REG-Custodian REIT plc Custodian REIT plc : Unaudited net asset value as at 31 March 2022
10/05/2022 07:15
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Custodian REIT plc (CREI)
Custodian REIT plc : Unaudited net asset value as at 31 March 2022
10-May-2022 / 07:00 GMT/BST
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The issuer is solely responsible for the content of this announcement.
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10 May 2022
Custodian REIT plc
(“Custodian REIT” or “the Company”)
Unaudited net asset value as at 31 March 2022
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 March 2022 and highlights for the period from
1 January 2022 to 31 March 2022 (“the Period”).
Company summary
The Company’s £0.7bn portfolio comprises 160 smaller lot-sized regional
commercial properties diversified by sector, tenant, location and lease
length and offers investors a prospective 5.5% income return1 with the
potential for capital growth. The portfolio is conservatively geared with
a target 25% loan-to-value paying aggregate interest of below 3% on its
majority fixed-rate debt facilities. The Board’s objective is to grow the
dividend on a sustainable basis whilst satisfying the Company’s
environmental, social and governance targets and create long term value
for the Company’s stakeholders.
Financial highlights
Dividends
• Dividend per share approved for the Period of 1.375p
• Aggregate dividends per share declared relating to the year ended 31
March 2022 (“FY22”) of 5.25p (2021: 5.0p)
• Target dividends per share of no less than 5.5p for the year ending 31
March 2023
Earnings
• EPRA earnings per share2 (“EPS”) for the Period of 1.6p and for FY22
increasing to 5.9p (2021: 5.6p) primarily due to a £0.3m decrease in
the doubtful debt provision during the year (2021: £2.7m increase)
• EPRA EPS 110%3 covered the FY22 dividend (2021: 113%)
• The accretive acquisition of DRUM Income Plus REIT plc (“DRUM”) in
November 2021 has delivered an annualised 11p of EPRA earnings per new
share issued in consideration since acquisition, with DRUM’s portfolio
valuation remaining steady at £49m
NAV
• NAV total return per share4 of:
◦ 6.4% for the Period comprising 1.2% dividends paid and a 5.2%
capital increase
◦ 28.4% for FY22 (2021: 0.9%) comprising 5.8% dividends paid (2021:
4.8%) and a 22.6% capital increase (2021: 3.9% capital decrease)
• NAV per share of 119.7p (31 December 2021: 113.7p, 31 March 2021:
97.6p)
• NAV of £527.6m (31 December 2021: £501.4m)
Portfolio highlights
• Property portfolio value of £665.2m (31 December 2021: £637.9m)
• £25.5m aggregate valuation increase for the Period comprising:
◦ £5.0m from successful asset management initiatives; and
◦ £20.5m of general valuation increases, primarily in the
industrial and logistics and retail warehouse sectors
• £1.875m5 invested during the Period in an industrial unit in
Nottingham
• Disposal of a high street retail unit in Norwich at valuation for
£1.3m
• Net gearing6 decreased to 19.1% loan-to-value (31 March 2021: 24.9%)
due to valuation increases of £94.0m over the last 12 months
• EPRA occupancy7 decreased to 89.9% (31 March 2021: 91.6%)
• Since the Period-end, £7.5m invested in an industrial facility in
Grangemouth
1 Target dividend per share for the year ending 31 March 2023 of 5.5p
divided by the last available share price prior to publication of 100.6p.
2 Profit after tax excluding net gains or losses on investment property
divided by weighted average number of shares in issue.
3 Profit after tax, excluding net gains or losses on investment property,
divided by dividends approved relating to the period.
4 NAV per share movement including dividends paid during the Period.
5 Before acquisition costs.
6 Gross borrowings less cash (excluding rent deposits) divided by
portfolio valuation.
7 Estimated rental value (“ERV”) of let property divided by total
portfolio ERV.
Net asset value
The unaudited NAV of Custodian REIT at 31 March 2022 was £527.6m,
reflecting approximately 119.7p per share, an increase of 6.0p (5.3%)
since 31 December 2021:
Pence per share £m
NAV at 31 December 2021 113.7 501.4
Valuation movements relating to:
- Asset management activity 1.1 5.0
- General valuation increases 4.7 20.5
Net valuation movement 5.8 25.5
Other movements - 0.2
Acquisition costs - (0.2)
5.8 25.5
EPRA earnings for the Period 1.6 6.8
Interim dividend paid8 during the Period (1.4) (6.1)
NAV at 31 March 2022 119.7 527.6
8 An interim dividend of 1.375p per share relating to the quarter ended 31
December 2021 was paid on 28 February 2022.
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 March 2022 and net income for the
Period. The movement in NAV reflects the payment of an interim dividend
of 1.375p 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
31 May 2022.
Investment Manager’s commentary
UK property market
Market sentiment remains strongly positive for industrial and logistics,
notwithstanding recent uncertainty in the ‘big-box’ sector caused by
Amazon’s announcement of excess warehouse capacity. Positivity has
emerged, post covid lockdowns, for central London and major regional city
offices and the retail warehouse sector has challenged the general retail
malaise. As we reported last quarter there is a nascent recovery in
sentiment towards high street retail, but only in prime pitches and in
leading retail centres. So, with the exception of secondary retail,
business park offices and secondary leisure schemes, market demand is
driving values across the board which has led directly to the seventh
consecutive quarter of net asset value growth for Custodian REIT.
Sector by sector Custodian REIT portfolio valuations have broadly followed
the wider market trends during the period with the industrial and
logistics valuation increasing by 6.5%, retail warehousing increasing
3.5%, the ‘other’ sector increasing 1.8% and high street retail increasing
by 0.8%. The office portfolio saw no valuation movement reflecting the
50% weighting to business park offices but recent acquisitions have been
focused on strong city locations, having bought recently in both
Manchester and Oxford, where we are witnessing the strongest occupier and
investor demand and we believe the office portfolio is set fair to see
growth.
Thematic investment continues to dominate fund raising and is polarising
property investment demand and pricing. The weight of capital chasing the
industrial and logistics sector and more recently retail warehousing has
led to some extraordinary yield compression. While this drives NAV growth
for existing investors, income yields are being squeezed. In the long
term, income comprises 70%-80% of the total return from property so it
makes sense to target property investment that provides a higher level of
income. Custodian REIT’s smaller-lot size specialism of targeting the
marginal income advantage (ie the additional income for the same level of
risk) of investing in smaller regional properties has never been more
accretive than in current market conditions.
While thematic investment, if focused on the right sectors, has been
demonstrably successful for active investors over the last two years we do
not believe the yield compression driven growth will continue over the
next two years. Therefore, a re-focus on diversified strategies where
managers can exploit mispricing in sub-sectors of the office and retail
market, and as stated above a focus on income, is likely to deliver for
investors.
Inflation
There is rightly a keen focus on inflation at present and questions as to
whether real estate investment can offer a degree of inflation hedging.
In short, the answer must be yes as rents should grow over time, but with
typically five-yearly rent reviews and average unexpired lease terms of
circa five years, investors should not expect a straight-line relationship
between rents and inflation. Much focus is currently on RPI and CPI
linked rent reviews, which of course provide shorter-term comfort but can
have the effect of creating bond like investment characteristics with a
greater emphasis placed on tenant covenant than the property
fundamentals. At some point in a property’s life cycle rents will always
be re-based to open market values. An over-reliance on index linked rent
reviews can lead to disparity between investment values and underlying
property values. Over the long term we do not feel indexed rent reviews
are a worthy substitute for owning good real estate where we back open
market rent reviews to deliver rental growth. For long-term investors,
such as Custodian REIT, the aim is to provide inflation protection from
the bricks and mortar, not the lease contracts.
Earnings
EPRA earnings per share for FY22 increased to 5.9p (2021: 5.6p) due
primarily to a £0.3m decrease in the doubtful debt provision (2021: £2.7m
increase), reflecting an improved sentiment regarding the collection of
overdue rents.
Based on the most recent valuation, the Custodian REIT portfolio is
offering an aggregate 10% rental reversion on occupied properties and a
20% reversion including vacant properties. This latent increase to
earnings should provide a useful buffer against cost inflation and
potentially increase dividend capacity once crystallised.
We believe that earnings and earnings growth should be a much higher
profile metric when considering the relative pricing of property
investment companies’ stock, rather than an over-reliance on NAV based
metrics. As Investment Manager, protecting and growing earnings is much
more of a focus than NAV growth, which is often largely driven by market
sentiment. As set out below this focus is demonstrated in the recent
asset management which has added to the rent roll and secured additional
cash flow over the short to medium term.
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 DS
Smith Packaging on a vacant industrial unit in Redditch with an annual
rent of £401k, increasing valuation by £3.5m;
• A 10 year lease renewal with a fifth year tenant break option with MTS
Logistics on an industrial unit in Bardon with a stepped annual rent
of £175k, rising to £205k, increasing valuation by £0.8m;
• A new 15 year lease without break with Pure Gym on a vacant retail
warehouse unit in Grantham with an annual rent of £90k, increasing
valuation by £0.3m;
• A new five year lease with a fourth year tenant break option with
Carbide Properties (t/a Tungsten Properties) on a vacant office suite
in Leicester with an annual rent of £78k, increasing valuation by
£0.2m;
• A five year lease renewal with a third year tenant break option with
The Works on a retail unit in Bury St Edmunds with an annual rent of
£85k, increasing valuation by £0.2m;
• A five year lease renewal with a third year tenant break option with
Superdrug on a retail unit in Weston-super-Mare with an annual rent of
£60k, with no impact on valuation;
• A five year lease renewal without break with Holland and Barrett on a
retail unit in Shrewsbury with an annual rent of £60k, with no impact
on valuation; and
• A new three year lease with Saima Rani Salon on a vacant retail unit
in Shrewsbury, with an annual rent of £15k, with no impact on
valuation.
Despite the positive impact of these initiatives EPRA occupancy decreased
to 89.9% (31 December 2021: 90.9%). Of the vacant space, 37% is currently
under offer to let and a further 29% is planned vacancy to enable
redevelopment or refurbishment and once complete we expected these new
lettings and developments to enhance earnings and deliver valuation
increases in excess of capital expenditure.
Dividends
During the Period the Company paid an interim dividend of 1.375p per share
relating to the quarter ended 31 December 2021 and approved an interim
dividend per share of 1.375p for the Period, fully covered by EPRA
earnings, achieving its target dividend per share for the year ending 31
March 2022 of 5.25p. The Board is targeting aggregate dividends per
share9 of at least 5.5p for the year ending 31 March 2023. 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.
9 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
During the Period the Company invested £1.875m on a 24,134 sq ft
industrial unit on Moorgreen Industrial Park, Nottingham occupied by
Hickling & Squires commercial printers. The unit has a passing rent of
£130k per annum, reflecting a net initial yield10 (“NIY”) of 6.53%.
Since the Period end the Company has acquired a 87k sq ft industrial
facility in Grangemouth for £7.5m occupied by Thornbridge Sawmills with an
annual passing rent of £388k, reflecting a NIY of 5.5%.
10 Passing rent divided by property valuation plus purchaser’s costs.
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 SONIA, 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 (“RBS”) 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.
The Company is in discussions with its lenders regarding refinancing the
£25m RBS facility ahead of its expiry later this year.
Portfolio analysis
At 31 March 2022 the property portfolio comprised 160 assets with a NIY of
5.7% (31 December 2021: 6.1%). 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 Mar valuation by by
2022 Weighting by movement Period income11 income11
value 31 Mar valuation 31 Mar 31 Dec
£m 2022 £m movement 2022 2021
Sector
Industrial 324.5 49% 19.5 6.5% 38% 39%
Retail 125.4 19% 4.2 3.5% 21% 21%
warehouse
Office 88.1 13% - - 17% 16%
Other12 76.9 12% 1.4 1.8% 13% 12%
High street 50.3 7% 0.4 0.8% 11% 12%
retail
Total 665.2 100% 25.5 4.0% 100% 100%
11 Current passing rent plus ERV of vacant properties.
12 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 March 2022 was as follows:
Valuation
Period Weighting Weighting
31 Mar Weighting by valuation by by
2022 value 31 Mar movement Period income11 income11
2022 valuation 31 Mar 31 Dec
£m £m movement 2022 2021
Location
West 133.7 20% 8.5 6.8% 18% 18%
Midlands
North-West 116.2 17% 1.8 1.6% 19% 19%
South-East 87.2 13% 4.2 5.0% 14% 13%
East 84.7 13% 4.1 5.3% 13% 13%
Midlands
Scotland 72.5 11% 1.8 2.6% 10% 10%
North-East 65.5 10% 0.7 1.0% 12% 12%
South-West 65.5 10% 1.9 3.0% 9% 9%
Eastern 33.9 5% 2.5 7.9% 4% 5%
Wales 6.0 1% - - 1% 1%
Total 665.2 100% 25.5 4.0% 100% 100%
For details of all properties in the portfolio please see
1 custodianreit.com/property-portfolio.
Inside information
The Board is satisfied that any inside information which the Directors and
the Investment Manager may have has been notified to a regulatory
information service. The Directors and those closely associated are
therefore not prohibited from dealing in the Company’s shares during the
closed period which ends on the date of the announcement of the Annual
Report for the year ended 31 March 2022.
- 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.: 160497
EQS News ID: 1347251
End of Announcement EQS News Service
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