REG-Custodian REIT plc Custodian REIT plc : Unaudited net asset value as at 31 December 2021
10/02/2022 07:05
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Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited net asset value as at 31 December 2021
10-Feb-2022 / 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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10 February 2022
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited net asset value as at 31 December 2021
Custodian REIT (LSE: CREI), the UK commercial real estate investment
company focused on smaller lot-sizes, today reports its unaudited net
asset value ("NAV") as at 31 December 2021 and highlights for the period
from 1 October 2021 to 31 December 2021 ("the Period").
Financial highlights
• Dividend per share approved for the Period of 1.375p, a 10% increase
from the quarter ended 30 September 2021 of 1.25p
• 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
• NAV total return per share1 for the Period of 8.5%, comprising 1.2%
dividends paid and a 7.3% capital increase
• NAV per share of 113.7p (30 Sept 2021: 106.0p)
• NAV increased to £501.4m (30 Sept 2021: £445.9m) due to valuation
increases of £36.2m during the Period and issuing £19.1m new equity
for the corporate acquisition of DRUM Income Plus REIT plc ("DRUM
REIT")
• Dividend cover2 for the year ending 31 March 2022 to date of 109%
• EPRA earnings per share3 for the Period decreased to 1.3p (quarter
ended 30 Sept 2021: 1.6p) primarily due to;
◦ Net gearing4 of 19.5% loan-to-value (30 Sept 2021: 19.6%)
remaining below the 25% target as we continue to redeploy the
proceeds from profitable disposals in September and October 2021;
and
◦ EPRA occupancy5 decreasing to 90.9% (30 Sept 2021: 91.6%). Of
the vacant space, 34% is currently under offer to let and a
further 32% is planned vacancy to enable redevelopment or
refurbishment.
Portfolio highlights
• Property portfolio value of £637.9m (30 Sept 2021: £565.3m)
• £36.2m aggregate valuation increase for the Period comprising:
◦ £6.2m from successful asset management initiatives;
◦ £22.7m of general valuation increases, primarily in the
industrial and logistics sector; and
◦ £7.3m increase from acquiring DRUM REIT at a c.28% discount to
its NAV
• £49.2m6 invested during the Period in DRUM REIT's portfolio, an
industrial unit in York and a retail warehouse in Cromer
• £1.1m profit on disposal from the sale of four properties for an
aggregate consideration of £14.8m7
1 NAV per share movement including dividends paid during the Period.
2 Profit after tax, excluding net gains or losses on investment property,
divided by dividends approved relating to the period.
3 Profit after tax excluding net gains or losses on investment property
divided by weighted average number of shares in issue.
4 Gross borrowings less cash (excluding rent deposits) divided by
portfolio valuation.
5 Estimated rental value ("ERV") of let property divided by total
portfolio ERV.
6 Before acquisition costs.
7 Before disposal costs.
Net asset value
The unaudited NAV of Custodian REIT at 31 December 2021 was £501.4m,
reflecting approximately 113.7p per share, an increase of 7.7p (7.3%)
since 30 September 2021:
Pence per share £m
NAV at 30 September 2021 106.0 445.9
Issue of equity8 (0.5) 19.1
Valuation increase having acquired DRUM REIT at a 1.6 7.3
discount to valuation
Corporate acquisition and equity issuance costs (0.2) (0.9)
Net increase from the DRUM REIT acquisition 0.9 25.5
Valuation movements relating to:
- Asset management activity 1.4 6.2
- General valuation increases 5.2 22.7
- Profit on disposal 0.2 1.1
Net valuation movement 6.8 30.0
Asset acquisition costs - (0.2)
6.8 29.8
EPRA earnings for the Period 1.3 5.7
Interim dividend paid9 during the Period (1.3) (5.5)
NAV at 31 December 2021 113.7 501.4
8 Issue of 20,247,040 new shares at their market value on 3 November 2021
of 94.5p.
9 An interim dividend of 1.25p per share relating to the quarter ended 30
September 2021 was paid on 30 November 2021.
The NAV attributable to the ordinary shares of the Company is calculated
under International Financial Reporting Standards and incorporates the
independent portfolio valuation as at 31 December 2021 and net income for
the Period. The movement in NAV reflects the payment of an interim
dividend of 1.25p per share during the Period, but does not include any
provision for the approved dividend of 1.375p per share for the Period to
be paid on 28 February 2022.
Investment Manager's market commentary
Inflation is a clear and present risk in the market today and
traditionally investors have looked to real estate as a hedge against the
negative impact of inflation on investment returns. Over the longer term
history suggests property values and rents will increase broadly in line
with inflation. Following a period of growth, the challenge for managers
is to own properties with further rental growth potential whose valuation
will most closely keep pace with rising prices.
Over the 12 months to 31 December 2021 Custodian REIT's like-for-like10
portfolio has seen rental growth and sharp valuation increases across its
principal investment sectors as shown below:
12 months to 31 December 21 3 months to 31 December 21
Capital value Rental value Capital value Rental value
change change change change
Sector
Industrial +23.2% +9.7% +8.2% +2.6%
Retail warehouse +12.0% -2.6% +4.7% 0.0%
Office -0.7% +0.9% -0.3% -0.6%
Other +5.0% -3.3% +1.8% +0.7%
High street -11.3% -6.6% +4.3% +1.9%
retail
10 Adjusting for the impact of acquisitions and disposals.
Across the industrial and logistics portfolio, notwithstanding the rental
growth to date, the average rent stands at only £5.27 per sq ft with an
estimated rental value of £6.20 per sq ft, suggesting a latent rental
uplift of c.18%. Furthermore, both passing rents and estimated rental
values are some way below the rent required to bring forward new
development, indicating further growth potential.
Retail warehousing and high street retail rents appear to be bottoming out
and we are even seeing some recent demand led rental growth in these
sectors. Importantly these rents are growing from a low base making them
affordable for tenants. By way of example, the average retail warehouse
rent across the portfolio stands at circa £13.50, in line with current
estimated rental values, and much lower than previous market levels.
In select locations, notably prime regional city centres, we are seeing
office rents increasing. This is by no means applicable to all regional
offices but is focused on high quality, flexible office space with strong
environmental credentials. The recent acquisition of 60 Fountain Street
in Manchester is an example of how Custodian REIT is taking advantage of
the opportunity to reposition property to meet the expected demands of
tenants, post pandemic, and to pick up the higher rents attributable to
refurbished space.
The greater driver of inflation appears to be cost-push rather than
demand-pull as the economy struggles with supply chain constraints, labour
shortages and the aftermath of pandemic restrictions. These factors all
mitigate against widespread, low cost, speculative development which would
otherwise help resolve the demand/supply imbalance that is promoting
rental growth.
We believe Custodian REIT's portfolio is particularly well positioned to
see rental growth as it is focused on smaller regional properties:
In the industrial and logistics sector, which accounts for 50% of the
portfolio by value, smaller properties are more expensive to develop,
pro-rata, so require higher rents to justify development. Rents will
continue to grow until they balance out inflation in build costs.
The retail warehouse portfolio is almost exclusively focused on DIY,
homewares, discounters and food, all let off affordable rents. This
occupier profile is best matched with current market demand and so well
placed to pick up rental growth.
We have reorganised our high street retail portfolio over the last two
years, exiting most of the secondary retail locations. We completed three
new lettings in the Period and have terms agreed or are seeing active
demand for the very limited vacant space we have in the high street
portfolio from both retail and leisure occupiers. Low vacancy rates in
prime locations and occupier demand should be supportive of future rental
growth.
In the office portfolio we have identified, or are progressing, a number
of refurbishment opportunities with a keen eye on environmental
improvements. Owners of smaller regional offices are often not
sufficiently well resourced to create high quality small suite offices
that are a match for the larger floorplates. However, we believe that
occupier demand will be focused on higher quality space to support
businesses in attracting their employees back into the office. We believe
that by positioning our office portfolio to meet occupier demand we will
reduce vacancy and drive rental growth.
Dividends
During the Period the Company paid an interim dividend of 1.25p per share
relating to the quarter ended 30 September 2021, fully covered by EPRA
earnings, and approved an interim dividend per share of 1.375p for the
Period.
The Board intends to pay further quarterly dividends per share of at least
1.375p to achieve a target dividend11 per share for the year ending 31
March 2022 of at least 5.25p and for the year ending 31 March 2023 of at
least 5.5p.
The Board's objective is to grow the dividend on a sustainable basis, at a
rate which is fully covered by net rental income and does not inhibit the
flexibility of the Company's investment strategy.
11 This is a target only and not a profit forecast. There can be no
assurance that the target can or will be met and it should not be taken as
an indication of the Company's expected or actual future results.
Accordingly, shareholders or potential investors in the Company should not
place any reliance on this target in deciding whether or not to invest in
the Company or assume that the Company will make any distributions at all
and should decide for themselves whether or not the target dividend yield
is reasonable or achievable.
Acquisitions
On 3 November 2021 the Company acquired 100% of the ordinary share capital
of DRUM REIT for consideration of 20,247,040 new ordinary shares in the
Company, calculated on an 'adjusted NAV-for-NAV basis', adjusting each
company's 30 June 2021 NAV for respective acquisition costs and adjusting
DRUM REIT's property portfolio valuation to the agreed purchase price of
£43.5m (31 December 2021 valuation: £49.0m).
The Company also invested £7.5m in the following asset acquisitions during
the Period:
• A 29k sq ft industrial unit in York for £3.0m occupied by Menzies
Distribution with an annual passing rent of £186k, reflecting a net
initial yield12 ("NIY") of 5.9%; and
• A 46k sq ft retail warehouse in Cromer for £4.5m occupied by Homebase
with an annual passing rent of £300k, reflecting a NIY of 6.3%.
12 Passing rent divided by property valuation plus purchaser's costs.
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 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 £14.8m:
• A 42k sq ft car showroom in Stockport for £9.0m, £1.4m (18%) ahead of
the 30 June 2021 valuation;
• A 23k sq ft car showroom in Stafford for £4.9m, £1.15m (31%) ahead of
the 30 June 2021 valuation; and
• High street retail units in Kings Lynn and Cheltenham at valuation for
an aggregate £0.9m.
Asset management
The Investment Manager has remained focused on active asset management
during the Period, completing the following initiatives:
• A new 10 year lease with a fifth year tenant break option with Harbour
International Freight on an industrial unit in Manchester with an
annual rent of £316k, increasing valuation by £2.1m;
• A new 10 year lease with a fifth year tenant break option with PDS
Group on a newly refurbished industrial unit in West Bromwich with an
annual rent of £395k, increasing valuation by £2.0m;
• Exchanging agreements for lease for 15 year leases with Tim Hortons on
former Pizza Hut restaurants in Leicester and Watford, which are to be
converted to drive-through restaurants following Pizza Hut's CVA with
aggregate annual rent of £275k, increasing valuations by £1.9m;
• A new 10 year lease with third and fifth year tenant break options
with Ramsdens Financial on a vacant retail unit in Glasgow with an
annual rent of £55k, increasing valuation by £0.1m;
• A new 10 year lease with fifth and seventh year tenant break options
with Industrial Control Distributors on an industrial unit in
Kettering with an annual rent of £25k, increasing valuation by £0.1m;
• A new 15 year lease without break with Loungers on a retail unit in
Shrewsbury, with an annual rent of £90k, with no impact on valuation;
• A 15 year lease renewal with a tenth year tenant break option with
Smyths Toys on a retail warehouse unit in Gloucester with an annual
rent of £130k, with no impact on valuation;
• A new 10 year lease with a fifth year tenant break option with
Diamonds of Chester Camelot on a vacant retail unit in Chester, with
an annual rent of £35k, with no impact on valuation;
• A new five year lease without break with Midon on an industrial unit
in Knowsley, with an annual rent of £37k, with no impact on valuation;
• A new five year lease with a third year tenant break option with
Clogau on a vacant retail unit in Shrewsbury with an annual rent of
£50k, with no impact on valuation;
• A six month lease extension with Saint Gobain on an industrial unit in
Milton Keynes, with passing rent increasing from £265k to a 'premium
rent' of £441k, with no impact on valuation; and
• A short-term four month licence with Royal Mail on a vacant industrial
unit in Redditch for a licence fee of £135k, with no impact on
valuation.
Despite the positive impact of these asset management outcomes EPRA
occupancy decreased from 91.6% at 30 September 2021 to 90.9% primarily due
to the acquisition of DRUM REIT which had an EPRA occupancy rate of 86.1%
on acquisition.
In line with the Company's environmental objectives, during the previous
quarter we completed a £1.4m 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. Letting this
property during the Period meant rents increased from £280k pa (c.£4.80
per sq ft) to £395k pa (c.£6.75 per sq ft) with valuation increasing by
£2.0m.
Borrowings
Custodian REIT and its subsidiaries operate the following loan facilities:
• A £35m revolving credit facility ("RCF") with Lloyds Bank plc
("Lloyds") expiring on 17 September 2024 with interest of between 1.5%
and 1.8% above SONIA13, determined by reference to the prevailing LTV
ratio of a discrete security pool. The RCF facility limit can be
increased to a maximum of £50m with Lloyds' approval;
• A £25m RCF with The Royal Bank of Scotland expiring on 30 September
2022 with interest of 1.75% above SONIA;
• A £20m term loan with Scottish Widows plc ("SWIP") repayable on
13 August 2025 with interest fixed at 3.935%;
• A £45m term loan with SWIP repayable on 5 June 2028 with interest
fixed at 2.987%; and
• A £50m term loan with Aviva Investors Real Estate Finance comprising:
a. A £35m tranche repayable on 6 April 2032 with fixed annual
interest of 3.02%; and
b. A £15m tranche repayable on 3 November 2032 with fixed annual
interest of 3.26%.
Each facility has a discrete security pool, comprising a number of
individual properties, over which the relevant lender has security and
covenants:
• The maximum LTV of the discrete security pool is between 45% and 50%,
with an overarching covenant on the property portfolio of a maximum
35% LTV; and
• Historical interest cover, requiring net rental receipts from each
discrete security pool, over the preceding three months, to exceed
250% of the facility's quarterly interest liability.
The Company and its subsidiaries complied with all loan covenants during
the Period.
13 The sterling overnight index average ("SONIA") which has replaced LIBOR
as the UK's main interest rate benchmark.
Portfolio analysis
At 31 December 2021 the property portfolio comprised 160 assets with a NIY
of 6.1% (30 Sept 2021: 6.2%). The portfolio is split between the main
commercial property sectors, in line with the Company's objective to
maintain a suitably balanced investment portfolio. Sector weightings are
shown below:
Valuation
Period Weighting Weighting
31 Dec Weighting valuation by by
2021 by value movement14 Period income15 income15
31 Dec valuation14 31 Dec 30 Sep
£m 2021 £m movement 2021 2021
Sector
Industrial 302.4 47% 21.8 8.3% 39% 40%
Retail 120.9 19% 4.8 4.5% 21% 21%
warehouse
Office 88.4 14% (0.3) (0.5%) 16% 13%
Other16 75.0 12% 2.2 2.6% 12% 16%
High street 51.2 8% 0.4 1.1% 12% 10%
retail
Total 637.9 100% 28.9 5.2% 100% 100%
14 Excluding the £7.3m increase from acquiring DRUM REIT at a discount to
its NAV.
15 Current passing rent plus ERV of vacant properties.
16 Comprises drive-through restaurants, car showrooms, trade counters,
gymnasiums, restaurants and leisure units.
The Company and its subsidiaries operate 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 property portfolio at 31 December 2021 was as follows:
Valuation
Weighting Period Weighting Weighting
31 Dec by value valuation by by
2021 31 Dec movement14 Period income15 income15
2021 valuation14 31 Dec 30 Sep
£m £m movement 2021 2021
Location
West 124.9 20% 9.2 8.0% 18% 20%
Midlands
North-West 114.5 18% 5.3 5.7% 19% 19%
South-East 83.0 13% 2.1 2.6% 13% 14%
East 78.3 12% 4.4 6.0% 13% 14%
Midlands
Scotland 70.5 11% 2.0 4.1% 10% 8%
North-East 64.8 10% 2.1 4.3% 12% 9%
South-West 63.6 10% 1.9 3.2% 9% 10%
Eastern 32.4 5% 1.8 6.9% 5% 5%
Wales 5.9 1% 0.1 1.7% 1% 1%
Total 637.9 100% 28.9 5.2% 100% 100%
For details of all properties in the portfolio please see
1 custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's
website 2 custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Tel: +44 (0)116 240 8740
Mattioli MBE
3 www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757 4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which listed on
the main market of the London Stock Exchange on 26 March 2014. Its
portfolio comprises properties predominantly let to institutional grade
tenants on long leases throughout the UK and is principally characterised
by properties with individual values of less than £10m at acquisition.
The Company offers investors the opportunity to access a diversified
portfolio of UK commercial real estate through a closed-ended fund. By
principally targeting sub £10m lot-size, regional properties, the Company
seeks to provide investors with an attractive level of income with the
potential for capital growth.
Custodian Capital Limited is the discretionary investment manager of the
Company.
For more information visit 4 custodianreit.com and
5 custodiancapital.com.
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ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 142056
EQS News ID: 1278811
End of Announcement EQS News Service
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