35m Tranche 1 repayable on 6 April 2032 attracting fixed annual interest of
3.02%; and
b. £15m Tranche 2 repayable on 3 November 2032 attracting fixed annual interest of
3.26%.
Each facility has a discrete security pool, comprising a number of the Company's
individual properties, over which the relevant lender has security and the following
financial covenants:
• The maximum LTV of each discrete security pool is between 45% and 50%, with an
overarching covenant on the Company's property portfolio of a maximum 35% LTV; and
• Historical interest cover requiring net rental receipts from each discrete security
pool over the preceding three months to exceed 250% of the facility's quarterly
interest liability.
The Aviva facility also contains a projected interest cover covenant requiring net
contractual rents from the security pool over the next 12 months to exceed 250% of the
facility's quarterly interest liability.
The Company complied with all loan covenants during the Period.
The Company is in the process of charging £30.3m of property to replace charged assets
sold during the Period which, once complete, will mean £153.4m (27% of the property
portfolio at 30 September 2021) of unencumbered assets will be available to be charged to
the security pools to enhance the LTV on individual loans if required.
Through the corporate acquisition of DRUM REIT since the Period end, the Custodian REIT
group now also operates a £25m RCF facility with the Royal Bank of Scotland expiring on 30
September 2022 with interest of 1.75% above three-month LIBOR. The facility's key
financial covenants comprise a maximum LTV of DRUM REIT's property portfolio of 50% and
minimum historical interest cover of 250%.
The weighted average cost of the Company's agreed debt facilities is 2.9% (2020: 2.9%)
with a weighted average maturity of 6.9 years (2020: 7.3 years). 78% (2020: 77%) of the
Company's agreed debt facilities are at a fixed rate of interest, significantly mitigating
interest rate risk.
Dividends
During the Period the Company paid fourth and fifth interim dividends per share for the
financial year ended 31 March 2021 of 1.25p and 0.5p respectively, and the first quarterly
dividend per share for the financial year ending 31 March 2022 of 1.25p, relating to the
quarter ended 30 June 2021.
In line with the Company's dividend policy the Board approved an interim dividend of 1.25p
per share for the quarter ended 30 September 2021 which will be paid on 30 November 2021
to shareholders on the register on 12 November 2021.
Business model and strategy
Custodian 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,
becoming the REIT of choice for private and institutional investors seeking high and
stable dividends from well-diversified UK real estate.
The Company's investment policy 17 15 is summarised below:
• To invest in a diverse portfolio of UK commercial real estate, principally
characterised by individual property values of less than £10m at acquisition.
• 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 focus on areas with high residual values, strong local economies where demand for
property exceeds supply, acquiring modern buildings or those considered fit for
purpose by occupiers.
• No one tenant or property should account for more than 10% of the rent roll at the
time of purchase, except for:
(i) governmental bodies or departments; or
(ii) single tenants rated by Dun & Bradstreet as having a credit risk score higher than
two 18 16 , where exposure may not exceed 5% of the rent roll.
• The Company will not undertake speculative development except for the refurbishment of
existing holdings, but may invest in forward funding agreements where the Company may
acquire pre-let development land and construct investment property with the intention
of owning the completed development.
• The Company may use gearing provided that the maximum LTV shall not exceed 35%, with a
medium-term net gearing target of 25% LTV.
Investment Manager
Custodian Capital Limited ("the Investment Manager") is appointed under an investment
management agreement ("IMA") to provide asset management, investment management and
administrative services to the Company.
Board succession
We were delighted to welcome Elizabeth McMeikan and Chris Ireland to the Board on 1 April
2021 who bring a range of different but complementary skills, strengthen the Board's
property and governance experience and add to its diversity.
Two of the Company's five independent Directors were appointed in 2014. The Company's
succession policy allows for a tenure of longer than nine years, in line with the 2019 AIC
Corporate Governance Code for Investment Companies ("AIC Code"), but the Board
acknowledges the benefits of ongoing Board refreshment. For this reason expected Director
retirement dates are staggered within a nine year tenure period. Where possible, the
Board's policy is to recruit successors well ahead of the retirement of Directors and a
recruitment process is underway to appoint an Audit and Risk Committee Chair designate.
The Board is conscious of the increased focus on diversity and recognises the value and
importance of diversity in the boardroom. No Directors are from a minority ethnic
background. The appointment of Elizabeth McMeikan increased the female representation on
the Board to 33% which meets the gender diversity recommendations of the Hampton-Alexander
Review for at least 33% female representation on FTSE350 company boards. As a constituent
of the FTSESmallCap Index Custodian REIT is not bound by this recommendation. The Board
supports the overall recommendations of the Hampton-Alexander and Parker Reports although
it is not seen to be in the interests of the Company and its shareholders to set
prescriptive diversity targets for the Board at this point.
Environmental, social and governance ("ESG")
The Board recognises that its decisions have an impact on the environment, people and
communities. It also believes there are positive financial reasons to incorporate good
ESG practices into the way we do business.
The Board shares the increased stakeholder interest in, and recognises the importance of,
compliance requirements around good ESG management. It seeks to adopt sustainable
principles wherever possible, actively seeking opportunities to make environmentally
beneficial improvements to its property portfolio and encouraging tenants to report and
improve emissions data. The ESG Committee monitors the Company's performance against its
environmental key performance indicators ("KPIs") to ensure it complies with its
environmental reporting requirements and encourages positive social outcomes being
achieved for its stakeholders and the communities in which it operates.
As a result, the Board has committed to:
• Seek to minimise emissions, energy consumption and waste;
• Comply with all relevant environmental legislation and real estate reporting best
practice;
• Gather and analyse data on our environmental performance across our property
portfolio;
• Monitor environmental performance and achievements against targets for our properties;
• Invest in on-site renewables and carbon reducing technology as a commitment to
continuous improvement; and
• Let buildings which are comfortable, safe and high-quality spaces where the wellbeing
of occupants and the quality of their occupancy is maximised.
Outlook
The absolute focus on rent collection, financial resilience and maintaining fully covered
dividends has occupied the Board's attention throughout the Period. Indeed, the COVID-19
pandemic has reinforced Custodian REIT's strategy which, over and above decisions in
relation to investment approach, has always placed income and financial resilience at the
heart of the Company's objectives. When allied to the appropriate property strategy this
focus underpins sustainable dividends, which in turn support long-term total return.
The Board is confident that the Company's portfolio is well placed to meet these
objectives through income and valuation growth.
David Hunter
Chairman
29 November 2021
Investment Manager's report
Property market
The valuation movements by sector in the Custodian REIT property portfolio during the
Period tell a story that is repeated across the market. Industrial and logistics assets
continue to see strong demand from investors and occupiers. Occupier demand is driving
rental growth, which is encouraging investors still further in their pricing. This
virtuous circle appears to have some way to run, particularly amongst smaller regional
properties, where inflationary pressures on construction costs, limited development and an
ongoing excess of occupier demand over supply support continued rental growth.
Pricing in the retail warehouse sector is recovering strongly as occupiers have proved
resilient through the pandemic with those in DIY, discounting, homewares and food all
trading well. Where investors are confident that rental levels are sustainable, pricing
has moved noticeably during the Period.
We were delighted to take advantage of the strength and depth of demand in the
industrial/logistics sector and the increasing demand for retail warehousing by making
some opportunistic sales during the Period. We completed the sale of a portfolio of seven
industrial units which we felt did not meet our medium-term aspirations for rental growth
or might require a level of capital expenditure that we would not recover in the
valuation. As part of the sale we agreed a delayed completion which enabled us to
part-invest the expected proceeds in advance of completion which helped reduce cash drag.
We also sold, to a special purchaser, a B&Q retail warehouse in Galashiels 67% ahead of
valuation. While this property would normally be considered a target property for
Custodian REIT we did not feel holding the property would achieve the upside value
delivered by the sale.
To capitalise on the marginal yield achievable when buying smaller lot-size regional
property, during the Period we acquired a distribution unit in Dundee and an office
building in central Manchester and, since the Period end, a distribution unit in York for
a combined sum of £11.1m at an aggregate net initial yield of c.6%. In all cases we
believe there is strong rental growth potential over the short term.
Rent collection
Custodian Capital invoices and collects rent directly, importantly allowing it, as
Investment Manager, to hold direct conversations promptly with most tenants regarding the
payment of rent. This direct contact has proved invaluable through the COVID-19 pandemic
disruption, enabling better outcomes for the Company. Many of these conversations have
led to positive asset management outcomes, some of which are discussed below.
95% of rent relating to the Period net of contractual rent deferrals has been collected,
or 98% before contractual deferrals, as set out below:
Net of contractual Before contractual rent
rent deferrals deferrals
£m
Rental income from investment property 19.3
(IFRS basis)
Lease incentives (0.7)
Cash rental income expected, before 18.6 100%
contractual rent deferrals
Contractual rent deferrals relating to (0.1) (1%)
the Period
Contractual rent deferred from prior year 0.7 4%
falling due during the Period
Cash rental income expected, net of 19.2 100% 103%
contractual rent deferrals
Outstanding rental income (1.0) (5%) (5%)
Rental income collected 18.2 95% 98%
Outstanding rental income remains the subject of discussion with various tenants, although
some arrears are potentially at risk of non-recovery from CVAs or Pre-pack
Administrations.
Property portfolio performance
At 30 September 2021 the Company's property portfolio comprised 152 assets (31 March 2021:
159 assets), 197 tenants and 263 tenancies with an aggregate net initial yield ("NIY") of
6.2% (31 March 2021: 6.6%) and weighted average unexpired lease term to first break or
expiry ("WAULT") was 5.0 years (31 March 2021: 5.0 years).
The property portfolio is split between the main commercial property sectors, in line with
the Company's objective to maintain a suitably balanced portfolio, with a relatively low
exposure to office and a relatively high exposure to industrial, retail warehouse and
alternative sectors, often referred to as 'other' in property market analysis.
The current sector weightings are:
Valuation Weighting by Valuation Weighting Valuation
income 19 17 by income movement
30 Sept 31 March before
2021 30 Sept 2021 31 March acquisition Weighting Weighting
costs by value by value
£m 2021 £m 2021 £m 30 Sept 31 March
2021 2021
Sector
Industrial 275.9 40% 270.2 41% 28.3 49% 49%
Retail 105.3 21% 99.7 21% 8.1 19% 18%
warehouse
Other 20 18 85.2 16% 84.4 16% 1.2 15% 15%
Office 61.8 13% 54.8 12% 0.4 11% 10%
High street 37.1 10% 42.8 10% (5.7) 6% 8%
retail
Total 565.3 100% 551.9 100% 32.3 100% 100%
Industrial and logistics property remains a very good fit with the Company's strategy.
The demand for smaller lot-sized units is very broad, from manufacturing, urban logistics,
online traders and owner occupiers. This demand, combined with a restricted supply
resulting from limited new development, supports high residual values (where the vacant
possession value is closer to the investment value than in other sectors) and drives
rental growth. Despite a long period of growth in this sector, we still see opportunity.
The COVID-19 pandemic has deepened the challenges facing the high street retail sector
causing further declines in retail values and the Company has continued to re-balance the
portfolio away from secondary high street locations. By contrast we have witnessed a
strong recovery in out-of-town retail/retail warehousing which remains an important asset
class for the Company. We expect that well-located retail warehouse units, let off low
rents, located on retail parks which are considered dominant in their area will continue
to be in demand by retailers. The importance of convenience, free parking, the capacity
to support click and collect and the relatively low cost compared to the high street
should continue to support occupational demand for the Company's retail warehouse assets.
Regional offices will remain a sector of interest for the Company and we expect there to
be activity post-pandemic in regional office markets. The rise in working remotely may
not be restricted to working from home with a potential increase in working from regional
satellite offices. Locations that offer an attractive environment to both live and work
in and that offer buildings with high environmental standards and accessibility to a
skilled workforce, will be most desirable. There is latent rental growth in many regional
office markets where supply has been much diminished through redevelopment to alternative
uses.
Custodian REIT targets properties across all asset classes that are capable of supporting
the Company's ESG objectives and it is fully committed to investing in and refurbishing
both new properties and the existing portfolio to meet these objectives.
The Company operates a geographically diversified property portfolio across the UK,
seeking to ensure that no one region represents more than 50% of portfolio income. The
geographic analysis of the Company's portfolio at 30 September 2021 was as follows:
Period
Weighting by value valuation Weighting Weighting
Valuation 30 Sep 2021 movement by income11 by income11
Period 30 Sep 2021 31 Mar 2021
30 Sep 2021 £m valuation
movement
Location £m
West Midlands 119.1 21% 7.0 6% 20% 20%
North-West 102.2 18% 1.4 2% 19% 17%
South-East 80.9 14% 9.2 13% 14% 14%
East Midlands 73.7 13% 2.6 4% 14% 14%
South-West 59.6 11% 1.6 3% 10% 10%
Scotland 49.0 9% 3.1 7% 8% 9%
North-East 48.0 8% 3.7 9% 9% 10%
Eastern 26.9 5% 3.3 14% 5% 5%
Wales 5.9 1% 0.4 8% 1% 1%
Total 565.3 100% 32.3 6% 100% 100%
For details of all properties in the portfolio please see
21 custodianreit.com/property/portfolio.
Acquisitions
The Company invested £12.475m in three acquisitions during the Period described below:
• A 20k sq ft office building on Fountain Street, Manchester for £6.25m. The property
comprises basement parking and six floors let to Leyton UK, Meridian Healthcomms,
Venditan and Fourthline with a weighted average unexpired term to first break or
expiry ("WAULT") of 1.2 years and an aggregate annual rent of £407k, reflecting a NIY
of 6.1%;
• A 49k sq ft industrial asset in Knowsley, Liverpool for £4.325m. The asset comprises
six units occupied by Engineering Solutions and Automations, Portakabin, Green Thumb,
Central Electrical Armature and Med Imaging with a WAULT of 4.0 years and an aggregate
annual passing rent of £260k, reflecting a net initial yield 22 19 ("NIY") of 5.6%;
and
• A 30k sq ft industrial unit in Dundee for £1.9m occupied by Menzies Distribution with
a WAULT of 5.2 years and an annual passing rent of £118k, reflecting a NIY of 5.9%.
On 20 October 2021 the Company acquired a 29k sq ft industrial unit in York for £2.962m
occupied by Menzies Distribution with a WAULT of 2.8 years and an annual passing rent of
£186k, reflecting a NIY of 5.9%.
On 3 November 2021 the Company acquired 100% of the ordinary share capital of DRUM Income
Plus REIT plc. Consideration for the acquisition of 20,247,040 new ordinary shares in the
Company was calculated on an 'adjusted NAV-for-NAV basis', with each company's 30 June
2021 NAV being adjusted for respective acquisition costs with DRUM REIT's property
portfolio valuation adjusted to the agreed purchase price of £43.5m. DRUM REIT's property
portfolio at 30 September 2021 is summarised below:
• 10 regional properties comprising five offices, three retail parks, one shopping
centre and one industrial estate in aggregate covering approximately 330k sq ft
• 78 tenants, the largest of which is Skills Development Scotland with annual rent of
£0.5m (c.14% of DRUM REIT's rent roll)
• EPRA occupancy rate of 86.1%, providing some short-term asset management opportunities
• WAULT of 4.7 years
• Contractual annual rent roll of £3.6m with an ERV of £4.4m
• Portfolio valuation of £49.3m
• Reversionary yield 23 20 ("RY") of 8.4%
• All properties charged under a £25m RCF facility with The Royal Bank of Scotland
DRUM REIT represents an excellent fit with Custodian REIT's investment policy, targeting
smaller regional property with a strong income focus. The purchase price reflected a
sufficient discount to DRUM REIT's NAV to be accretive to existing Custodian REIT
shareholders and to provide DRUM REIT shareholders with an increase in like for like share
price, as well as delivering them a growing dividend from a much larger specialist in the
smaller regional property sector with much improved liquidity.
Details of each property within DRUM REIT's portfolio are:
Location: Gosforth, Newcastle Location: Central Glasgow
Sector: Retail (shopping centre) Sector: Office
Tenants: Sainsbury's, multiple small local retailers Tenant: Skills Development Scotland
RY: 8.1% RY: 6.8%
Purchase price: £8.975m Purchase price: £7.087m
Location: Cheadle, Greater Manchester Location: Edinburgh Business Park
Sector: Office Sector: Office
Tenants: Agilent Technologies, Micron Europe Tenant: Multiple
RY: 9.3% RY: 10.0%
Purchase price: £5.036m Purchase price: £4.593m
Location: Central Manchester Location: Southport
Sector: Office Sector: Retail warehouse
Tenants: Multiple Tenant: Multiple
RY: 12.4% RY: 9.0%
Purchase price: £4.503m Purchase price: £3.963m
Location: Dunfermline Location: Gloucester
Sector: Retail warehouse Sector: Retail warehouse
Tenants: Multiple Tenant: Farmfoods
RY: 9.8% RY: 8.3%
Purchase price: £3.687m Purchase price: £2.396m
Location: Aberdeen airport Location: Gateshead
Sector: Industrial Sector: Office
Tenants: Multiple Tenants: Worldpay, Datawright
RY: 11.8% RY: 17.0%
Purchase price: £1.66m Purchase price: £1.6m
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 REIT is not a trading company but identifying
opportunities to dispose of assets significantly ahead of valuation or that no longer fit
within the Company's investment strategy is important.
The Company sold the following properties during the Period for an aggregate consideration
of £38.5m:
• A portfolio of seven industrial properties located in Gateshead, Stockton-on-Tees,
Warrington, Stone, Christchurch, Aberdeen and Bedford for £32.6m, £5.1m (19%) above
the 31 March 2021 valuations. The properties were acquired either in the seed
portfolio at IPO or within subsequent portfolio acquisitions and have an aggregate
current passing rent of £2.0m, reflecting a NIY on sale price of 5.9%;
• A 31,062 sq ft retail warehouse in Galashiels for £4.5m to a special purchaser, £1.8m
(67%) ahead of the 30 June 2021 valuation;
• A vacant children's day nursery in Basingstoke for £0.65m, £0.1m ahead of the last
published valuation; and
• A retail unit in Nottingham at auction for £0.7m, in line with the most recent
valuation.
Since the Period end the Company sold:
• A 42,289 sq ft car showroom in Stockport for £9.0m, £1.4m (18%) ahead of the 30 June
2021 valuation;
• A 22,720 sq ft car showroom in Stafford for £4.9m, £1.15m (31%) ahead of the 30 June
2021 valuation; and
• A high street retail units in Cheltenham at valuation for an aggregate £0.2m.
Property portfolio risk
The property portfolio's security of income is enhanced by 18% of income benefitting from
either fixed or indexed rent reviews.
Short-term contractual income at risk is a relatively low proportion of the property
portfolio's total income, with 32% expiring in the next three years and 14% within one
year.
30 Sept 31 Mar
2021 2021
Aggregate income expiry
0-1 years 14% 11%
1-3 years 18% 20%
3-5 years 20% 22%
5-10 years 35% 34%
10+ years 13% 13%
100% 100%
The Company's Annual Report for the year ended 31 March 2021 set out the principal risks
and uncertainties facing the Company at that time. We do not anticipate any changes to
those risks and uncertainties over the remainder of the financial year, but highlight the
following:
Unidentified liabilities
The purchase of DRUM REIT increases the likelihood of unidentified liabilities having been
acquired, but this risk has been mitigated through comprehensive financial, tax, property
and legal due diligence being undertaken in conjunction with the Company's professional
advisers.
COVID-19 pandemic
The impact of the COVID-19 pandemic has been pervasive across the globe and we believe it
will continue to impact rental receipts, tenant stability, property valuations and
government legislation for at least the remainder of the financial year ending 31 March
2022.
We believe the Company is well placed to weather any further negative impacts of the
COVID-19 pandemic because of its diverse portfolio by sector and location with an
institutional grade tenant base and low net gearing.
Environmental
The Board is aware of the increasing focus from external stakeholders on the Company's
environmental credentials and the increasing level of disclosure requirements regarding
the Company's environmental impact. We continue to work with specialist environmental
consultants to ensure compliance with new requirements and identify cost-effective
opportunities to improve the Company's environmental performance.
Health and safety
Although the Company's portfolio has no exposure to 'high risk' assets, typically
high-rise properties (over 18m tall) or properties used for multiple residential
occupation, it owns properties where cladding material has been used in construction.
Whilst there is no legal requirement to remove composite cladding which is not Loss
Prevention Certification Board ("LCPB") compliant (typically used in construction prior to
2005), to mitigate risk, the Investment Manager:
• Ensures tenants provide up to date Fire Risk Assessments (FRA) undertaken by a
reputable assessor;
• Ascertains the composition of cladding, where practical, and ensures the tenant and
local Fire Authority are notified of any risks; and
• Confirms tenants comply with FRA recommendations and remediations.
If core drilling identified non LCPB compliant cladding and the FRA recommended removal as
potential mitigation measures might not be sufficient the Investment Manager would work
with the tenants to ensure cladding was replaced.
Outlook
The resilience shown by real estate during the Pandemic and its strong recovery in the
last six months, notwithstanding the threat from new COVID-19 variants, bears testament to
continued occupier demand in industrial/logistics and retail warehousing, in particular.
In addition, the motor trade has also performed well and we are witnessing a recovery in
occupier demand for offices.
Increasingly tenants require properties that meet their environmental and social
objectives, never more so than in the office sector, where businesses will need to attract
their staff back to the office and away from home. Custodian REIT is poised to meet the
demands of its tenants and potential new occupiers, in this regard, investing in EV
("electric vehicle") charging on its retail parks and office sites and focusing
refurbishment and re-development budgets on environmentally responsible fit out while
working with tenants to improve the energy performance of existing buildings.
For so long as we can offer properties to our tenants that are fit for purpose and that
lead on environmental performance improvements, we remain confident that the Company's
diversified portfolio of smaller regional property will continue to deliver the long-term
returns demanded by our shareholders.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
29 November 2021
Asset management report
Our continued focus on asset management during the year including rent reviews, new
lettings, lease extensions and the retention of tenants beyond their contractual break
clauses and expiries resulted in a £2.3m valuation increase in the Period.
Property portfolio summary
30 Sept 2021 31 Mar 2021
Property portfolio value £565.3m £551.9m
Separate tenancies 263 265
EPRA occupancy rate 91.6% 91.6%
Assets 152 159
WAULT 5.0 years 5.0 years
NIY 6.2% 6.6%
Weighted average EPC rating C (62) C (63)
During the Period we have seen that continued close collaboration with tenants will
generate asset management opportunities including lease extensions and re-gears which has
seen the Company maintain its weighted average unexpired lease term to first break or
expiry ("WAULT") at five years despite the effects of the COVID-19 pandemic.
Key asset management initiatives completed during the Period include:
• A new five year lease with a third year break option to Green Retreats at a vacant
industrial unit in Farnborough at an annual rent of £185k, increasing valuation by
£0.9m;
• A new five year lease without break to Galliford Try on a vacant office suite in
Leicester with an annual rent of £165k, increasing valuation by £0.5m;
• A 10 year lease renewal with a fifth year break option with BSS Group at an industrial
unit in Bristol, increasing the annual passing rent from £250k to £255k with an open
market rent review in year five, increasing valuation by £0.3m;
• A new 10 year lease of the vacant ground floor and a five year extension of the first
floor with Dehns at the Company's recently acquired offices in Oxford with an
aggregate annual passing rent of £271k, increasing valuation by £0.2m;
• A new 10 year lease with a fifth year tenant break option with Livingstone Brown on a
vacant office suite in Glasgow with an annual rent of £56k, increasing valuation by
£0.2m;
• A five year lease renewal with a third year break option with DHL at an industrial
unit in Aberdeen, maintaining passing rent at £208k and increasing valuation by £0.1m;
• A 10 year lease renewal with a fifth year break option with MP Bio Science at an
industrial unit in Hilton, increasing passing rent from £28k to £36k, resulting in an
aggregate valuation uplift of £0.1m;
• A new 10 year lease to SpaMedica at a vacant office building in Leicester with annual
rent of £87k and open market rent review in year five, with no impact on valuation;
• A new lease with Just for Pets on a vacant retail warehouse unit in Evesham for a term
of 10 years with a break in year six, at an annual rent of £95k, with no impact on
valuation;
• A five year lease renewal with Quantem Consulting at an office building in Birmingham,
increasing the annual passing rent from £30k to £39k, with no impact on valuation;
• A 10 year lease extension with a break option in year five with Subway at a retail
unit in Birmingham, maintaining the annual passing rent of £14k, with no impact on
valuation;
• A new five year lease without break to Realty Law on a vacant office suite in
Birmingham with an annual rent of £28k, with no impact on valuation; and
• A five year lease renewal with a third year break option to Done Brothers (t/a
Betfred) at a retail unit in Cheltenham with an annual rent £25k, with no impact on
valuation.
Since the Period end the following initiatives have been completed:
• A new 15 year lease to Loungers at Pride Hill, Shrewsbury at an annual rental of £90k;
• A new 10 year lease to Ramsdens Financial at a retail unit on Argyle St, Glasgow at an
annual rent of £55k, increasing to £60k in year five;
• A new five year lease of a retail unit at Pride Hill, Shrewsbury to Clogau Shrewsbury
Limited at an annual rental of £55k;
• A 15 year reversionary lease to Smyths Toys at a retail warehouse unit at Eastern
Avenue, Gloucester at an annual rental of £130k;
• A new five year lease to Midon Limited at an industrial unit in Penrhyn Court,
Knowsley at an annual rental of £37k.
These positive asset management outcomes have been partially offset by the impact of the
Administrations of JTF Wholesale (£586k of annual rent) and Rapid Vehicle Repair (£71k of
annual rent) which have resulted in an aggregate 1.8% decrease in the annual rent roll.
While the short-term impact of an Administration is a hit to cash flow and valuation, the
opportunity created by taking back control of the JTF site in Warrington in a prime
distribution location, with the prospect of redeveloping the site to create a BREEAM
'Excellent' rated, high bay distribution unit should lead to a substantial net valuation
uplift and also help meet the ESG objectives of Custodian REIT.
Tenant business failures have resulted in occupancy levels being maintained at 91.6% since
31 March 2021, but letting activity is increasing across most sectors.
Outlook
Looking forward, we maintain a positive outlook with many of the asset management
initiatives currently under way expected to come to fruition over the next 6-12 months
which should see new tenants secured, leases extended and new investment into existing
assets improving their environmental credentials and realising their full potential.
Alex Nix
Assistant Investment Manager
for and on behalf of Custodian Capital Limited
Investment Manager
29 November 2021
ESG Committee Report
The Company is committed to delivering its strategic objectives in an ethical and
responsible manner and meeting its corporate responsibilities towards society, human
rights and the environment. The Board acknowledges its responsibility to society is
broader than simply generating financial returns for shareholders. The Company's approach
to ESG addresses the importance of these issues in the day-to-day running of the business,
as detailed below.
ESG policy
Environmental - we want our properties to minimise their impact on the local and wider
environment. The Investment Manager carefully considers the environmental performance of
our properties, both before we acquire them, as well as during our period of management.
Sites are visited on a regular basis by the Investment Manager and any obvious
environmental issues are reported.
Social - Custodian REIT strives to manage and develop buildings which are comfortable,
safe and high-quality spaces. As such, our aim is that the safety and well-being of
occupants of our buildings is maximised. We have implemented a portfolio approach to
well-being which encourages engagement with tenants, ensures maximum building safety and
optimises comfort and quality of occupancy.
Governance - high standards of corporate governance and disclosure are essential to
ensuring the effective operation of the Company and instilling confidence amongst our
stakeholders. We aim to continually improve our levels of governance and disclosure to
achieve industry best practice.
The Committee encourages the Investment Manager to act responsibly in the areas it can
influence as a landlord, for example by working with tenants to improve the environmental
performance of the Company's properties and minimise their impact on climate change. The
Committee believes that following this strategy will ultimately be to the benefit of
shareholders through enhanced rent and asset values.
The Company's environmental policy commits the Company to:
• Seek to reduce pollution and comply with all relevant environmental legislation;
• Gather and analyse data on the environmental performance of our properties; and
• Set targets for the environmental performance of our properties and monitor
achievements as a commitment to continuous improvement.
Environmental key performance indicators
Target environmental key performance indicators ("KPIs") provide a strategic way to
measure the Company's success towards achieving its environmental objectives and ensure
the Investment Manager is embedding key ESG principles in order to directly support
climate risk mitigation and capture some ESG opportunities from the transition to a
low-carbon economy.
The Company's qualitative and quantitative environmental targets, measured via the KPIs,
cover four 'boundaries' and are set out below:
Area KPI Progress during the Period
Tenant data collection via a data platform
Reduce total portfolio currently covers c. 35% of the Company's
absolute emissions against a portfolio by floor area which is expected
2019 baseline by 30% by 2025 to increase with improved tenant
Emissions and engagement. Analysis of this data will
energy Reduce absolute energy allow us to analyse the portfolio and
consumption of the property identify assets which are performing
portfolio by 15% against a poorly in order to make improvements
2019 baseline by 2025
All 'D' EPC ratings to be
removed or improved by 2027,
all 'E' EPC ratings to be Weighted average EPC rating has moved from
removed or improved by 2025 C(63) to C(62) during the Period, detailed
EPCs and all 'F' and 'G' EPC further below, and all F and G ratings
ratings to be removed or have been removed or improved
improved by 31 March 2022
Switch all Currently at 95% and expect to achieve
landlord-controlled sites to further improvements by the end of the
100% renewables by 2025 financial year
Green procurement
Switch all 11 properties have moved over to renewable
landlord-controlled sites to energy contracts during the Period
green gas by 2025
We have EV charging points on seven of our
eleven retail park assets which have
landlord-controlled areas. We are working
Install EV charging points with PodPoint to target 100% coverage
across 100% of the Company's across the retail park portfolio and
retail warehouse assets by exploring roll out of EV charging points
Onsite renewables 2025 and investigate onsite on a selection of single let properties.
renewables on one asset by On-site renewables have been introduced by
2025 way of solar PV panels at a property in
West Bromwich described in more detail
below and are now being considered across
other assets within the portfolio
Zero waste to landfill from We are working with managing agents and
landlord-controlled waste by contractors in order to achieve this
2022
Waste and water Working with managing agents on
Reduce landlord-controlled initiatives in buildings such as sensor
water consumption by 50% by taps, flow regulators,
2025
reduced leakage, water saving showers
Engage with tenants during We have updated the green clause to
lease negotiations to include renewable energy as standard and
incorporate sustainability our lawyers are using this when drafting
clauses into new leases new leases
Tenant engagement
Engage with tenants on Tenant benchmark reports were circulated
quarterly basis on ESG issues in June 2021 for the first time which has
led to positive feedback
Achieve EPRA Gold Standard
External for the year ended 31 March Achieved
reporting 2021
Appropriate disclosures were made in the
2021 Annual Report. Although TCFD are not
mandatory for the Company, reporting will
Report to TCFD by 2021 continue to be developed in the current
financial year following TCFD guidance
where considered appropriate
Due diligence Investment Committee reports for any new
property acquisition/refurbishment now
include
Incorporate ESG factors into
all investment due diligence dedicated ESG rationale detailing
undertaken improvements to be made alongside relevant
capital expenditure
Case study
During the Period we completed a comprehensive refurbishment of an industrial unit in West
Bromwich which involved installing six electric vehicle charging points, solar
photovoltaic coverage to over 700 sq m of the roof area, air source heat pumps to provide
heating and hot water, new energy efficient radiators and LED lights with passive infrared
sensors. The refurbishment is expected to increase the EPC rating from C (69) to a high
B, with the ERV of the property increasing from £280k pa (£4.80 per sq ft) to £345k pa
(c.£6.00 per sq ft). Once re-let we expect the uplift in property valuation will be well
in excess of the capital outlay for refurbishment.
We expect to commence the redevelopment of an industrial asset in Redditch to BREEAM
'Excellent' standard, once it becomes vacant in January 2022, with further initiatives
planned as we continue to invest in our property portfolio to minimise its environmental
impact and maximise shareholder value.
EPC ratings
During the Period the Company has updated EPCs at 20 units across 14 properties covering
272k sq ft for properties where existing EPCs had expired or where works had been
completed, and at the Period end have a weighted average EPC rating of C (62) (31 March
2021: C (63)). For updated EPCs, there was an aggregate improvement in the rating of 16
energy performance asset rating points 24 21 . Some of the properties showing an
improvement are detailed below:
• Burton upon Trent - a new Starbucks drive through restaurant was built on the site of
a former tool hire centre, improving the EPC score from D (99) to B (43)
• Daventry - a significant refurbishment of this industrial property was carried out
during the year, improving the EPC score from C (52) to B (46)
• Glasgow West George Street - a refurbishment of these offices improved the EPC score
from E (62) to B (34)
The Company's weighted average EPC score is shown below:
31 Mar
30 Sept 2021 30 Sept 2020
2021
£000 £000
EPC rating £000
A 1% 1% 1%
B 17% 12% 15%
C 43% 40% 43%
D 29% 29% 30%
E 9% 14% 11%
F 1% 2% -
G - 1% -
Outlook
The Committee is pleased with the progress made on the Company's environmental credentials
during the Period, in particular the continued improvement in the weighted average EPC
rating and looks forward to the Company making further progress against its environmental
KPIs over the remainder of the financial year.
Approval
This report was approved by the Committee and signed on its behalf by:
Hazel Adam
Chair of the ESG Committee
29 November 2021
Property portfolio
Location Tenant % Portfolio Income 25 22
INDUSTRIAL
Winsford H&M 1.5%
Ashby Teleperformance 1.3%
Burton ATL Transport 1.2%
Salford Restore 1.1%
Hilton Daher Aerospace 1.0%
Doncaster Silgan Closures 1.0%
Eurocentral Next 0.9%
Warrington Life Technologies 0.9%
Milton Keynes Massmould 0.9%
Tamworth ICT Express 0.9%
Kettering Multi-let 0.9%
Normanton Yesss Electrical 0.8%
Biggleswade Turpin Distribution 0.8%
Warrington Procurri Europe and Synertec 0.8%
Cannock HellermannTyton 0.8%
Bellshill Yodel 0.8%
Daventry Multi-Color 0.7%
Edinburgh Menzies Distribution 0.7%
Gateshead Worthington Armstrong 0.7%
Plymouth Sherwin-Williams 0.7%
Nuneaton DX Network Service 0.6%
Milton Keynes Saint Gobain Building Distribution 0.6%
Avonmouth Superdrug 0.6%
Bristol BSS Group 0.6%
Coventry Royal Mail 0.6%
Manchester Unilin Distribution 0.6%
Bedford Heywood Williams Components 0.6%
Glasgow Menzies Distribution 0.6%
Weybridge Menzies Distribution 0.6%
Knowsley Multi-let 0.6%
Aberdeen Menzies Distribution 0.6%
Hamilton Ichor Systems 0.6%
Stevenage Morrison Utility Services 0.6%
Cambuslang Brenntag 0.5%
Livingston A Share & Sons (t/a SCS) 0.5%
Oldbury Sytner 0.5%
Warwick Semcon 0.5%
Farnborough Green Retreats 0.4%
Norwich Menzies Distribution 0.4%
Coalville MTS Logistics 0.4%
Erdington West Midlands Ambulance Service 0.4%
Langley Mill Warburtons 0.4%
Ipswich Menzies Distribution 0.4%
Irlam Northern Commercials 0.4%
Sheffield Parkway Synergy Health 0.4%
Castleford Bunzl 0.4%
Liverpool, Speke Powder Systems 0.4%
Hilton Multi-let 0.3%
Swansea Menzies Distribution 0.3%
Leeds Tricel Composites 0.3%
Sheffield Arkote 0.3%
Kettering Sealed Air 0.3%
Atherstone North Warwickshire Borough Council 0.3%
Liverpool, Speke DHL International 0.3%
Huntingdon PHS Group 0.3%
Dundee Menzies Distribution 0.3%
Glasgow DHL Global Forwarding 0.3%
Normanton Acorn Web Offset 0.3%
Sheffield ITM Power 0.3%
Kilmarnock Royal Mail 0.2%
Sheffield River Island 0.1%
Knowsley, Leeds, Redditch, Warrington and VACANT 4.3%
West Bromwich
40.4%
OFFICE
West Malling Regus (Maidstone West Malling) 1.6%
Oxford Multi-let 1.4%
Birmingham Multi-let 1.0%
Leicester Galliford Try, Regus (Leicester Grove 1.0%
Park) and SpaMedica
Sheffield Secretary of State for Communities and 0.9%
Local Government
Castle Donnington National Grid 0.8%
Leeds First Title (t/a Enact) 0.8%
Cheadle Wienerberger 0.8%
Leeds First Title (t/a Enact) 0.8%
Leicester Countryside Properties and Erskine 0.7%
Murray
Derby Edwards Geldards 0.6%
Solihull Lyons Davidson 0.5%
Glasgow Multi-let 0.4%
Manchester Fourthline, Meridian Healthcomms and 0.4%
Venditan
Birmingham, Glasgow, Leicester and VACANT 1.3%
Manchester
13.0%
OTHER
Stockport Williams Motor Co 1.6%
Liverpool Liverpool Community Health NHS Trust and 1.0%
Royal Base Restaurants
Perth Bannatyne Fitness, Scotco Eastern (t/a 1.0%
KFC) and TH UK (t/a Tim Hortons)
Derby VW Group 0.8%
Crewe Mecca Bingo, Mecca Bingo (sublet to 0.8%
Odeon Cinemas) and Pizza Hut
Stafford VW Group 0.7%
Stoke Nuffield Health 0.7%
Lincoln Total Fitness Health Clubs 0.7%
Torquay Multi-let 0.7%
Gillingham Co-Op 0.7%
York Pendragon 0.6%
Salisbury Parkwood Health & Fitness 0.5%
Shrewsbury VW Group 0.5%
Lincoln MKM Buildings Supplies 0.5%
Crewe Multi-let 0.4%
Loughborough Listers Group 0.4%
Bath Chokdee (t/a Giggling Squid) 0.3%
Castleford MKM Buildings Supplies 0.3%
High Wycombe Stonegate Pub Co 0.3%
Maypole Starbucks 0.3%
Shrewsbury - TJ Vickers TJ Vickers & Sons 0.3%
Nottingham Kbeverage (t/a Starbucks) 0.3%
Carlisle The Gym Group 0.3%
Portishead AGO Hotels 0.3%
Shrewsbury Ask Italian and Sam's Club (t/a House of 0.3%
the Rising Sun)
Plymouth McDonald's 0.2%
Portishead JD Wetherspoons 0.2%
King's Lynn Loungers 0.1%
Stratford The Universal Church of the Kingdom of 0.1%
God
Burton 1 Oak (t/a Starbucks) 0.1%
Chesham Bright Horizons Family Solutions 0.1%
Knutsford Knutsford Day Nursery 0.1%
Leicester Pizza Hut 0.1%
Watford Pizza Hut 0.1%
Crewe VACANT 0.5%
15.9%
RETAIL
Worcester Superdrug 0.9%
Cardiff Multi-let 0.9%
Portsmouth Poundland, Sportswift and Your Phone 0.6%
Care
Southampton URBN UK 0.6%
Colchester H Samuel, Leeds Building Society and 0.4%
Lush
Guildford Reiss 0.4%
Southsea Portsmouth City Council and Superdrug 0.4%
Birmingham Multi-let 0.4%
Chester Felldale Retail (t/a Lakeland) and 0.3%
Signet Trading (t/a Ernest Jones)
Shrewsbury Holland & Barrett and Greggs 0.3%
Norwich Specsavers 0.3%
Edinburgh Phase Eight 0.3%
Chester Aslan Jewellery and Der Touristik 0.3%
Portsmouth The Works 0.3%
Shrewsbury Nationwide Building Society 0.3%
Stratford Foxtons 0.2%
Taunton Wilko Retail 0.2%
Bury St Edmunds The Works 0.2%
Colchester Kruidvat Real Estate (t/a Savers) 0.2%
St Albans Crepeaffaire 0.2%
Cirencester Brook Taverner and The Danish Wardrobe 0.2%
Co (t/a Noa Noa)
Weston-super-Mare Superdrug 0.2%
Bury St Edmunds Savers Health & Beauty 0.1%
Chester Ciel (Concessions) (t/a Chesca) 0.1%
Cheltenham Done Brothers (t/a Betfred) 0.1%
Chester, Colchester, Glasgow, Guildford, VACANT 1.3%
Portsmouth and Shrewsbury
9.7%
RETAIL WAREHOUSE
Evesham Multi-let 2.2%
Carlisle Multi-let 2.0%
Weymouth B&Q, Halfords and Sports Direct 1.9%
Winnersh Pets at Home and Wickes 1.4%
Burton CDS Superstores (t/a The Range) and 1.3%
Wickes
Swindon B&M, Go Outdoors and InstaVolt 1.3%
Leicester Matalan 1.2%
Banbury B&Q 1.2%
Ashton-under-Lyne B&M 1.0%
Plymouth B&M, Magnet and InstaVolt 1.0%
Plymouth A Share & Sons (t/a SCS) and Oak 0.9%
Furniture Land
Gloucester InstaVolt, Magnet and Smyths Toys 0.9%
Sheldon Multi-let 0.9%
Leighton Buzzard Homebase 0.8%
Leicester Magnet 0.6%
Torpoint Sainsburys 0.5%
Portishead InstaVolt, Majestic Wine Warehouse and 0.5%
TJ Morris t/a Homebargains
Grantham Carpetright, InstaVolt and 0.4%
Poundstretcher
Grantham and Milton Keynes VACANT 1.0%
21.0%
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2021
Audited
Unaudited Unaudited
12 months
6 months 6 months
to 31 Mar
to 30 Sept 2021 to 30 Sept 2020
2021
Note £000 £000 £000
Revenue 4 20,152 20,286 39,578
Investment management fee (1,788) (1,653) (3,331)
Operating expenses of rental property
(914)
• rechargeable to tenants (882) (892)
• directly incurred (1,708) (3,781) (5,559)
Professional fees (262) (195) (489)
Directors' fees (145) (115) (218)
Administrative expenses (356) (310) (551)
Expenses (5,141) (6,946) (11,062)
Operating profit before financing and
revaluation of investment property
15,011 13,340 28,516
Unrealised gains/(losses) on revaluation of
investment property:
- relating to gross property
revaluations
9 32,310 (27,388) (19,611)
• relating to acquisition costs 9 (1,069) (69) (707)
Net valuation increase/decrease 31,241 (27,457) (20,318)
Profit on disposal of investment property 4,165 485 393
Net profit/(losses) on investment property 35,406 (26,972) (19,925)
Operating (loss)/profit before financing 50,417 (13,632) 8,591
Finance income 5 - 27 61
Finance costs 6 (2,347) (2,471) (4,903)
Net finance costs (2,347) (2,444) (4,842)
Profit/(loss) before tax 48,070 (16,076) 3,749
Income tax 7 - - -
(Loss)/profit and total comprehensive
(expense)/income for the Period, net of tax
48,070 (16,076) 3,749
Attributable to:
Owners of the Company 48,070 (16,076) 3,749
Earnings per ordinary share:
Basic and diluted (p) 3 11.4 (3.8) 0.9
EPRA (p) 3 3.0 2.6 5.6
The profit/(loss) for the Period arises from the Company's continuing operations.
Condensed consolidated statement of financial position
As at 30 September 2021
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2021 2020 2021
Note £000 £000 £000
Non-current assets
Investment property 9 565,279 532,250 551,922
Total non-current assets 565,279 532,250 551,922
Current assets
Trade and other receivables 10 6,452 7,754 6,001
Cash and cash equivalents 12 37,139 26,205 3,920
Total current assets 43,591 33,959 9,921
Total assets 608,870 566,209 561,843
Equity
Issued capital 14 4,206 4,201 4,201
Share premium 251,015 250,469 250,469
Retained earnings 190,648 145,032 155,196
Total equity attributable to equity holders of the
Company
445,869 399,702 409,866
Non-current liabilities
Borrowings 13 145,713 148,493 138,604
Other payables 571 575 572
Total non-current liabilities 146,284 149,068 139,176
Current liabilities
Trade and other payables 11 10,098 10,653 6,185
Deferred income 6,619 6,786 6,616
Total current liabilities 16,717 17,439 12,801
Total liabilities 163,001 166,507 151,977
Total equity and liabilities 608,870 566,209 561,843
These interim financial statements of Custodian REIT plc were approved and authorised for
issue by the Board of Directors on 29 November 2021 and are signed on its behalf by:
David Hunter
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2021
Audited
Unaudited Unaudited
12 months
6 months 6 months
to 31 Mar
to 30 Sept 2021 to 30 Sept 2020
2021
Note £000 £000 £000
Operating activities
Profit/(loss) for the Period 48,070 (16,076) 3,749
Net finance costs 5,6 2,347 2,444 4,842
Net revaluation (profit)/loss 9 (31,241) 27,457 20,318
Profit on disposal of investment property (4,165) (485) (393)
Impact of lease incentives 9 (741) (877) (1,932)
Amortisation 4 4 7
Income tax 7 - - -
Cash flows from operating activities before
changes in working capital and provisions
14,274 12,467 26,591
Increase in trade and other receivables (451) (2,457) (704)
Increase/(decrease) in trade and other 3,913 2,576 (2,065)
payables
Cash generated from operations 3,462 12,586 23,822
Interest and other finance charges (2,176) (2,301) (4,556)
15,560 10,285
Net cash flows from operating activities 19,266
Investing activities
Purchase of investment property (12,217) (900) (11,443)
Capital expenditure and development (1,803) (348) (2,308)
Acquisition costs (1,069) (69) (707)
Proceeds from the disposal of investment 38,299 2,800 4,422
property
Costs of disposal of investment property (424) (15) (69)
Interest received and similar income 5 - 27 61
Net cash flows from/(used in) investing 22,786 1,495 (10,044)
activities
Financing activities
Proceeds from the issue of share capital 558 - -
Costs of the issue of share capital (5) - -
New borrowings 13 7,000 - (10,000)
New borrowings origination costs 13 (62) - (66)
Dividends paid 8 (12,618) (10,974) (20,635)
Net cash flows (used in)/from financing (5,127) (10,974) (30,701)
activities
33,219 806
Net increase in cash and cash equivalents (21,479)
Cash and cash equivalents at start of the 3,920 25,399 25,399
Period
Cash and cash equivalents at end of the 37,139 26,205 3,920
Period
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2021
Issued Share Retained Total
capital premium earnings equity
Note £000 £000 £000 £000
As at 31 March 2021 (audited) 4,201 250,469 155,196 409,866
Profit and total comprehensive income for Period -
- 48,070 48,070
Transactions with owners of the Company, recognised
directly in equity
Dividends 8 - - (12,618) (12,618)
Issue of share capital 14 5 546 - 551
As at 30 September 2021 (unaudited) 4,206 251,015
190,648 445,869
For the six months ended 30 September 2020
Issued Share Retained Total
capital premium earnings equity
Note £000 £000 £000 £000
As at 31 March 2020 (audited) 4,201 250,469 172,082 426,752
Loss and total comprehensive expense for Period -
- (16,076) (16,076)
Transactions with owners of the Company, recognised
directly in equity
Dividends 8 - - (10,974) (10,974)
As at 30 September 2020 (unaudited)
4,201 250,469 145,032 399,702
Notes to the interim financial statements for the period ended 30 September 2021
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 29 November 2021.
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 2022 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 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 2021 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.
The interim financial statements have been reviewed by the auditor and its report to the
Company is included within these interim financial statements.
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. Key sources of judgements and estimation uncertainty
Preparation of the interim financial statements requires the Company to make judgements
and estimates and apply assumptions that affect the reported amount of revenues, expenses,
assets and liabilities.
The areas where a higher degree of judgement or complexity arises are discussed below:
Valuation of investment property - Investment property is valued at the reporting date at
fair value. In making its judgement over the valuation of properties, the Company
considers valuations performed by the independent valuers in determining the fair value of
its investment properties. The valuers make reference to market evidence of transaction
prices for similar properties. The valuations are based upon assumptions including future
rental income, anticipated maintenance costs and appropriate discount rates.
The areas where a higher degree of estimation uncertainty arises significant to the
interim financial statements are discussed below:
Impairment of trade receivables - As a result of the COVID-19 pandemic the Company's
assessment of expected credit losses is inherently subjective due to the forward-looking
nature of the assumptions made, most notably around the assessment over the likelihood of
tenants having the ability to pay rent as demanded, as well as the likelihood of rent
deferrals and lease incentives being offered to tenants as a result of the pandemic. The
expected credit loss which has been recognised is therefore subject to a degree of
uncertainty which may not prove to be accurate given the uncertainty caused by COVID-19.
Details of the changes made to the assessment of expected credit losses are set out in
Note 10.
4. Going concern
Provision 30 of the UK Corporate Governance Code 2018 ("the Code") requires the Board to
report whether the business is a going concern and identify any material uncertainties to
the Company's ability to continue to do so. 95% of rent, adjusted for contractual
deferrals, was collected for the Period and in considering the Code's requirements the
Investment Manager has continued to forecast prudently in particular regarding cash flows
and borrowing facilities. This 12 month forecast indicates that:
• The Company has surplus cash to continue in operation and meet its liabilities as they
fall due;
• Interest cover and LTV covenants on borrowings are complied with; and
• REIT tests are complied with.
This assessment considered the following key assumptions and judgements included in the
financial projections to understand what circumstances would result in potential breaches
of financial covenants or the Company not being able to meet its liabilities as they fall
due:
• The anticipated level of rents deferred due to the impact of the COVID-19 pandemic;
• Tenant default;
• Length of potential void period following lease break or expiry;
• Acquisition NIY, disposals, anticipated capital expenditure and the timing of
deployment of cash;
• Interest rate changes; and
• Property portfolio valuation movements.
The results of this assessment are described below:
Covenant compliance
The Company operates four loan facilities which are summarised in Note 13. At 30
September 2021 the Company has significant headroom on lender covenants at a portfolio
level with net gearing of 19.6% and compared to a maximum LTV covenant of 35% and, once
the process of charging £30.3m of property to replace charged assets sold during the
Period is complete, £153.4m (27% of the property portfolio at 30 September 2021) of
unencumbered assets will be available to be charged to the security pools to enhance the
LTV on individual loans if required.
Completion of property acquisitions and disposals since the Period end have increased net
gearing to approximately 22%.
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' going
concern assessment. The testing indicated that at a portfolio level:
• The rate of loss or deferral of contractual rent would need to deteriorate by a
further 44% from the 5% level included in the Company's forecasts to breach interest
cover covenants; and
• Property valuations would have to decrease by 44% from the 30 September 2021 position
to risk breaching the overall 35% LTV covenant.
The Board notes that the October 2021 IPF Forecasts for UK Commercial Property Investment
survey suggests an average 0.7% reduction in rents during 2021 and a 1.2% increase in
2022, with capital value increases forecast of 2.3% in both 2021 and 2022. The Board
believes 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 circa 200 typically 'institutional grade'
tenants across all commercial sectors.
Liquidity
At 30 September 2021 the Company has:
• £37.1m of cash with gross borrowings of £147m resulting in low net gearing, with no
short-term refinancing risk and a weighted average debt facility maturity of circa
seven years; and
• An annual contractual rent roll of £37.4m, with interest costs on drawn loan
facilities of only c. £3.5m per annum.
The acquisition of DRUM REIT since the period end has resulted in the addition of a £25m
RCF facility, currently £22.5m drawn, which expires in September 2022. We expect this
facility to be refinanced before expiry.
The Company has sufficient cash and undrawn facilities at 30 September 2021 to settle DRUM
REIT's RCF facility and its expense and interest liabilities for a period of at least 12
months, even assuming no further rent is collected. Liquidity is therefore not considered
a key area of sensitivity for the going concern assessment.
The Board has considered the scenario used in covenant compliance reverse stress testing,
where the rate of loss or deferral of contractual rent deteriorates by a further 44% from
the levels included in the Company's prudent forecast. In this scenario all financial
covenants and the REIT tests are complied with and the Company has surplus cash to settle
its liabilities.
Having due regard to these matters and after making appropriate enquiries, the Directors
have 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 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
property 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:
• COVID-19 pandemic response;
• Loss of 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
• Unidentified liabilities associated with acquisitions.
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 2021. The Company's principal risks and uncertainties
have not changed materially since the date of that report. Brexit is not considered to be
a principal risk to the Company.
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 2021 to 30 Sept 2020 to 31 Mar
2021
Net profit/(loss) and diluted net
profit/(loss) attributable to equity 48,070 (16,076)
holders of the Company (£000) 3,749
Net (profit)/losses on investment property (35,406) 26,972 19,925
(£000)
EPRA net profit attributable to equity
holders of the Company (£000) 12,664 10,896
23,674
Weighted average number of ordinary
shares:
Issued ordinary shares at start of the
Period (thousands) 420,053 420,053
420,053
441 -
Effect of shares issued during the Period -
(thousands)
Basic and diluted weighted average number
of shares (thousands)
420,494 420,053 420,053
Basic and diluted EPS (p) 11.4 (3.8) 0.9
3.0 2.6
EPRA EPS (p) 5.6
4. Revenue
Audited
Unaudited 6 months Unaudited
12 months
to 30 Sept 6 months
2021 to 31 Mar
to 30 Sept 2020
£000 2021
£000
£000
Rental income from investment property 19,270 19,394 38,664
Income from recharges to tenants 882 892 914
20,152 20,286 39,578
5. Finance income
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
£000 £000 2021
£000
Bank interest - 27 28
Finance income - - 33
- 27 61
6. Finance costs
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
£000 £000 2021
£000
Amortisation of arrangement fees on debt 171 170 347
facilities
Other finance costs 34 96 287
Bank interest 2,142 2,205 4,269
2,347 2,471 4,903
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 19.0%. The differences are explained below:
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
£000 £000 2021
£000
(Loss)/profit before income tax 48,070 (16,076) 3,749
Tax charge/(benefit) on profit/(loss) at a
standard rate of 19.0% (30 September 2020:
19.0%, 31 March 2021: 19.0%) 9,133 (3,054) 712
Effects of:
REIT tax exempt rental (profits)/losses (9,133) 3,054 (712)
Income tax expense for the Period - - -
Effective income tax rate 0.0% 0.0% 0.0%
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 2020 to 31 Mar
2021 £000 2021
£000 £000
Interim equity dividends paid on ordinary shares
relating to the periods ended:
31 March 2020: 1.6625p - 6,983 6,983
30 June 2020: 0.95p - 3,991 3,990
30 September 2020: 0.95p - - 4,411
31 December 2020: 1.25p - - 5,251
31 March 2021: 1.25p 5,258 - -
31 March 2021: 0.5p 2,102 - -
30 June 2021: 1.25p 5,258 - -
12,618 10,974 20,635
All dividends paid are classified as property income distributions.
The Directors approved an interim dividend relating to the quarter ended 30 September 2021
of 1.25p per ordinary share in November 2021 which has not been included as a liability in
these interim financial statements. This interim dividend will be paid on
30 November 2021 to shareholders on the register at the close of business on 12 November
2021.
9. Investment property
£000
At 31 March 2021 551,922
Impact of lease incentives 741
Additions 13,286
Capital expenditure 1,803
Disposals (33,710)
Amortisation of right-of-use asset (4)
Valuation increase before acquisition costs 32,310
Acquisition costs (1,069)
Valuation increase including acquisition costs 31,241
As at 30 September 2021 565,279
£000
At 31 March 2020 559,817
Impact of lease incentives 877
Additions 969
Capital expenditure 348
Disposals (2,300)
Amortisation of right-of-use asset (4)
Valuation decrease before acquisition costs (27,388)
Acquisition costs (69)
Valuation decrease including acquisition costs (27,457)
As at 30 September 2020 532,250
The investment property is stated at the Directors' estimate of its 30 September 2021 fair
value. Savills and Knight Frank LLP ("KF"), professionally qualified independent valuers,
valued the properties as at 30 September 2021 in accordance with the Appraisal and
Valuation Standards published by the Royal Institution of Chartered Surveyors. Savills
and KF have recent experience in the relevant location and category of the properties
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 equivalent yields used ranged from 4.0% to 11.5%. Valuation
reports are based on both information provided by the Company (e.g. current rents and
lease terms) which are derived from the Company's financial and property management
systems and are subject to the Company's overall control environment, and assumptions
applied by the valuers (e.g. ERVs and yields). These assumptions are based on market
observation and the valuers' professional judgement. In estimating the fair value of the
property, the highest and best use of the properties is their current use.
10. Trade and other receivables
Unaudited as at 30 Unaudited as at 30 Audited
Sept 2021 Sept 2020 as at 31 Mar
2021
£000 £000
£000
Trade receivables before expected
credit loss provision
8,875 10,220 7,222
Expected credit loss provision (2,940) (3,246) (3,030)
Trade receivables 5,935 6,974 4,192
Other receivables 477 218 1,706
Prepayments and accrued income 40 562 103
6,452 7,754 6,001
The Company has provided fully for those receivable balances that it does not expect to
recover based on a specific assessment of the reason for non-payment and the
creditworthiness of the counterparty.
For remaining balances the Company has applied an expected credit loss ("ECL") matrix
based on its experience of collecting rent arrears and deferred rents since the onset of
the COVID-19 disruption. The ECL matrix fully provides for receivable balances more than
90 days past due, partially provides against receivable balances between one and 90 days
past due and partially provides against receivable balances subject to contractual
deferral.
The movement in the expected credit loss provision is recognised within directly incurred
operating expenses of rental property of £1,788k in the income statement.
11. Trade and other payables
Unaudited as at 30 Unaudited as at 30 Audited
Sept 2021 Sept 2020 as at 31 Mar 2021
£000 £000 £000
Falling due in less than one year:
Trade and other payables 4,714 2,956 1,730
Social security and other taxes 1,144 4,302 882
Accruals 3,235 2,717 2,665
Rental deposits and retentions 1,005 678 908
10,098 10,653 6,185
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.
12. Cash and cash equivalents
Unaudited as at 30 Sept Unaudited as at 30 Sept Audited
2021 2020 as at 31 Mar 2021
£000 £000 £000
Cash and cash 37,139 26,205 3,920
equivalents
Cash and cash equivalents at 30 September 2021 include £24.5m (2020: £3.5m, 31 March 2021:
£2.6m) of restricted cash comprising: £23.4m (2020: £15.2m, 31 March 2020: £nil) disposal
proceeds held in charged disposal accounts, £0.8m (2020: £0.7m, 31 March 2020: £0.7m)
rental deposits held on behalf of tenants, £0.3m (2020: £0.2m, 31 March 2020: £0.2m)
retentions held in respect of development fundings and £nil (2020: £2.6m, 31 March 2021:
£1.5m) interest 'prepayments' in connection with arranging interest cover covenant waivers
in April 2020.
13. Borrowings
Costs incurred in the
arrangement of bank borrowings
£000
Bank borrowings
Total
£000
£000
At 31 March 2021 140,000 (1,396) 138,604
New borrowings 7,000 - 7,000
Costs incurred in the arrangement - (62) (62)
of bank borrowings
Amortisation - 171 171
At 30 September 2021 147,000 (1,287) 145,713
Costs incurred in the
arrangement of bank borrowings
£000
Bank borrowings
Total
£000
£000
At 31 March 2020 150,000 (1,677) 148,323
New borrowings - - -
Costs incurred in the arrangement - - -
of bank borrowings
Amortisation - 170 170
At 30 September 2020 150,000 (1,507) 148,493
All of the Company's borrowing facilities require minimum interest cover of 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 2021 is set out in the Annual Report for the
year ended 31 March 2021.
During the Period the Company extended the term of its RCF facility by one year, with
expiry now on 17 September 2024.
14. Issued capital and reserves
Ordinary shares
Share capital of 1p £000
At 31 March 2021 420,053,344 4,201
Issue of share capital 550,000 5
At 30 September 2021 420,603,344 4,206
Ordinary shares
Share capital of 1p £000
At 31 March 2020 420,053,344 4,201
Issue of share capital - -
At 30 September 2020 420,053,344 4,201
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.
15. Financial instruments
Fair values
The fair values of financial assets and liabilities are not materially different from
their carrying values in the half yearly financial report. The IFRS 13 Fair Value
Measurement 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 asset or liability that are not based on observable market
data (unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the Period. 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. These values were determined after having taken into consideration
recent market transactions for similar properties in similar locations to the investment
property held by the Company. The fair value hierarchy of investment property is level
3. At 30 September 2021, the fair value of investment property was £565.3m and during the
Period the valuation increase was £31.2m.
Interest bearing loans and borrowings - level 3
As at 30 September 2021, the amortised cost of the Company's loans with Lloyds Bank plc,
Scottish Widows plc and Aviva Real Estate Investors approximated their fair value.
Trade and other receivables/payables - level 3
The carrying amounts of all receivables and payables deemed to be due within one year are
considered to reflect the fair value.
16. Related party transactions
Directors and officers
Each of the directors is engaged under a letter of appointment with the Company and does
not have a service contract with the Company. Under the terms of their appointment, each
director is required to retire by rotation and seek re-election at least every three
years. Each director's appointment under their respective letter of appointment is
terminable immediately by either party (the Company or the director) giving written notice
and no compensation or benefits are payable upon termination of office as a director of
the Company becoming effective.
Ian Mattioli is Chief Executive of Mattioli Woods plc ("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.
During the Period asset management and investment management fees payable to the
Investment Manager under the IMA were calculated as follows:
• 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.
Administrative fees payable to the Investment Manager under the IMA since during the
Period were:
• 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;
• 0.08% of the NAV of the Company as at the relevant quarter day which is in excess of
£200m but below £500m divided by 4;
• 0.05% 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
• 0.03% 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, which notice may only be given after the expiry of the three year
term which commenced in June 2020. 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% (2020: 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 £1.79m (2020: £1.63m) in
respect of asset management and investment management fees, £0.21m (2020: £0.21m) in
respect of administrative fees and £2k (2020: £nil) in respect of marketing fees.
17. Events after the reporting date
Property acquisitions
On 4 November 2021 the Company completed the corporate acquisition of DRUM REIT for
consideration of 20,247,040 new ordinary shares in the Company. Based on the nature of the
acquisition it does not fall within the scope of IFRS 3 Business Combinations and the
assets acquired were purchased at fair value. The transaction was financed by way of a
share for share exchange with DRUM REIT maintaining its existing £25m RCF which expires in
September 2022.
On 20 October 2021 the Company acquired a 29k sq ft industrial unit in York for £2.962m.
Property disposals
On 21 October 2021 the Company sold a 42,289 sq ft car showroom in Stockport for £9.0m.
On 29 October 2021 the Company sold a 22,720 sq ft car showroom in Stafford for £4.9m.
On 11 November the Company sold a high street retail unit in Cheltenham at valuation for
£0.2m.
18. Additional disclosures
NAV per share total return
A 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 2021 to 30 Sept 2020 to 31 Mar
2021
Net assets (£000) 445,869 399,702 409,866
Shares in issue at the period end (thousands) 420,603 420,053 420,053
NAV per share at the start of the period (p) 97.6 101.6 101.6
Dividends per share paid during the period 3.0 2.6125 4.9125
(p)
NAV per share at the end of the period (p) 106.0 95.2 97.6
NAV per share total return 11.7% (3.7%) 0.9%
Share price total return
A 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 2021 to 30 Sept 2020 to 31 Mar
2021
Share price at the start of the period (p) 91.8 99.0 99.0
Dividends per share for the period (p) 3.0 2.6125 4.9125
Share price at the end of the period (p) 93.1 88.8 91.8
Share price total return 4.7% (7.7%) (2.3%)
Net gearing
Gross borrowings less cash (excluding rent deposits), divided by property portfolio value.
Unaudited as at 30 Unaudited as at 30 Audited
Sept 2021 Sept 2020 as at 31 Mar
2021
£000 £000
£000
Gross borrowings 147,000 150,000 140,000
Cash (37,139) (26,205) (3,920)
Tenant rental deposits and 1,142 908 1,179
retentions
Net borrowings 111,003 124,703 137,259
Investment property 565,279 532,250 551,922
Net gearing 19.6% 23.4% 24.9%
EPRA EPS
A measure of the Company's operating results excluding gains or losses on investment
property, giving a better indication than basic EPS of the extent to which dividends paid
in the year are supported by recurring net income.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2021 to 30 Sept 2020 to 31 Mar
£000 £000 2021
£000
Profit/(loss) for the Period after taxation 48,070 (16,076) 3,749
Net (profits)/losses on investment property (35,406) 26,972 19,925
EPRA earnings 12,664 10,896 23,674
Weighted average number of shares in issue
(thousands)
420,494 420,053 420,053
EPRA EPS (p) 3.0 2.6 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.
Unaudited as at 30 Unaudited as at 30 Audited
Sept 2021 Sept 2020 as at 31 Mar
2021
£000 £000
£000
Annualised potential rental value of 3,424 3,024 3,562
vacant premises
Annualised potential rental value for 41,009 42,516 42,554
the property portfolio
EPRA vacancy rate 8.4% 7.1% 8.4%
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 as at 30 Unaudited as at 30 Audited
Sept 2021 Sept 2020 as at 31 Mar
2021
£000 £000
Group and Company £000
IFRS NAV 445,869 399,702 409,865
Fair value of financial instruments - - -
Deferred tax - - -
EPRA NTA 445,869 399,702 409,865
Closing number of shares in issue 420,603 420,053 420,053
(thousands)
EPRA NTA per share (p) 106.0 95.2 97.6
Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of the Company for the Period
from 1 April 2021 to 30 September 2021.
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 EU;
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 REIT plc is maintained on the Company's
website at 29 custodianreit.com.
By order of the Board
David Hunter
Chairman
29 November 2021
Independent review report to Custodian REIT plc
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 2021, which
comprise the condensed consolidated statement of comprehensive income, the condensed
consolidated statement of financial position, the condensed consolidated statement of cash
flows, the condensed consolidated statement of changes in equity and related notes 1 to
18. We have read the other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or material inconsistencies with
the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, 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.
As disclosed in note 2.1, the annual financial statements of the Company will be 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".
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements
(UK and Ireland) 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. 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.
Conclusion
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 2021 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.
Use of our report
This report is made solely to the Company in accordance with International Standard on
Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Financial Reporting
Council. 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
29 November 2021
- Ends -
══════════════════════════════════════════════════════════════════════════════════════════
30 1 The six-month period ended 30 September 2020.
31 2 Before rent top-ups of £0.3m and acquisition costs of £1.1m.
32 3 Net of rent top-ups of £0.2m and disposal costs of £0.4m.
33 4 The European Public Real Estate Association.
34 5 Profit after tax excluding net gain or loss on investment property divided by the
weighted average number of shares in issue.
35 6 Profit after tax divided by the weighted average number of shares in issue.
36 7 Net Asset Value ("NAV") movement including dividends paid during the period on
shares in issue at 31 March 2021.
37 8 Before issue costs of £0.1m.
38 9 Share price movement including dividends paid during the six-month period.
39 10 Following the recent update to EPRA's Best Practice Recommendations Guidelines
the Company's peer group has adopted EPRA net tangible assets ("NTA") as the primary
measure of net asset value. There are no differences between the Company's IFRS NAV, EPRA
NAV and EPRA NTA.
40 11 Gross borrowings less cash (excluding tenant rental deposits and retentions)
divided by property portfolio value.
41 12 ERV of vacant space as a percentage of the ERV of the whole property portfolio.
42 13 For properties in Scotland, English equivalent EPC ratings have been obtained.
43 14 Dividends of 3.0p per share were paid during the Period on shares in issue
throughout the Period.
44 15 A full version of the Company's Investment Policy is available at
custodianreit.com/wp-content/uploads/2021/02/CREIT-Investment-policy.pdf
45 16 A risk score of two represents "lower than average risk".
46 17 Current passing rent plus ERV of vacant properties.
^ 47 18 Includes drive-through restaurants, car showrooms, trade counters, gymnasiums,
restaurants and leisure units.
48 19 Passing rent divided by purchase price plus assumed purchasers' costs.
49 20 ERV of portfolio divided by property valuation plus purchaser's costs.
50 21 One EPC letter represents 25 energy performance asset rating points.
51 22 % of property portfolio passing rent plus ERV of vacant units.
══════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 127878
EQS News ID: 1252711
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
52 fncls.ssp?fn=show_t_gif&application_id=1252711&application_name=news&site_id=reuters8
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