REG-Custodian REIT plc Custodian REIT plc : Final Results
17/06/2022 07:15
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Custodian REIT plc (CREI)
Custodian REIT plc : Final Results
17-Jun-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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17 June 2022
Custodian REIT plc
(“Custodian REIT” or “the Company”)
Final Results
Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its final
results for the year ended 31 March 2022.
Property strategy
Custodian REIT offers investors the opportunity to access a diversified portfolio of UK commercial
real estate providing 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 portfolio is focused on smaller lots, principally
targeting properties of less than £10m at acquisition, which offers:
• An enhanced yield on acquisition – with no need to sacrifice quality of property/location/tenant
for income and with a greater share of value in ‘bricks and mortar’;
• Greater diversification – spreading risk across more assets, locations and tenants and offering
more stable cash flows; and
• A higher income component of total return – driving out-performance with forecastable and
predictable returns.
Financial highlights and performance summary
2022 2021 Comments
Returns
Increased due to stabilisation of rent collection
EPRA 1 1 earnings per share 2 2 5.9p 5.6p following the COVID-19 pandemic, with a £0.3m
decrease in the doubtful debt provision during the
year (2021: £2.7m increase)
Basic and diluted earnings per 28.5p 0.9p
share 3 3
Profit before tax (£m) 122.3 3.7
Dividends per share 4 4 5.25p 5.0p Target dividend per share for the year ended 31
March 2022 of not less than 5.5p
Dividend cover 5 5 110.3% 112.7% In line with the Company’s policy of paying fully
covered dividends
NAV total return per share 6 6 28.4% 0.9% 5.8% dividends paid (2021: 4.8%) and a 22.6%
capital increase (2021: 3.9% capital decrease)
Share price total return 7 7 17.0% 2.3% Share price increased from 91.8p to 101.8p during
the year
Capital values
NAV and EPRA NTA 8 8 (£m) 527.6 409.9 Increased due to £94.0m of valuation increases,
£5.4m profit on disposals and the acquisition of
NAV per share and NTA per share 119.7p 97.6p DRUM REIT for £19.1m of new shares
Net gearing 9 9 19.1% 24.9%
Costs
Ongoing charges ratio 10 10 (“OCR”) 1.94% 2.48%
Increases in ESG compliance and marketing costs,
OCR excluding direct property 1.20% 1.12% partially offset by NAV increasing above £500m
expenses 11 11 which resulted in a marginal reduction in the rate
of management fees
Environmental
Weighted average energy performance C (61) C (63) Continued improvements in the environmental
certificate (“EPC”) rating 12 12 performance of the portfolio
Commenting on the final results, David Hunter, Chairman of Custodian REIT, said:
“The year to 31 March 2022 has been a period of significant recovery for the Company’s net asset value
and share price after the extreme challenges presented by the global pandemic.
“The recovery in NAV has been testament to the strength of the UK commercial property, allied to
Custodian REIT’s focus on smaller regional property and the close management of the portfolio to
maximise occupancy, rent collection, cash flow and earnings.
“Rent collection is back at pre-pandemic levels and tenants have honoured their deferred rent
agreements allowing the Board to increase fully covered quarterly dividends to at least 5.5p in the
forthcoming financial year.
“Although the impact of inflation and political uncertainty could lead to an economic downturn, we
believe Custodian REIT’s portfolio, diversified by sector, geography and tenants, with low gearing
will remain resilient in the face of any economic headwinds.”
Alternative performance measures
The Company reports alternative performance measures (“APMs”) to assist stakeholders in assessing
performance alongside the Company’s results on a statutory basis, set out above. APMs are among the
key performance indicators used by the Board to assess the Company’s performance and are used by
research analysts covering the Company. 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 21.
Further information
Further information regarding the Company can be found at the Company's website
13 www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
14 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 4989
www.camarco.co.uk
Property highlights
2022
£m Comments
Portfolio value 665.2
Property valuation increases 15 13 :
• From asset management initiatives 13.4 Detailed in the Asset management report
• Acquisition of DRUM REIT 7.3 The acquisition of DRUM REIT was completed at a discount
to NAV
• General valuation increases 73.3 Primarily due to hardening yields in the industrial and
logistics sector
94.0
• A portfolio of 10 office, retail and industrial
assets through the corporate acquisition of DRUM
Income Plus REIT plc (“DRUM REIT”) - £41.7m
Property acquisitions 16 14 63.5 • Industrial units in York, Knowsley, Dundee and
Nottingham - £11.1m
• Offices in central Manchester - £6.2m
• A retail warehouse in Cromer - £4.5m
Capital expenditure 3.5 Includes £1.2m completion of the redevelopment of an
industrial site in West Bromwich
• A portfolio of seven industrial assets for £32.6m,
£5.1m ahead of valuation when the terms of sale were
agreed
• Two car showrooms in Stockport and Stafford for
Profit on disposal 17 15 5.4 £13.9m, £2.6m ahead of valuation when the terms of
sale were agreed
• A retail warehouse in Galashiels for £4.5m, £1.8m
ahead of valuation
• Five smaller units in the retail and other sectors
for £3.5m at valuation
• Grangemouth acquisition - £7.5m
Net cash deployment since the year end 5.6 • Winchester acquisition - £3.7m
• Derby disposal - (£5.6m)
Business model and strategy
Investment Policy
The Company’s investment policy 18 16 is summarised below:
• To invest in a diverse portfolio of UK commercial real estate, principally characterised by
individual property values of less than £10m 19 17 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 acquire modern buildings or those considered fit for purpose by occupiers, focussing on areas
with:
• High residual values;
• Strong local economies; and
• An imbalance between supply and demand.
• No one tenant or property should account for more than 10% of the rent roll at the time of
purchase, except for:
• Governmental bodies or departments; or
• Single tenants rated by Dun & Bradstreet as having a credit risk score higher than two 20 18 ,
where exposure may not exceed 5% of the rent roll.
• The Company will not undertake speculative development except for the refurbishment 21 19 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.
The Board reviews the Company’s investment objectives at least annually to ensure they remain
appropriate to the market in which the Company operates and in the best interests of shareholders.
Richard Shepherd-Cross, Investment Manager, commented: "Our smaller-lot specialism has consistently
delivered significantly higher yields without exposing shareholders to additional risk”.
Growth strategy
The Board is committed to seeking further growth in the Company to increase the liquidity of its
shares and reduce ongoing charges. Our growth strategy involves:
• Organic growth through share issuance at a premium to NAV;
• Broadening the Company’s shareholder base, particularly through further penetration into online
platforms;
• Becoming the natural choice for private clients and wealth managers seeking to invest in UK real
estate;
• Taking market share from failing open-ended funds;
• Strategic property portfolio acquisitions and corporate consolidation.
In all situations, the Board ensures that property fundamentals are central to all decisions.
Acquisition of DRUM Income Plus REIT plc
In November 2021 the Company acquired DRUM Income Plus REIT plc (“DRUM REIT”) at a 28% discount to its
net asset value, resulting in a £7.3m valuation gain post-acquisition. Since acquisition DRUM REIT
has traded well, enhancing the Company’s EPRA earnings per share and maintaining its ‘red-book’
valuation at £49m. Since the year end new lettings have been secured at certain sites which should
further enhance total returns in the coming periods.
David Hunter, Chairman of Custodian REIT plc, commented: “Shareholders are seeking the consolidation
of smaller REITs as larger funds typically offer lower operating costs with better liquidity. This
acquisition demonstrated that the Company and its Investment Manager are capable of delivering
accretive corporate acquisitions which benefit both existing and incoming shareholders.”
Diverse portfolio
Annual passing
rent
% portfolio income
(£m)
Top ten tenants Asset locations
Menzies Distribution Aberdeen, Edinburgh, Glasgow, Ipswich, 1.5 3.4%
Norwich, Dundee, Swansea, York
B&M Retail Swindon, Ashton-under-Lyne, Plymouth, 1.3 2.7%
Carlisle
B&Q Banbury, Weymouth 1.1 2.4%
Wickes Building Supplies Winnersh, Burton upon Trent 0.8 1.8%
First Title (t/a Enact Leeds 0.6 1.4%
Conveyancing)
Sainsbury’s Torpoint, Gosforth 0.6 1.4%
Regus (Maidstone West West Malling 0.6 1.4%
Malling)
H&M Winsford 0.6 1.4%
Next Eurocentral, Evesham 0.6 1.2%
VW Group Derby, Shrewsbury 0.5 1.2%
Weighting
by income
Weighting by income 31 Mar 2022
31 Mar 2022
Location
Sector West Midlands 18%
North-West 19%
Industrial 38% South-East 14%
Retail warehouse 21% East Midlands 13%
Office 17% Scotland 10%
Other 13% North-East 12%
High street retail 11% South-West 9%
Eastern 4%
Wales 1%
Our environmental, social and governance (“ESG”) objectives
• Improving the energy performance of our buildings - investing in carbon reducing technology,
infrastructure and onsite renewables and ensuring redevelopments are completed to high
environmental standards.
• Reducing energy usage and emissions - liaising closely with our tenants to gather and analyse data
on the environmental performance of our properties to identify areas for improvement.
• Achieving social outcomes and supporting local communities - engaging constructively with tenants
and local government to ensure we support the wider community through local economic and
environmental plans and strategies and playing our part in providing the real estate fabric of the
economy, giving employers safe places of business that promote tenant well-being.
• Understanding environmental risks and opportunities – allowing the Board to maintain appropriate
governance structures to ensure the Investment Manager is appropriately mitigating risks and
maximising opportunities
• Complying with all requirements and reporting in line with best practice where appropriate -
exposing the Company to public scrutiny and communicating our targets, activities and initiatives
to stakeholders
Investment Manager
Custodian Capital Limited (“the Investment Manager”) is appointed under an investment management
agreement (“IMA”) to provide property management and administrative services to the Company. Richard
Shepherd-Cross is Managing Director of the Investment Manager. Richard has over 25 years’ experience
in commercial property, qualifying as a Chartered Surveyor in 1996 and until 2008 worked for JLL,
latterly running its national portfolio investment team.
Richard established Custodian Capital Limited as the Property Fund Management subsidiary of Mattioli
Woods plc and in 2014 was instrumental in the launch of Custodian REIT plc from Mattioli Woods’
syndicated property portfolio and its 1,200 investors. Following the successful IPO of the Company,
Richard has overseen the growth of the Company to its current property portfolio of over £650m.
Richard is supported by the Investment Manager’s other key personnel: Ed Moore - Finance Director,
Alex Nix - Assistant Investment Manager and Tom Donnachie – Portfolio Manager, along with a team of
six other surveyors and four accountants.
Chairman’s statement
The year to 31 March 2022 has been a period of significant recovery for the Company’s NAV and share
price after the extreme challenges presented by the global pandemic. NAV total return for the year
was 28.4%, up from 0.9% in the previous financial year due primarily to valuation increases of £94.0m
during the year. Rent collection is back at pre-pandemic levels and tenants have honoured their
deferred rent agreements which has taken recurring (EPRA) earnings to 5.9p per share.
Acknowledging the importance of income for shareholders I was delighted the Board was able to increase
quarterly dividends during the year which took the total dividend declared for the year to 5.25p per
share. This dividend was one of the highest fully covered dividends amongst its peer group of listed
property investment companies 22 20 for the year ended 31 March 2022 and, in line with the Company’s
policy, was 110% covered by EPRA earnings.
The Company is targeting a dividend per share of at least 5.5p per share for the year ending 31 March
2023.
Strategy for future growth
Custodian REIT supportively acknowledges the market desire for consolidation in the REIT sector, but
inertia and entrenched interests can make delivering consolidation much harder than it should be.
Despite these challenges we were delighted to announce the all-share acquisition of Drum Income Plus
REIT in November 2021. Alignment of property strategy and a shared focus on income returns made a
compelling rationale for the benefit of shareholders old and new.
The proposed closure of two large open-ended property funds by Aviva and Aegon and the anticipated
sale of the entire £940m Janus Henderson UK property fund portfolio has marked a watershed for
open-ended property funds offering theoretical daily dealing to retail investors. With universal
recognition that the open-ended model has failed investors we see diversified property investment
companies as the natural choice for retail investors and wealth managers seeking income from
commercial property.
Shareholder income is derived from earnings and Custodian REIT operates with one of the highest
earnings yields of its peer group giving it the greatest capacity to pay sustainable, fully covered
dividends, which will make up the largest part of total return to shareholders. Based on most
recently reported EPRA earnings Custodian REIT delivered an earnings yield 23 21 , as at 31 March
2022 of 5.9%, versus a peer group average of 4.1%.
Net asset value
The NAV of the Company at 31 March 2022 was £527.6m, approximately 119.7p per share, an increase of
22.1p (22.6%) since 31 March 2021:
Pence per share £m
NAV at 31 March 2021 97.6 409.9
Issue of equity 24 22 (0.2) 19.6
Valuation movements relating to:
- Acquiring DRUM REIT at a discount to NAV 1.7 7.3
- Asset management activity 3.0 13.4
- General valuation increases 16.7 73.3
Valuation increase before acquisition costs 21.4 94.0
Impact of asset acquisition costs (0.5) (2.3)
Valuation increase including acquisition costs 20.9 91.7
Profit on disposal of investment property 1.2 5.4
Net valuation movement 22.1 97.1
Revenue 8.9 39.9
Expenses and net finance costs (3.2) (14.7)
Dividends paid 25 23 (5.5) (24.2)
NAV at 31 March 2022 119.7 527.6
The net valuation increase of £94.0m saw significant increases in the industrial and logistics and
retail warehouse sectors, comprising in aggregate 68% of the portfolio by value, which together have
been the principal drivers of NAV growth through the year. Also of note has been the return to modest
growth in the latter part of the year in our High Street portfolio, perhaps marking an inflection
point in investor demand. Property valuation commentary is detailed in the Investment Manager’s
report.
Custodian REIT’s investment strategy has stood the Company in good stead again this year. For the
year to March 2022, NAV total return of 28.4% has outstripped total share price return of 17.0%, which
the Board regards as vindication of the quality of the portfolio and dividend capacity that might
support future share price growth.
During May and June 2022 all of the serving Non-Executive Directors acquired shares in the Company,
reflecting the Board’s view that the Company’s current share price does not sufficiently reflect the
true value of its net assets.
The market
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 significant yield compression 26 24 and has boosted capital value
returns for investors in logistics specialists. While this yield compression has led to NAV growth
for existing investors, the counterbalance is that income yields are being materially squeezed.
Custodian REIT’s regional smaller property specialism, targeting the marginal income advantage from
smaller lots which offer a higher rental yield for the same level of property and tenant risk, has
never been of greater relative importance than in current market conditions.
With logistics property yields now by some distance at historical lows, investors are acutely
sensitive to any hint of slowdown from operators such as Amazon. At a time of rising interest rates
we simply do not believe that yield compression driven growth will continue in logistics property over
the next two years. Without further yield compression, investors are relying on continuing high
levels of rental growth to deliver returns, which again points to the fortunes of the operators. A
reversal of returns from logistics property will quickly highlight the risks inherent in a single
sector property strategy, and we believe would generate a re-focus on diversified strategies where
managers can exploit mispricing in sub-sectors of the office and retail markets, while still enjoying
rental growth from industrial, logistics and retail warehousing.
Property investment strategy
The Company targets smaller regional properties, typically below the value level sought by larger
investment funds, which results in higher yields and more robust vacant possession values with better
mitigation against binary tenant and geographical risk compared to investing in larger lots.
Since 2016 the Company’s upper target lot-size has been £10m but capital values have seen significant
price inflation since then, particularly in the industrial and logistics sector. The Board therefore
recommends that shareholders approve an increase in the upper target lot-size from £10m to £15m at the
Company’s next Annual General Meeting (“AGM”) on 31 August 2022. While even £15m remains below the
general level of institutional demand, assets larger than £10m will only be acquired where we can
still achieve a beneficial yield margin relative to larger lots and the proposed change will offer the
Investment Manager the flexibility to consider a wider range of opportunities that fit the Company’s
investment policy.
The Board will also propose broadening its investment policy’s definition of refurbishment to include
the redevelopment of existing holdings, to a maximum 10% of the Company’s gross assets, at the
Company’s forthcoming AGM to provide flexibility to maximise shareholder returns from existing assets.
Borrowings
Since the year end the Company has arranged a £25m tranche of 10 year debt with Aviva Real Estate
Investors (“Aviva”) at a fixed rate of interest of 4.10% per annum to refinance a £25m variable rate
revolving credit facility with Royal Bank of Scotland (“RBS”), acquired via the DRUM REIT
acquisition. This refinancing will mitigate interest rate risk and refinancing risk for shareholders
and increase the proportion of the Company’s agreed debt facilities that are at fixed rates of
interest from 61% to 74%. The refinancing maintains the significant accretive margin between the
Company’s 3.2% weighted average cost of debt post-refinancing and property portfolio net initial yield
of 5.7%.
Investment Manager
The performance of the Investment Manager is reviewed each year by the Management Engagement Committee
(“MEC”). During the year the fees paid to the Investment Manager were £4.4m (2021: £3.8m) in respect
of annual management, administrative and transaction fees. Further details of fees payable to the
Investment Manager are set out in Note 18.
The Board is pleased with the performance of the Investment Manager, particularly completing the
corporate acquisition of DRUM REIT and its continued successful asset management initiatives, detailed
in the Investment Manager’s report and Asset management report respectively, which contributed
significantly to increases in net asset value, portfolio value and income. The Board is satisfied
that the Investment Manager’s performance remains aligned with the Company’s purpose, values and
strategy.
Board succession
After eight years of service, Matthew Thorne has indicated his intention to retire as Non-Executive
Director of the Company at the AGM on 31 August 2022, in line with its succession plan. The Board
would like to thank Matthew for his significant contribution to the development of the Company since
his appointment on IPO in 2014.
Responding to Matthew’s expected departure we are delighted to welcome Malcolm Cooper who joined the
Board on 6 June 2022 and will offer a range of skills including the financial expertise to take on the
role of Chair of the Audit and Risk Committee and maintain the Board’s property and governance
experience. We look forward to the contribution Malcolm will make.
The Board is conscious of stakeholder focus on diversity and recognises the value and importance of
diversity in the boardroom. No Directors are from a minority ethnic background but the Company’s
Board contains two women which satisfied the gender diversity recommendations of the Hampton-Alexander
Review for at least 33% female representation on FTSE350 company boards at the year end. 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 Reviews for appropriate
gender and ethnic diversity 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.
The recruitment process involved the use of external consultants and focused on key skills a new
Director would bring including financial experience as well as diversity of experience, background and
approach as well as the traditional facets of gender, ethnicity and age.
Environmental, social and governance
The Board recognises that its decisions have an impact on the environment, people and communities.
The Board also believes that the Company’s property strategy and ESG aspirations create a compelling
rationale to make environmentally beneficial improvements to its property portfolio and incorporate
ESG best practice into everything the Company does.
On 1 April 2021 the Board constituted an ESG Committee to: set and amend where necessary the Company’s
environmental key performance indicators (“KPIs”) and monitor its performance against them; ensure it
complies with its environmental reporting requirements and best practice; assess the engagement with
the Company’s environmental consultants and assess the level of social outcomes being achieved for its
stakeholders and the communities in which it operates.
The Company's ESG policy outlines our approach to managing ESG impacts and provides the framework for
setting and reviewing environmental and social objectives to ensure we are continuously improving our
performance and setting a leadership direction.
As a result, the Board has committed to:
• Understanding environmental risks and opportunities;
• Improving the energy performance of our buildings;
• Reducing energy usage and emissions;
• Achieving social outcomes and supporting local communities; and
• Complying with all requirements and reporting in line with best practice where appropriate.
Progress towards these commitments during the year, details of the Company’s environmental policy and
performance against its targets are contained within the ESG Committee report within the Strategic
report.
The Board is determined to ensure the Company’s pathway towards net zero carbon fits with stakeholder
expectations and the Company’s property strategy. We see the careful implementation of a practical
carbon reduction strategy as a crucial next step in the Company’s ESG journey and during the course of
the year ending 31 March 2023 we will engage advisors to assist the Investment Manager in developing a
detailed plan to achieve this.
Cladding
Custodian REIT’s portfolio has no exposure to ‘high risk’ assets which are typically either high-rise
buildings (those over 18m tall) which use cladding in their construction or those used for multiple
residential occupation. However, during the year the Board instigated a detailed review of the
Company’s cladding risks and obligations involving the Investment Manager and the Company’s
solicitors. This review has resulted in the Investment Manager implementing a more extensive cladding
policy, moving beyond the mandatory fire risk assessment requirements for properties where the
composition of cladding material is unknown and considering core-drilling and replacing, where
necessary, cladding not compliant with Loss Prevention Certification Board guidelines.
Company name
To better reflect the Company’s focus on income and to facilitate retail investors more easily
accessing the Company’s shares via online platforms, the Board will propose changing the Company’s
name from Custodian REIT plc to Custodian Property Income REIT plc at the 31 August 2022 AGM.
Outlook
The Company enjoys the support of a wide range of shareholders with the majority classified as private
client or discretionary wealth management investors. The Company’s investment and dividend strategy
and diversified portfolio are well suited to investors looking for a close proxy to direct real estate
investment but in a managed and liquid structure. Capital flows out of the failing open-ended
property fund model and investors moving from a yield compression fuelled capital growth strategy to a
long-term, secured income strategy will find their interests aligned with Custodian REIT.
Inflation is a clear and present risk in the market today. Traditionally investors have looked to
real estate as a hedge against the negative impact of inflation on investment returns as over the
longer term historically property values and rents increase in an inflationary environment. Following
a period of growth, the challenge for real estate companies is to own properties with further rental
growth potential whose valuation will most closely keep pace with rising prices; Custodian REIT’s
approach to this challenge is expanded upon in the Investment Manager’s report.
The impact of inflation, particularly in energy and food prices, on consumer spending, supply chain
constraints and the uncertainty caused by the war in Ukraine and the aftermath of the COVID-19
pandemic could lead to an economic downturn but we believe Custodian REIT’s portfolio, diversified by
sector, geography and tenants, with low gearing will remain resilient in the face of any economic
headwinds.
Income is likely to form the greater component of total return over the next phase of the property
market and we believe that Custodian REIT’s strong income yielding portfolio, supported by
higher-than-peer group EPRA earnings per share, will underpin shareholder returns.
David Hunter
Chairman
16 June 2022
Investment Manager’s report
The UK property market
Market sentiment remains strongly positive for the industrial and logistics sector. Positivity has
emerged, post COVID-19 lockdowns, for central London and major regional city offices and the retail
warehouse sector has challenged the general retail malaise. As we have reported over the last six
months 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 value increases across the board which has led
directly to seven consecutive quarters of NAV growth for Custodian REIT.
Sector by sector the Custodian REIT portfolio has followed the wider market trends during the year
with, like for like, the industrial and logistics valuation increasing by 26.4%, retail warehousing
increasing 16.4% and high street, although decreasing by 4.8% in the year, bottoming out and showing a
7.3% increase over the last six months. The office portfolio showed a slight like-for-like increase
in value of 1.9% reflecting the 50% weighting to business park offices, which have been a slight drag
on performance. Prime regional city centre offices have fared better post COVID-19 lockdowns. The
current strategy is to weight our office allocation away from business parks and towards strong city
centres, as recent acquisitions in Manchester and Oxford have demonstrated, where we are witnessing
the strongest occupier and investor demand and we believe the office portfolio is set fair to see
growth.
There is rightly a keen focus on inflation at present and 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, generally capped at up to 4% per annum, 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 from the
contractual terms of the leases.
The table below shows how Custodian REIT’s portfolio rental growth performance has played its part in
mitigating the negative impacts of inflation on costs and interest rates. Notably, in the last six
months all sectors have shown rental growth:
Like-for-like rental value change
12 months to 31 March 2022 6 months to 31 March 2022
Sector
Industrial +10.7% +4.9%
Retail warehouse -1.7% +0.3%
Office +2.7% +1.1%
Other -2.9% +1.9%
High street retail -5.3% +2.0%
Whole portfolio +3.8% +2.9%
Across the industrial and logistics portfolio, notwithstanding the rental growth to date, the average
rent stands at only £6.17 per sq ft for let properties (£5.27 including vacancies) with an estimated
rental value of £7.05 per sq ft (£6.20 including vacancies), suggesting a latent rental uplift of
c.14%. 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 have bottomed out and we are seeing some
recent demand led rental growth in these sectors. Importantly retail rents are growing from a low
base, following a period of rental decline making them affordable for tenants. By way of example, the
average retail warehouse rent across the portfolio stands at circa £14.30 per sq ft (£13.58 including
vacancies), broadly in line with current estimated rental values and much lower than average 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, energy price increases, 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 49% 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 have let three vacant high street properties during the year and have
terms agreed or are seeing active demand for the very limited remaining vacant space we have in the
high street portfolio from both retail and leisure occupiers. Low vacancy rates in prime locations
and occupier demand should be supportive of future rental growth.
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.
Prevailing investment approach
Based on our assessment of the current market, our strategy of a regionally focused diversified
portfolio, set out below, has proven resilient and we expect to continue to reinvest the proceeds from
selective disposals.
• Maintain weighting to industrial and logistics - assets in this sector still have latent rental
growth, but yields are ‘topping out’ and there have been recent significant share price decreases
in the large distribution shed sector over fears of decreasing demand for new space;
• Retail warehousing let off low rents which should recover from 2021 levels;
• Selective regional offices with a focus on strong city centre locations instead of out-of-town
business parks;
• Drive thru’ expansion involving acquisition and development where rental growth is anticipated;
• Selective high street retail assets in the country’s strongest locations where rents have
stabilised and there is potential for growth; and
• Refurbishment of existing property, maximising all opportunities to invest in the quality of our
assets and support our ESG goals.
Sectoral view
Industrial and logistics
The industrial and logistics sector has been flooded with capital, much of it overseas private equity,
which has been a big driver of price inflation. The fundamental occupational dynamics for smaller
industrial and logistics assets continue to support rental growth: increased demand from the logistics
sector servicing ‘E-tailing’ and the onshoring of the national supply chain; lack of supply of modern,
fit-for-purpose units and build cost inflation which is setting higher threshold rents to fund
development. All of this has led to valuation growth which has been strongly positive for Custodian
REIT. Vacancy rates are very low, against long-term averages, supporting cash flow and opportunities
to invest at prices that are fully supported by vacant possession values still exist amongst smaller
regional properties. Recently there have been indications that occupational demand for large
distribution sheds may be decreasing, with Amazon suggesting it potentially has over-capacity, but the
favourable dynamics of smaller lot-sizes which have seen less recent speculative development and are
less reliant on the large retailers should make the Company’s portfolio defensive.
In summary:
• Occupational demand is robust; supply is tight
• Vacancy rate below the long-term average
• Latent rental growth potential
• Investment demand at record levels with pricing to match
• Target sector for well-priced opportunities
High street retail
The high street retail sector is starting to find its feet after a difficult four years. The pandemic
cleared out the last of the ‘lame ducks’ on the high street, so most retailers who are still trading
appear robust and want to be in physical stores. In prime locations rents appear to be bottoming out,
or even seeing a slight re-bound. Lower rents are supporting occupier demand and reducing vacancy
rates and void periods, in prime locations, which is providing a degree of confidence to investors not
seen for some time. The Company’s high street retail portfolio is, by and large, concentrated on
retailers of essentials such as groceries, pharmaceuticals, banking and discount items rather than
luxury or fashion items. This focus on ‘need’ versus ‘want’ retailers should prove more defensive as
consumer spending capacity decreases in the current inflationary environment.
In summary:
• Over-supply - rents have suffered but are bottoming out
Retail warehouse
Out-of-town retail has seen a quick turnaround in investor demand over the last 24 months, most
particularly in the last 12 months. The combination of convenience, lower costs per square foot and
the complementary offer to online retail has kept these assets trading strongly most notably amongst
DIY, discounters, homewares and food retailers, which should prove defensive if consumer spending
levels decrease. As the second largest sector in the Custodian REIT portfolio, the recovery in market
sentiment towards out-of-town retail has been positive and vacancy rates remain low.
In summary:
• Units let off low rents
• Lower costs of occupation
• Complementary to online
Offices
The office sector is likely to be forever changed following the mass working from home experiment of
the pandemic despite the government’s current drive to encourage a return to the office and the
uncertainty a potential economic downturn brings. In truth, the change that this has brought about
has been an acceleration of a trend that was already embedded. Prime, regional city centres appear to
be showing demand from occupiers and investors alike and have outperformed business park offices. A
clear trend that has emerged is the need for landlords to provide a greater level of service and
flexibility to office tenants, the so called ‘hotelisation’ of offices.
The ‘hotelisation’ of offices
We expect a ‘hotelisation’ of office buildings to be necessary to entice employees away from their
home office while driving rents higher.
The COVID-19 pandemic led many to call the demise of the office and valuations plummeted as employees
set up work at kitchen tables across the country, but we do not believe that offices will become
redundant and in ‘the eye of the pandemic’ Custodian REIT acquired offices in Manchester and Oxford
and is using the former as a trial run for the next phase of office investing: ‘the hotelisation of
offices’.
The Company is not quite breaking new ground but we are at the vanguard of other landlords with akin
to a concierge service for office occupants, giving flexibility and services that are not typical in
standard 25-year leases. While the concept is yet to be proven we know that tenants want more from
their landlords than just a lease.
From conversations we are having with occupants and being occupants ourselves as a business, we know
that there is nothing tenants hate more than looking at offices and being shown floor after floor of
empty space with grey carpets. They don’t want to take a five-year lease, have to fit the space out
and install a broadband connection; they don’t have interest in it, they don’t have time, or the
resources to do it. On top of those costs, tenants then pay dilapidation costs to the landlord when
they leave and must return the building to the state it was in when they took it.
What you are asking tenants to do is fit out an office, then strip it out, and put it all in a skip
and that is not good for their ESG credentials.
Instead, we plan to offer tenants a ‘turnkey’ office with all facilities, fit out, and services
managed by the Investment Manager. Occupants want a space they can walk into and most businesses need
the same thing; a large meeting room, a small meeting room, a breakout area, a kitchen, a comfortable
reception, desks with an internet connection as most people work from laptops, and there will be an
element of hotdesking. Companies expect a flexible workspace where they will have three days a week
heavy use.
Overall, we are seeking to invest in making the offices ‘nicer than being at home’ so people actually
want to work there.
We are trialling the concept with the building in Manchester, and this includes converting the top
floor into a covered roof terrace with a coffee lounge, additional meeting rooms for tenants to use
and a yoga studio. Having spoken to tenants, we are confident they will pay more for a space that
they can just walk into and start operating from. Most say they are willing to pay more to take all
the hassle away and this will minimise vacancies and drive the rents higher, but we will be selective
over appropriate locations for this format and will ensure upgrades are properly costed to ensure
estimated costs are supported by expected rental and valuation increases.
This is just consumer behaviour playing out. People don’t buy cars anymore, they lease them with a
service plan because that takes the problem away. You lease your phone and when the battery starts to
die, you trade it in for a new one.
People are demanding a higher level of service but they do not want the same level of responsibility
and ownership as 20 years ago.
Other
Our key sub-sector for growth within the alternative sector is drive-through where we have grown our
holding to eight assets through acquisition, development or conversion of existing restaurant sites,
with a further conversion and acquisition in the pipeline. We believe these assets offer significant
rental growth potential and the conversions carried out during the year were subject to fierce
occupier competition from established operators and, in particular, new entrants into the UK market
from North America.
Weighting Weighting
by income by income
31 Mar 2022 31 Mar 2021
Sub-sector of ‘Other’ sector assets
Motor trade 24% 35%
Gym 20% 18%
Pub and restaurant 18% 16%
Drive-through 14% 7%
Trade counter 8% 7%
Leisure 8% 9%
Other 8% 8%
Total of ‘Other’ sector 100% 100%
ESG
The sustainability credentials of both the building and the location will be evermore important for
occupiers and investors. As Investment Manager we are absolutely committed to the Company’s
challenging goals in relation to ESG and believe the real estate sector should be a leader in this
field.
ESG has become an imperative for many investors. Commercial real estate is a significant contributor
to national emissions so we believe an emphasis on how we can improve the “E” (Environmental) is
particularly relevant for real estate. In this regard we are striving to beat the Company’s target to
improve the Energy Performance Certificates (“EPC”) of the portfolio. During the year the Company has
updated EPCs at 20 units across 15 properties covering 358k sq ft for properties where existing EPCs
had expired or where works had been completed. For updated EPCs, there was an aggregate decrease in
rating of 34 energy performance asset rating points.
Energy performance and emissions are important considerations across all redevelopments and
refurbishments in the portfolio as is the importance of “S” (Social) in creating an engaging,
appropriate and sustainable (in all senses of the word) built environment. We believe that ESG
improvements are an opportunity for shareholders to benefit from the enhanced rents, valuations and
‘lettablilty’ of the portfolio which should deliver valuation improvements over and above the cost of
the investment. Investing in real estate that meets the ESG requirements of occupiers and legislation
should lead to shorter periods of vacancy, higher rents and enhanced values. Remembering the “G”
(Governance) we have policies, embedded in our strategy, to keep Custodian REIT on target to meet the
required standards but we remain focused on delivering returns at the same time. The targets the
Company has set itself are set out in the ESG Committee report.
Property portfolio balance
The property portfolio is split between the main commercial property sectors in line with the
Company’s objective to maintain a suitably balanced investment portfolio. The Company has a
relatively low exposure to office and high street retail combined with a relatively high exposure to
industrial and to alternative sectors, often referred to as ‘other’ in property market analysis. The
current sector weightings are:
Valuation Weighting by Valuation Weighting Valuation Valuation
income 27 25 by income movement movement
31 March 31 March before including
2022 31 March 2021 31 March acquisition acquisition Weighting Weighting
costs costs by value by value
£m 2022 £m 2021 £m 31 March 31 March
£m 2022 2021
Sector
Industrial 325.1 38% 270.2 41% 69.1 67.5 49% 49%
Retail 125.4 21% 99.7 21% 17.0 16.7 19% 18%
warehouse
Office 88.1 17% 54.8 12% 0.1 (0.3) 13% 10%
Other 28 26 76.9 13% 84.4 16% 4.7 4.7 12% 15%
High street 49.7 11% 42.8 10% (4.2) (4.2) 7% 8%
retail
Gain on
acquisition N/a N/a N/a N/a 7.3 7.3 N/a N/a
of DRUM REIT
Total 665.2 100% 551.9 100% 94.0 91.7 100% 100%
For details of all properties in the portfolio please see 29 custodianreit.com/property/portfolio.
Acquisitions
The Company invested £63.5m in the following asset acquisitions during the year:
• 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 an aggregate annual rent of £407k, reflecting a net initial yield 30 27 (“NIY”) of 6.1%;
• 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%;
• 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 an aggregate annual passing rent of £260k, reflecting a NIY of 5.6%;
• A 29k sq ft industrial unit in York for £3.0m occupied by Menzies Distribution with an annual
passing rent of £186k, reflecting a NIY of 5.9%;
• A 30k sq ft industrial unit in Dundee for £1.9m occupied by Menzies Distribution with an annual
passing rent of £118k, reflecting a NIY of 5.9%; and
• A 24k sq ft industrial unit in Nottingham for £1.875m occupied by Hickling & Squires printers with
an annual passing rent of £130k, reflecting a NIY of 6.53%.
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 (31 March 2022 valuation: £49.0m).
DRUM REIT’s property portfolio at 31 March 2022 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
• 79 tenants, the largest of which is Skills Development Scotland with annual rent of £0.4m (c.13%
of DRUM REIT’s rent roll)
• EPRA occupancy rate of 80.1%, providing some short-term asset management opportunities
• WAULT 31 28 of 3.3 years
• Contractual annual rent roll of £3.3m with an estimated rental value (“ERV”) of £4.5m
• Portfolio valuation of £49.0m
• Reversionary yield 32 29 (“RY”) of 8.6%
DRUM REIT’s portfolio 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%
Agreed purchase price: £8.975m Agreed 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%
Agreed purchase price: £5.036m Agreed purchase price: £4.593m
Location: Central Manchester Location: Southport
Sector: Office Sector: Retail warehouse
Tenants: Multiple Tenant: Multiple
RY: 12.4% RY: 9.0%
Agreed purchase price: £4.503m Agreed purchase price: £3.963m
Location: Dunfermline Location: Gloucester
Sector: Retail warehouse Sector: Retail warehouse
Tenants: Multiple Tenant: Farmfoods
RY: 9.8% RY: 8.3%
Agreed purchase price: £3.687m Agreed purchase price: £2.396m
Location: Aberdeen airport Location: Gateshead
Sector: Industrial Sector: Office
Tenants: Multiple Tenants: Worldpay, Datawright
RY: 11.8% RY: 17.0%
Agreed purchase: £1.66m Agreed purchase: £1.6m
Since the year 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%; and
• A 5k sq ft retail asset in Winchester for £3.65m occupied by Nationwide Building Society and Hobbs
with an aggregate annual passing rent of £249k, reflecting a NIY of 6.4%.
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. Identifying opportunities to dispose of assets which the market overrates, have a special
purchaser or that no longer fit within the Company’s investment strategy is important and through the
year sales proceeds of £54.4m were £9.6m ahead of valuation when the disposals were agreed (or £5.4m
above final quarterly valuations prior to sale).
Taking advantage of the strength and depth of demand in the industrial/logistics sector and the
increasing demand from owner occupiers, we were delighted to conclude some opportunistic sales during
the year. We concluded the portfolio sale 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 partially reinvest the expected proceeds in advance of completion, which has helped to reduce
cash drag.
We also sold, to owner occupiers/special purchasers, a B&Q retail warehouse in Galashiels and two car
show rooms, in Stockport and Stafford as detailed in the complete list for the year below:
• 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 properties’ valuation
when terms of the sale were agreed and £2.9m above the last valuation. 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 42k sq ft car showroom in Stockport for £9.0m, £1.4m (18%) ahead of valuation when terms of the
sale were agreed and £0.4m above the last valuation;
• A 23k sq ft car showroom in Stafford for £4.9m, £1.15m (31%) ahead of valuation when terms of the
sale were agreed and £0.9m above the last valuation;
• A 31k sq ft retail warehouse in Galashiels occupied by B&Q for £4.5m to a special purchaser, £1.8m
(67%) ahead of valuation;
• High street retail units in Norwich, Nottingham, Kings Lynn and Cheltenham at valuation for an
aggregate £2.9m; and
• A vacant children’s day nursery in Basingstoke for £0.6m, £0.1m ahead of the last published
valuation.
Since the year end the Company has sold a 25k sq ft car showroom occupied by Audi for £5.6m.
Outlook
The recovery in NAV during the year has been testament to the strength of the UK commercial property,
allied to Custodian REIT’s focus on smaller regional property and the close management of the
portfolio to maximise occupancy, rent collection, cash flow and earnings.
The absolute focus on income is central to the management style and strategy of Custodian REIT. This
approach is likely to be validated as yield compression slows and shareholder returns are reliant on
earnings and dividends. Rent collection has normalised and Custodian REIT has latent rental growth
which will justify current valuations.
While thematic investment has been the overwhelming focus of investment over the last 12 months, we
believe the diversified strategy, if applied with discretion and clear aims, will be able to
capitalise on market mispricing for recovering sectors and offer shareholders a balanced and
attractive risk adjusted return.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
16 June 2022
Asset management report
Asset management strategy
Our asset management strategy is summarised as follows:
1. Generating strong and predictable levels of cash flow by:
• In-house management and rent collection - maintaining direct relationships with tenants and
identifying early any issues to they can promptly be addressed
• Minimising vacancies – proactively discussing renewals and regears and pre-empting exits to ensure
marketing has commenced in advance of expiry
2. Enhancing asset value through:
• Refurbishment – ensuring tenants perform maintenance obligations within lease contracts and
working with tenants to actively refurbish and improve assets
• Improving energy performance – encouraging tenants to reduce carbon emissions and usage and
investing in assets to enhance ESG credentials and future-proof rents
3. Maximising opportunities of differing cycles in different sectors:
• Adjusting allocations – focusing on areas with the best medium-term rental growth prospects and
mitigating risk by maintaining a diversified portfolio
• Opportunistic sales and acquisitions – taking advantage of off-market acquisition opportunities
and only selling assets ahead of valuation or that no longer fit within the Company’s investment
strategy
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 resulted in a £13.4m
valuation increase in the year.
Property portfolio summary
2022 2021
Property portfolio value £665.2m £551.9m
Separate tenancies 339 265
EPRA occupancy rate 89.8% 91.6%
Assets 160 159
WAULT 4.7 years 5.0 years
NIY 5.7% 6.6%
Weighted average EPC rating C (61) C (63)
Key asset management initiatives completed during the year include:
• A 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 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 10 year lease with a fifth year tenant break option with PDS Group on a newly refurbished vacant
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 company voluntary arrangement (“CVA”) with aggregate annual rent of £275k,
increasing valuations by £1.9m;
• A 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 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 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 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 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 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 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 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 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 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 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 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 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;
• 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;
• 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 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 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 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;
• A 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;
• A 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 of £25k, with no impact on valuation.
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.
Letting activity is strong across most sectors. We have a strong pipeline of potential new tenants
and since the year end have completed:
• A five year lease extension with CDS (t/a The Range) moving lease expiry out to 2036, which
involved expanding the external demise by 2k sq ft to accommodate a larger garden centre with an
additional £10k per annum of rent payable on the new space;
• A 10-year lease on a vacant industrial unit in Avonmouth to Nationwide Platforms with passing rent
of £300k;
• A 10-year lease renewal with Heywood Williams (t/a Window Ware) with the agreed annual rent of
£289k reflecting £8 per sq ft;
• A new 10-year lease with Bunzl on an industrial unit in Castleford at an increased rent of £164k,
an £18k uplift from the previous passing rent;
• A 10-year lease renewal with B&Q in Banbury with a passing rent of £400k, reflecting £11.50 per sq
ft; and
• An agreement for a 10-year lease with Costa Coffee on a high street unit in Colchester with annual
rent of £65k.
Occupancy has been negatively impacted by the acquisition of DRUM REIT but we expect levels across the
portfolio, including DRUM REIT assets, to continue to recover over the next 6-12 months as we complete
more new lettings, unless there were to be further significant tenant failures.
Property portfolio risk
We have managed the property portfolio’s income expiry profile through successful asset management
activities with 57% of aggregate income expiring within five years from 31 March 2022 (2021: 53%).
Short-term income at risk is a relatively low proportion of the property portfolio’s income, with 38%
expiring in the next three years (2021: 31%) and our experience suggests that even in the current
uncertain climate, the majority of tenants do not exit at break or expiry.
31 March 31 March
2022 2021
Aggregate income expiry
0-1 years 15% 11%
1-3 years 23% 20%
3-5 years 19% 22%
5-10 years 31% 34%
10+ years 12% 13%
100% 100%
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
16 June 2022
ESG Committee report
The ESG Committee (“the Committee”) was constituted on 1 April 2021. Its key responsibilities are:
• To set the Company’s environmental KPIs, monitor performance against those KPIs and ensure the
Investment Manager is managing its property portfolio in line with the ESG policy;
• To ensure the Company complies with its external reporting requirements on ESG matters including
the Global Real Estate Sustainability Benchmark (“GRESB”), EPRA and Streamlined Energy and Carbon
Report (“SECR”) and adopts sector best practice where appropriate;
• To assess, at least annually, the fees and scope of engagement of the Company’s environmental
consultants; and
• To assess whether the Company is obtaining a suitable level of social outcomes for its tenants,
other stakeholders and the communities in which it operates.
The Company is committed to delivering its strategic objectives in an ethical and responsible manner
and meeting its corporate responsibilities towards society, human rights and the environment. The
Board acknowledges its responsibility to society is broader than simply generating financial returns
for shareholders. The Company’s approach to ESG matters addresses the importance of these issues in
the day-to-day running of the business, as detailed below.
ESG approach
Environmental - we want our properties to minimise their impact on the local and wider environment.
The Investment Manager carefully considers the environmental performance of our properties, both
before we acquire them, as well as during our period of ownership. Sites are visited on a regular
basis by the Investment Manager and any obvious environmental issues are reported.
Social - Custodian REIT strives to manage and develop buildings which are safe, comfortable and
high-quality spaces. As such, our aim is that the safety and well-being of occupants of our buildings
is maximised.
Governance - high standards of corporate governance and disclosure are essential to ensuring the
effective operation of the Company and instilling confidence amongst our stakeholders. We aim to
continually improve our levels of governance and disclosure to achieve industry best practice.
The Committee encourages the Investment Manager to act responsibly in the areas it can influence as a
landlord, for example by working with tenants to improve the environmental performance of the
Company’s properties and minimise their impact on climate change. The Committee believes that
following this strategy will ultimately be to the benefit of shareholders through enhanced rent and
asset values.
The Company’s environmental policy commits the Company to:
• Improving the energy performance of our buildings - investing in carbon reducing technology,
infrastructure and onsite renewables and ensuring redevelopments is completed to high
environmental standards.
• Reducing energy usage and emissions - liaising closely with our tenants to gather and analyse data
on the environmental performance of our properties to identify areas for improvement.
• Achieving social outcomes and supporting local communities - engaging constructively with tenants
and local government to ensure we support the wider community through local economic and
environmental plans and strategies and playing our part in providing the real estate fabric of the
economy, giving employers safe places of business that promote tenant well-being.
• Understanding environmental risks and opportunities – allowing the Board to maintain appropriate
governance structures to ensure the Investment Manager is appropriately mitigating risks and
maximising opportunities
• Reporting in line with best practice and complying with all requirements - exposing the Company to
public scrutiny and communicating our targets, activities and initiatives to stakeholders
Cladding
Custodian REIT’s portfolio currently has no exposure to ‘high risk’ assets which are typically either
high-rise buildings (characteristically those over 18m tall) which use cladding in their construction
or those used for multiple residential occupation. Custodian REIT does have exposure properties where
cladding material has been used in their construction, and where the composition of the material is
unknown. During the year the Board instigated a detailed review of the Company’s cladding risks and
obligations involving the Investment Manager and the Company’s solicitors. This review has resulted
in the Investment Manager implementing a more extensive cladding policy, moving beyond the mandatory
fire risk assessment requirements for properties where the composition of cladding material is unknown
and actively core-drilling and replacing, where necessary, cladding not compliant with Loss Prevention
Certification Board guidelines. This improved policy demonstrates that the Company’s commitment to
community safety significantly exceeds the minimum required in discharging its duty as a ‘Responsible
Person’ 33 30 . A summary of the revised policy is set out below:
• ‘High risk’ buildings will not be acquired without a comprehensive rationale to decrease risk on
acquisition, and require specific approval by the Board;
• All tenants provide the Investment Manager their Fire Risk Assessment (“FRA”) which is reviewed to
ensure;
◦ It has been undertaken by a reputable fire risk assessor;
◦ The tenant confirms in writing that recommendations and remediations are being actioned to
mitigate the overall risk profile; and
◦ The local fire authority is contacted as required.
• Following a desktop review of each building within the portfolio, including approaches to local
building control, to ascertain the composition of any cladding used in construction, the
Investment Manager will arrange to undertake core drill samples of cladding where considered
appropriate with priority given to buildings identified as ‘Code 1’ under LPCB guidelines which
includes those with cladding recommended for immediate sampling or properties open to the public
use.
• Where non LPCB compliant cladding is identified the Investment Manager will:
◦ Notify building insurers, the Local Fire Authority and the tenants in occupation;
◦ Insist that tenants undertake an updated FRA based on the cladding composition;
◦ Review the FRA and ensure the tenant is complying with any recommended actions.
• Going forwards the Investment Manager will:
◦ Hold quarterly fire risk review meetings to specifically review progress to date and
implement any outstanding actions
◦ Maintain a live cladding log, detailing the progress to date in implementing and maintaining
compliance with the cladding policy;
◦ Maintain an approved list of suitable Fire Risk Assessors which can be provided to tenants if
they do not have any of their own fire consultants;
◦ Engage with its legal advisors to seek to make lease clause obligations around Fire Risk more
explicit and comprehensive in all new leases.
Environmental key performance indicators
During the prior financial year the Company set environmental targets measured by key performance
indicators (“KPIs”) which provide a strategic way to assess its success towards achieving its
environmental objectives and ensure the Investment Manager has embedded key ESG principles. These
environmental KPIs cover our main areas of environmental impact including energy efficiency,
greenhouse gas emissions, water, waste and tenant engagement.
These environmental KPIs also directly support climate risk mitigation and capture some ESG
opportunities from the transition to a low-carbon economy. As we progress our climate-related risk
identification and management, we aim to identify and implement further climate-related metrics that
can more clearly define the impact of climate-related risks and opportunities on our business. ESG
reporting frameworks, including GRESB, require businesses to disclose the KPIs which contribute
towards benchmark scoring and potentially influence investor decisions.
The Company’s environmental KPIs in place during the year, and comments relating to our performance
against each one, are set out below:
Boundary KPI Progress during the year
The like-for-like data collected from tenants
indicates a 44% reduction against the 2019
baseline. However, because this percentage is
based on a relatively small sample population,
Reduce total portfolio Scope 1 the Board believes that although this indicates a
and 2 emissions by 30% by 2025 positive performance by the Company’s tenants,
the population is insufficient to conclude that
this objective has been met and in the year
ending 31 March 2023 the Investment Manager will
continue to make efforts to improve tenant
response rates.
There are no longer any ‘G’ rated assets and the
one remaining ‘F’ is being improved.
Whole portfolio
All ‘D’ EPC ratings to be During the year the Company has updated EPCs at
removed or improved by 2027, all 20 units across 15 properties covering 358k sq
‘E’ EPC ratings to be removed or ft.
improved by 2025 and all ‘F’ and
‘G’ EPC ratings to be removed or The Company is currently reviewing and
improved by 31 March 2022 undertaking new assessments of any EPCs that are
older than five years below a ‘C’ rating. A ‘C’
rating is expected to become the minimum standard
under the Minimum Energy Efficiency Standard
(“MEES”) in 2027.
Reduce Scope 1 and 2 energy The like-for-like data collected from tenants
consumption of the property indicates a 54% reduction against the 2019
portfolio by 15% against a 2019 baseline, but subject to uncertainty due to a
baseline by 2025 small sample population as explained above.
Switch all landlord-controlled Currently at 94% and we expect to achieve 100% by
sites to 100% renewable 2023.
electricity by 2025
Switch all landlord-controlled 12 properties have moved during the year and we
sites to green gas by 2025 remain on track to achieve this target by 2025.
Install EV charging points
across 100% of the Company’s We have EV chargers operating at seven of our 11
retail warehouse assets by 2025 retail warehouse sites with installation at the
Landlord controlled and investigate onsite remainder currently underway.
renewables on one asset by 2025
Zero waste to landfill from landlord-controlled
Zero waste to landfill from waste was achieved during 2021. 2% of tenants’
landlord-controlled waste by waste has been sent to landfill during the year
2022 due to a one-off capital project undertaken.
Reduce landlord-controlled water Landlord water consumption has reduced by 18%
consumption by 50% by 2025 since the prior year.
Engage with occupiers during
lease negotiations to Green clauses to include renewable electricity as
incorporate sustainability standard within all new leases.
Tenant clauses into new leases
Tenant engagement is part of the Investment
Engage with tenants on quarterly Manager’s remit, which it has complied with
basis on ESG issues during the year, as it collects all rent and
directly manages each property in the portfolio.
Achieve EPRA Gold Standard for Achieved.
the year ended 31 March 2021
Report to TCFD by 2021 Selected elements of the TCFD reporting framework
Development have been followed.
Incorporate ESG factors into all Investment Committee reports for any new property
investment due diligence acquisition/refurbishment now include dedicated
undertaken ESG rationale detailing improvements to be made
alongside relevant expected capital expenditure.
To help the assessment of progress against KPIs a central data management system, hosted by the
Company’s environment consultants, has been established to provide a robust data collation and
validation process. This data management system is being used to identify tenant engagement and asset
optimisation opportunities and facilitates the communication of environmental performance data to
various stakeholders.
Due to the success of the Investment Manager in meeting certain of the environmental targets during
the year and the Board’s ambition to strengthen the Company’s environmental credentials, the Board has
set the following revised targets to be reported against in the financial year ending 31 March 2023:
Area Target Change from previous targets
Increase EV charging capacity to the
following by 2025 34 31 :
• 4,200 kW/h 35 32 across retail
warehouse and other sector assets; New
and
• 980 kW/h 36 33 across office and
industrial assets
Install onsite renewable electricity
generation at 75% of redevelopments and
Physical building major refurbishments New
improvements (whole
portfolio boundary)
Install smart meters across 25% of the New
portfolio by floor area
All ‘D’ EPC ratings to be removed or
improved by 2027 and all ‘E’ EPC ratings
to be removed or improved by 2025 Retained
All redevelopments to achieve Building
Research Establishment Environmental
Assessment Method (“BREEAM”) Excellent New
rating
For landlord controlled areas in the like
for like portfolio, on a 2019 baseline,
achieve:
• Reduction in Scope 1 and 2 emissions
of 30% by 2025
• Reduction in energy consumption of Retained
15% by 2025
Landlord controlled usage • Less than 5% waste to landfill by
(landlord controlled 2022
boundary) • Reduction in water consumption by 50%
by 2025
Switch all landlord-controlled sites to
100% renewable electricity by 2023 Retained but timetable accelerated
Switch all landlord controlled sites to Retained but timetable accelerated
green gas by 2023.
Use TCFD recommendations and reporting
framework to disclose our approach to Amended to omit elements of TCFD
climate related governance, strategy, as the Company is exempt from
risk management and opportunities mandatory TCFD reporting
Incorporate ESG factors into all
investment due diligence undertaken Retained
Risk management and
reporting
Achieve an annual improvement in GRESB
score between 2021 and 2025 New
Continue to report in line with EPRA
sustainability Best Practice Retained
Recommendations to achieve a ‘gold’
standard
For the non-landlord controlled
like-for-like portfolio, on a 2019
baseline, achieve: Amended to separate landlord
controlled and tenant controlled
• Reduction in Scope 1 and 2 emissions emissions, with lower targets for
of 20% by 2025 tenant performance where the
• Reduction in energy consumption of Company does not have direct
10% by 2025 control
Tenant engagement (tenant
boundary)
Engage with tenants on a quarterly basis
on ESG issues Retained
Engage with occupiers during lease
negotiations to incorporate
sustainability clauses into new leases Retained
Utilise 25% of vacant high street retail
space for short-term not-for-profit
lettings New
Install changing facilities and secure
cycle parking at all appropriate assets New
Social outcomes
Ensure properties comply with the
Company’s cladding policy within three
months of acquisition New
Consider biodiversity and habitat
strategy during all redevelopments New
Investment decisions
Investment decisions will play a key role in achieving the Company’s environmental KPIs. The Company
undertakes an environmental assessment on vacated assets and during the acquisition due diligence
process, rating assets or tenants against a number of ESG factors which form part of the Investment
Committee decision making process. This process also helps the Investment Manager evaluate the
potential environmental risks and opportunities associated with an asset and the impact on the
achievement of the KPIs.
The Company’s procurement policy for property services includes an assessment of new suppliers on
their specification and use of sustainable and energy efficient materials, systems, equipment, onsite
operating practices and performance evaluation/incentives put in place for direct external suppliers
and/or service providers to employ sustainable processes in day-to-day work.
ESG policy
To achieve the Company’s environmental objectives and targets, the Investment Manager seeks to achieve
the following:
Environment
• Ensure operations are in place to commit to the minimisation of pollution and comply with all
relevant environmental legislation;
• Gather and analyse data on our environmental performance across our business and portfolio; and
• Set long-term targets of environmental performance for our properties and monitor achievements as
a commitment to continuous improvement.
Climate change adaptation & resilience
• Through our risk management process, identify climate-related risks, both physical and financial;
• Perform environmental risk assessments of our property portfolio on an on-going basis;
• Design mitigation and management strategies for climate and environmental risks and resilience to
catastrophe/disaster; and
• Improve our reputation on environmental issues by incorporating resilience to climate-related
transition and physical risk disclosures
Energy consumption & management
• Comply with all applicable, relevant energy-related legislation and other requirements and adopt
best practice beyond the mandatory minimum where appropriate;
• Seek to reduce energy usage across properties we control;
• Monitor energy consumption across properties we control, and tenant consumption, where possible;
• Seek engagement with tenants to make meaningful reductions to their emissions and pollution;
• Procure renewable energy across properties we control;
• Review our energy objectives and targets on an annual basis;
• Promote energy efficiency and management to our tenants; and
• Where possible, build in green lease clauses 37 34 into our tenant leases.
Building materials
• When we have the opportunity to develop new property or refurbish current assets, we commit to
reviewing building materials which have a lower environmental impact and to select these
materials, if appropriate; and
• Select greener building materials, in line with our vision to increase the sustainability
certifications of our property portfolio.
Greenhouse gas (“GHG”) emissions and management
• Quantify our Scope 1 and 2 (landlord controlled) emissions on an annual basis in line with our
reporting requirements;
• Gather tenant energy consumption data, where possible, to quantify our leased assets emissions;
• Comply with and make representations to industry-standard ESG frameworks including both the EPRA
Annual Sustainability Report and the GRESB;
• Continue to expand our carbon reporting in line with industry expectations and relevant
legislation; and
• Reduce our greenhouse gas emissions through various energy reduction initiatives including virtual
conferencing meetings to reduce travel.
Further information on our GHG emissions is set out within our SECR disclosures in the Directors’
report.
Waste management
• Monitor waste levels across our properties and monitor tenant consumption, where possible;
• Implement landfill diversion waste streams such as recycling in our properties, where possible;
and
• Promote waste management to our tenants.
Water consumption and management
• Monitor water consumption across our properties and monitor tenant consumption, where possible;
• Identify and implement water reduction technologies and opportunities within our property
portfolio, where possible; and
• Promote water management to our tenants.
On-site carbon-reducing technology
• Install electric vehicle charging points across the portfolio where demand is sufficient;
• Install smart meters where tenants are amenable and in all vacant properties once re-let; and
• Investigate other carbon-reducing technology during significant refurbishments.
Biodiversity
• In the circumstances where we are developing new assets, the biodiversity of the development area
will be considered and maintained to the highest level possible. We will promote sustainable
practices by reducing the direct pressure on biodiversity and habitat by selecting more
sustainable materials.
Asset level safety, health and well-being
We wish to manage and develop buildings which are safe, comfortable and high-quality spaces. As such,
our aim is that the safety and well-being of the occupants of our buildings is maximised. We will
implement a property portfolio approach to well-being which encourages engagement with tenants,
promotes carbon reducing behaviours, ensures maximum building safety and optimises the comfort and
quality of occupancy.
Stakeholder engagement
We engage regularly with the following internal and external stakeholders on environmental and social
matters:
• Board – the Board meets at least quarterly and receives a report from the ESG Committee on
performance and progress towards our objectives;
• Investment Manager – the Investment Manager has an ESG working group which meets fortnightly.
Property team staff roles and responsibilities include ESG which is embedded across the work it
carries out on behalf of the Company;
• Managing agents – we receive quarterly reports on our asset performance and engage directly on
property portfolio optimisation;
• Tenants – we seek to engage with tenants on a quarterly basis both to understand consumption
trends and data and understand where we can upgrade and optimise buildings for tenant well-being
and environmental impact reductions;
• Local communities and charities- we work closely with local communities and charities in
particular utilising un-let space for the benefit of the local community
• Suppliers and business partners – we operate a procurement policy which seeks to ensure
sustainable products and business practices are adopted by our suppliers.
To monitor energy consumption across the property portfolio, as well as identify opportunities to make
energy reductions, the Company has engaged with Carbon Intelligence to provide strategic advice on the
process. This collaboration promotes the ethos of investing responsibly and has ensured statutory
compliance with the Energy Savings Opportunity Scheme (ESOS) Regulations 2014 and The Companies
(Director’s report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018,
and has facilitated inclusion of EPRA Sustainability Best Practice Recommendations in the Annual
Report.
Case study – Redditch
The Company expects to receive planning permission in June 2022 to redevelop an existing 59,000 sq ft
industrial building constructed in the 1980’s into a brand new 60,000 sq ft industrial/distribution
facility.
The new development will be built with exceptional ESG compliance and will be certified BREEAM
‘Excellent’ as well as having an Energy Performance rating ‘A’.
In order to achieve this the specification will include: a carbon neutral base build, electric vehicle
charging points, solar photovoltaic panels to the south facing roof elevations, LED lighting to
warehouse and offices, cycle storage and shower facilities and bat roost to cater for local
biodiversity.
The expected cost of the redevelopment is £5.8m and will generate an estimated rental value in the
region of £500k pa. Given the occupation demand in this locality, we are confident the property will
be pre-let prior to completion of the construction.
Case study – EV chargers
Our latest round of electric vehicle (“EV”) charger installations has resulted in the Company
partnering with Pod Point, one of the largest national charging networks, to install EV charging
points at our remaining retail warehousing sites and commencing the rollout across appropriate
industrial and office sites.
At each retail warehousing site Pod Point identifies the optimum number of chargers to:
• Minimise the ‘payback’ period on the upfront capital expenditure, targeting 4-6 years, which
enhances short-term earnings and minimises obsolescence risk;
• Maximise overall investment return over a ten year investment horizon; and
• Maximise the total available charging capacity to help achieve the Company’s ESG targets.
Installing EV chargers for public use also enhances properties’ occupier appeal by increasing both
customer footfall and dwell time.
Office and industrial tenants now expect EV charging as a feature on-site when looking for properties
based on their requirements for their EV/hybrid fleet or staff use. Pod Point provides advice on the
required load management system, groundworks, and infrastructure to suit tenants’ requirements which
are typically willing to pay a rental premium which allows the Company to at least re-coup its capital
expenditure whilst meeting our ESG targets and future-proofing the asset.
We currently have 14 properties in the pipeline for installation with a total of 14 rapid (75kW)
chargers at retail warehousing sites and a further 23 fast (7kW) chargers at office and industrial
locations.
With many towns in the UK introducing clean air zones where a congestion fee is charged for driving
through certain areas and the Government banning production of all new petrol or diesel vehicles from
2030, we expect to receive further demand and income for these chargers in the coming years.
Case study – charitable lettings
During the year the Company has allowed the following charitable lettings at some of its vacant retail
space, rent free, which has saved the Company vacant rates and helped the communities in which it
operates:
Rent (rateable Annual rates
Location value) Previous tenant Charitable use
£000
£000
Grafton Gate, Milton 325 166 Staples Willen Hospice - clearance outlet
Keynes
Eastern Avenue, 186 95 Staples Furniture Recycling Project - storage
Gloucester
Trinity Square, 114 58 Laura Ashley We are the Minories - art gallery and
Colchester creative community space
Long Wyre Street, 75 38 Poundland One Colchester - community hub
Colchester
EPC ratings
During the year the Company has updated EPCs at 20 units across 15 properties covering 358k sq ft for
properties where existing EPCs had expired or where works had been completed. For updated EPCs, there
was an aggregate decrease in rating of 34 ‘energy performance asset rating points 38 35
The Investment Manager is currently reviewing and undertaking new assessments of any EPCs that are
older than five years and below a ‘C’ rating. A ‘C’ rating is expected to become the minimum standard
under the Minimum Energy Efficiency Standard (“MEES”) in 2027.
The Company has the following ESG initiatives planned in the coming financial year:
• The tenant at a 100k sq ft industrial unit in Winsford is vacating in June 2022 and an extensive
refurbishment is expected to be undertaken including installing solar panels to the roof, LED
lighting throughout, air source heats pumps to heat the office space and EV charging. These works
are expected to increase the EPC of this site from a ‘C’ to a ‘B’.
• During the year we purchased a 19k sq ft of office on Fountain Street in Manchester with the
intention of undertaking a comprehensive refurbishment of the site which will include installing
solar panels, LED lighting, bike racks, shower facilities with lockers and EV charging. Recycled
furniture will also be incorporated into the cat B fitout and roof terrace with a consequential
improvement on EPC rating.
The Company’s weighted average EPC score by rating is shown below:
EPC rating 2022 2021
A 3% 1%
B 21% 15%
C 49% 43%
D 20% 30%
E 7% 11%
F - 1%
The majority ‘E’ rated assets are within the office sector, including a number of assets from the DRUM
REIT acquisition, and appropriate investment is planned to make the necessary improvements in these
assets.
Climate-related risks and opportunities
Climate change poses a number of physical risks to our property portfolio, for example those caused by
the increased frequency and severity of extreme weather events. The Committee also recognises there
are a number of transition-related risks, including economic, technology or regulatory challenges
related to moving to a greener economy which it needs to consider. But climate change also provides
opportunities to invest in alternative asset classes or to provide tenants with additional services.
Governance
The Board is ultimately responsible to stakeholders for the Company’s activities and for oversight of
our climate-related risks and opportunities. Specifically, the ESG Committee is the Board-level
governance body responsible for reviewing our identified climate-related risks alongside our ESG
strategy.
The Investment Manager maintains the Company’s risk management framework and risk register, which
means our ESG objectives are embedded into the way the Company conducts and manages the business and
the property portfolio day to day.
Risk management
During the year the Committee has revisited its climate-related risks and opportunities to determine
continued relevancy and impact on the Company. With the external consultant, the Committee assessed
the completeness and effectiveness of current controls and processes in place to mitigate and manage
risks and opportunities. The Committee deemed all mitigation controls in place to be effective however
a number of continuous improvement areas were determined which are highlighted in the table below as
next steps which will be addressed and actioned via the ESG Committee. The Company’s ESG targets also
support continuous monitoring of progress against the ESG strategy, capturing of opportunities and the
mitigation of climate risks. These targets are reported against on a quarterly basis to the Committee
by the Investment Manager and the Company’s environmental consultants.
Climate-related What this means for Management and mitigation of Next steps
risk/opportunity Custodian REIT risk
Physical risks
• Begin to establish
which assets are
likely to be most at
risk of potential
extreme weather
damage
• Update flood risk
• Annual property inspections for existing assets
enabling the Investment and understand how
Manager to identify any this may change in
• Extreme weather damage or areas of the future
events causing improvements to ensure • With identified
damage to increased property assets at risk,
infrastructure or resilience against potential develop a management
assets, making storms plan to build
assets unusable by • Building maintenance (where property resilience
tenants, making in the Company's control) such as through
Asset damage from insurance cover ensures properties are fitout, asset
storms and flooding harder or more maintained to prevent upgrades or plan to
and associated expensive for increased levels of divest, as
changing insurance tenants to arrange potential damage from storms appropriate
products, pricing and impacting future and floods • Ensure backup power
and availability lettability through • Buildings insurance coverage is available in all
lower occupational minimises the financial building types where
demand impact of the damage caused this is Custodian's
• Historical impact of by storms responsibility
Long-term floods or increasing • Environmental reports are • Review maintenance
flood risk impacting carried out for all and fitout
the long term acquisitions including flood guidelines to
attractiveness of risk assessment, albeit include guidance on
properties due to flood risk is measured on upgrades to storms
tenants avoiding likelihood of such as securing of
rentals with flood river/sea/surface water external equipment,
risk flooding based on current roof specifications
scenarios/historical data etc.
rather than future climate • Review environmental
change reports procured at
acquisition to
determine whether
future climate
projection of flood
risk can be included
• Monitor any tenant
concerns around
temperature through
tenant engagement
The Company’s tenant engagement programme
Global temperature programme provides Custodian • Continue ongoing
increases reducing Certain assets will be with up to date insights into monitoring of energy
the appeal of less more significantly changing tenant preferences, consumption,
energy-efficient impacted by rising current challenges or feedback particularly of
assets temperatures, such as on building performance and glass properties, to
glass offices, requiring provides an opportunity for the determine whether
more energy for cooling Investment Manager to further the risk trend is
and being less understand solutions to continue accelerating and
Long-term attractive to tenants to meet tenants’ preferences consider the need
over time for upgrade plans
such as facades,
insultation etc. to
reduce the property
exposure to external
temperature rises
Insufficient
electricity supply
to maintain tenant Due to rising demand for Ensure power upgrades
operations due to energy such as from are utilising renewable
inadequate cooling requirements and energy sources, where
infrastructure EV chargers, current Upgrading power supplies where contracts are under
infrastructure might be availability permits Custodian's control, in
unable to meet the line with Custodian's
energy demand emissions and energy
Medium – long-term targets
Transition risks
• Capital expenditure
considered necessary to
maintain each asset within
the portfolio to a suitable
standard to secure new
lettings at expected rental
levels is forecast and
factored into cashflow
projections to ensure
resources are available.
• EPCs are maintained for the
whole portfolio, with higher
scoring assets under review
to ensure improvements are
carried out as soon as
practical as well as
monitoring the renewal dates
and tracking score • Improve acquisition due
improvements. This control diligence processes to
provides Custodian oversight more accurately assess
Reduced Changing tenant and transparency of the forecast investment to
attractiveness of the preferences to assets improvement over time upgrade the asset over
portfolio due to occupy less energy and provides the basis of an its life in line with
changing tenant and carbon improvement plan with key compliance and tenant
preferences intensive buildings assets to target and requirements
as well as directly relates to one of • Improve coverage of the
requirements under our ESG KPIs tenant engagement
MEES • Asset due diligence is programme and broaden
Short – medium-term performed at acquisition its remit to better
stage for all new assets. capture tenants’
The Investment Manager concerns and
considers the long term sustainability plans
suitability of the asset
including ESG requirements
against our ESG strategy and
calculates the forecast
investment to upgrade the
asset over its life in line
with compliance and tenant
requirements
• Custodian’s tenant
engagement programme
provides live insights into
the changing tenant
preferences to stay abreast
of changing trends to
maintain lettability of
portfolio and levels of
occupation
• Continue to engage
proactively with investors
and the Company’s wider
stakeholder group on ESG
matters
• External environmental • Continued Director
consultants are engaged training to build
to advise on the knowledge around Net Zero
Increased stakeholder Company's ESG and climate issues to
scrutiny over Custodian initiatives and compare ensure ongoing effective
Investor REIT's ESG ambitions and to requirements, best governance and guidance
divestment or climate action and practice and peer-group • Consider future pricing of
activism due to awareness of the impact performance. GHG emissions and
changing ESG of the built • Shareholder expectations emissions offsets and
expectations environment, including are established by the future enhanced emissions
carbon emissions from Company's brokers and reporting obligations.
refurbishment and distribution agents and Climate change could
construction, leading to directly during meetings affect the input costs to
Short-term reduced confidence, with investors. produce traditional
shareholder activism or Significant changes in development related
divestment. expectations or materials or building
potential activism would services. Utilising more
be communicated. innovative low carbon
materials could also to
mitigate some of the
potential this risk might
impose.
All investments are
scrutinised by the
If technology that has Investment Manager’s
Unsuccessful been invested in is not Investment Committee.
investment in new properly researched, Investment Committee reports
technology developed or include a dedicated ESG
implemented, or becomes rationale. Carbon reducing
obsolete or no longer technology is a key part of
industry best practise, the carbon-reduction
Medium-term it may not bring the strategy but is not invested
return that was forecast in speculatively and only
established products are
considered.
Opportunities
• Continue to encourage
investment in the
Investment Manager’s
staff development for
them to remain abreast
of low-carbon building
solutions and other
Exposure to new competitive offerings
asset classes for through industry bodies,
potential Investment associations and
investment opportunities through All investments are scrutinised memberships
exposure to new asset by the Investment Manager’s • At Board Strategy days,
classes Investment Committee include a more prominent
segment focused on ESG
Short – medium-term and future strategy
involving ESG Committee
recommendations and the
Company’s environmental
consultants, including
how the Company might
expand low-carbon
services and review new
investment classes
• ESG Credentials are
The effects of currently part of the
Shifting tenant climate change on marketing/prospectus of an
preferences may tenant preferences asset - which ensures
create new demand may bring the tenants are aware of
for new or existing opportunity to Custodian REIT's ESG
products/ services diversify business credentials to attract ESG
activities such as conscious tenants
low-carbon • Tenant engagement programme
alternative assets or - provides insights into
Short – medium-term development or the changing tenant
expansion of low preferences
emissions services
• Establishment of an ESG Continue to improve
Increased demand Increased demand for Committee of the Board and communication with
for shares due to shares from investors publication of revised, stakeholders regarding ESG
ESG credentials preferring to stretching ESG targets initiatives through
specifically invest • Annual external reporting quarterly stock market
in companies with on progress against ESG reporting, Annual and
strong ESG targets Interim Reports and
Short-term credentials • Investor feedback is shareholder meetings and
captured regularly webinars
To account for the long-term nature of climate change three time horizons were used within the
assessment:
• Short-term (0-3 years);
• Medium-term (3-12 years); and
• Long-term (12-20 years).
This period differs from the longer-term viability assessment of three years, as the outputs of our
climate-related materiality assessment will be reviewed and built upon over time in order to
effectively embed identified risks into our risk management framework.
Net zero 39 36 carbon pathway
Starting the journey towards net zero carbon is a crucial next step in our ESG strategy and making
this journey fit with stakeholder goals and the Company’s property strategy is one of the key
challenges facing the Company and the real estate sector. Developing a net zero carbon pathway, and
choosing the right level of consultancy to support the Investment Manager in achieving this, is
squarely on the Committee’s agenda for the forthcoming year.
Outlook
The Company will work towards achieving its refined ESG targets over the course of the next financial
year, improving our understanding of the specific impacts of climate change on the Company, seeking to
influence tenant behaviour to improve environmental outcomes and assessing our strategy towards
creating a Net Zero pathway.
Approval
This report was approved by the Committee and signed on its behalf by:
Hazel Adam
Chair of the ESG Committee
16 June 2022
Financial review
The Company has enjoyed its strongest year of total return as the market continued its recovery from
the impact of the COVID-19 pandemic, with a profit before tax of £122.3m (2021: £3.7m) and EPRA
earnings per share of 5.9p (2021: 5.6p). The Company’s rent collection level has stabilised to
pre-pandemic levels which has supported the Board increasing dividends per share declared for the year
to 5.25p (2021: 5.0p), 110% covered by EPRA earnings.
A summary of the Company’s financial performance for the year is shown below:
Year ended 31 Mar 2022 Year ended 31 Mar 2021
Financial summary £000
£000
Revenue 39,891 39,578
Expenses and net finance costs (14,639) (15,904)
EPRA profits 25,252 23,674
Net profit/(loss) on investment property 97,073 (19,925)
Profit before tax 122,325 3,749
EPRA EPS (p) 5.9 5.6
Dividend cover 110.3% 112.7%
OCR excluding direct property costs 1.20% 1.12%
Borrowings
Net gearing 19.1% 24.9%
Weighted average debt maturity 5.7 years 7.4 years
Weighted average cost of agreed debt 3.0% 3.0%
The Company’s rent roll has increased by 4.7% from £38,692k at 31 March 2021 to £40,493k at 31 March
2022, which resulted in IFRS revenue increasing from £39,578k to £39,891k.
This increase in contractual rent was due primarily to net property acquisitions, but importantly also
from aggregate rental growth across the portfolio and the positive impact of asset management activity
in increasing like-for-like occupancy through net new lettings, which demonstrate the robust nature of
the Company’s diverse property portfolio.
EPRA earnings per share increased to 5.9p (2021: 5.6p) due primarily to the stabilisation of rent
collection rates, with a £0.3m decrease in the doubtful debt provision during the year comparing to a
£2.7m increase in the prior financial year; partially offset by the timing of acquisitions and
disposals and increased professional fees from more regear and new letting activity.
Dividends
The Board acknowledges the importance of income for shareholders and during the year its objective was
to pay dividends on a sustainable basis at a rate fully covered by net rental receipts which does not
inhibit the flexibility of the Company’s investment strategy.
The Company paid dividends totalling 5.625p per share during the year (£24.2m) comprising fourth and
fifth interim dividends relating to the year ended 31 March 2021 of 1.25p and 0.5p per share
respectively, and quarterly interim dividends of 1.25p, 1.25p and 1.375p per share relating to the
year ended 31 March 2022.
The Company paid a fourth quarterly interim dividend of 1.375p per share for the quarter ended
31 March 2022 on 31 May 2022 totalling £6.1m. Dividends relating to the year ended 31 March 2022 of
5.25p (2021: 5.0p) were 110% covered by net recurring income of £25.3m, as calculated in Note 21.
Cost control
The Company’s tiered management fee structure, detailed in Note 18, meant that marginal investment
management and administration fees decreased during the year as NAV increased to above the £500m
hurdle. However, the Company has continued to invest in its environmental and governance structures
and has also increased its marketing budget which has resulted in the OCR (excluding direct property
costs) increasing from 1.12% for the year to 1.20%. Although governance related expenditure is likely
to continue to increase we believe the economies of scale provided by the Company’s relatively fixed
cost base and fee structure will mean that further growth will allow ongoing charges to be kept
proportionately low.
Key performance indicators
The Board reviews the Company’s quarterly performance against a number of key financial and
non-financial measures:
• EPS and EPRA EPS – reflect the Company’s ability to generate recurring earnings from the property
portfolio which underpin dividends;
• Dividends per share and dividend cover - to provide an attractive, sustainable level of income to
shareholders, fully covered from net rental income. The Board reviews target dividends in
conjunction with detailed financial forecasts to ensure that target dividends are being met and
are sustainable;
• NAV per share total return – reflects both the NAV growth of the Company and dividends payable to
shareholders. The Board regards this as the best overall measure of value delivered to
shareholders. The Board assesses NAV per share total return over various time periods and
compares the Company's returns to those of its peer group of listed, closed-ended property
investment funds;
• NAV per share, share price and market capitalisation – reflect various measures of shareholder
value at a point in time;
• Share price total return – reflects the movement in share price and dividends payable to
shareholders;
• Target dividend per share – an expectation of the Company’s ability to deliver an income stream to
shareholders for the forthcoming year;
• Net gearing – measures the Company’s borrowings as a proportion of its investment property,
balancing the additional returns available from utilising debt with the need to effectively manage
risk;
• OCR – measures the annual running costs of the Company and indicates the Board’s ability to
operate the Company efficiently, keeping costs low to maximise earnings from which to pay fully
covered dividends; and
• EPRA vacancy rate – the Board reviews the level of property voids within the Company's property
portfolio on a quarterly basis and compares this to its peer group average.
• Weighted average EPC rating – measures the overall environmental performance of the Company’s
property portfolio
The Board considers the key performance measures over various time periods and against similar funds.
A record of these measures is disclosed in the Financial highlights and performance summary, the
Chairman's statement and the Investment Manager's report.
EPRA performance measures
EPRA Best Practice Recommendations have been disclosed to facilitate comparison with the Company’s
peers through consistent reporting of key real estate specific performance measures.
2022 2021
EPRA EPS (p) 5.9 5.6
EPRA Net Tangible Assets (“NTA”) per share (p) 123.1 97.6
EPRA NIY 5.0% 6.0%
EPRA ‘topped up’ NIY 5.5% 6.4%
EPRA vacancy rate 10.2% 8.4%
EPRA cost ratio (including direct vacancy costs) 22.9% 26.1%
EPRA cost ratio (excluding direct vacancy costs) 19.0% 23.9%
EPRA capital expenditure (£m) 69.0 14.5
EPRA like-for-like rental growth (£m) 35.3 38.3
• EPRA EPS – a key measure of the Company’s underlying operating results and an indication of the
extent to which current dividend payments are supported by earnings
• EPRA NAV per share metrics – make adjustments to the NAV per the IFRS financial statements to
provide stakeholders with the most relevant information on the fair value of the assets and
liabilities of a real estate investment company, under different scenarios. EPRA Net Tangible
Assets - assumes that entities buy and sell assets, thereby crystallising certain levels of
unavoidable deferred tax
• EPRA NIY and ‘topped up’ NIY – alternative measures of property portfolio valuation based on cash
passing rents at the reporting date and once lease incentive periods have expired, net of ongoing
property costs
• EPRA cost ratios – alternative measures of ongoing charges based on expenses, excluding operating
expenses of rental property recharged to tenants, but including increases in the doubtful debt
provision, compared to gross rental income
• EPRA capital expenditure - capital expenditure incurred on the Company’s property portfolio during
the year
• EPRA like-for-like rental growth - a measure of rental growth of the property portfolio by sector,
excluding acquisitions and disposals
• EPRA Sustainability Best Practice Recommendations – environmental performance measures focusing on
emissions and resource consumption which create transparency to potential investors by enabling a
comparison against peers and set a direction towards improving the integration of ESG into the
management of the Company’s property portfolio.
Debt financing
The Company operates with a conservative level of net gearing, with target borrowings over the
medium-term of 25% of the aggregate market value of all properties at the time of drawdown. The
Company’s net gearing decreased from 24.9% LTV last year to 19.1% at the year end primarily due to
£94.0m of valuation increases.
Since the year end the Company has arranged a £25m tranche of 10 year debt with Aviva at a fixed rate
of interest of 4.10% per annum to refinance a £25m variable rate revolving credit facility with RBS,
acquired via the DRUM REIT acquisition. Following the refinancing the Company had the following
facilities available:
• A £50m revolving credit facility (“RCF”) with Lloyds Bank plc (“Lloyds”) with interest of between
1.5% and 1.8% above SONIA 40 37 , determined by reference to the prevailing LTV ratio of a
discrete security pool of assets, and expiring on 17 September 2024;
• A £20m term loan facility with Scottish Widows Limited (“SWIP”) repayable in August 2025, with
fixed annual interest of 3.935%;
• A £45m term loan facility with SWIP repayable in June 2028, with fixed annual interest of 2.987%;
and
• A £75m term loan facility with Aviva comprising:
• A £35m tranche repayable on 6 April 2032, with fixed annual interest of 3.02%;
• A £15m tranche repayable on 3 November 2032 with fixed annual interest of 3.26%; and
• A £25m tranche repayable on 3 November 2032 with fixed annual interest of 4.10%.
Each facility has a discrete security pool, comprising a number of the Company’s individual
properties, over which the relevant lender has security and the following covenants:
• The maximum LTV of each discrete security pool is between 45% and 50%, with an overarching
covenant on the Company’s property portfolio of a maximum 35% LTV; and
• Historical interest cover, requiring net rental receipts from each discrete security pool, over
the preceding three months, to exceed 250% of the facility’s quarterly interest liability.
At the year end the Company had £207.2m (31% of the property portfolio) of unencumbered assets which
could be charged to the security pools to enhance the LTV on the individual loans. During the year
the Company charged unencumbered properties valued at £30.3m to certain facilities as substitutions
for charged properties sold during the year. Since the year end £53.5m of unencumbered property has
been charged to the new £25m tranche of debt with Aviva with charges over £49.0m of property secured
on the £25m RCF with RBS released on that facility’s subsequent cancellation.
The weighted average cost (“WAC”) of the Company’s agreed debt facilities at 31 March 2022 was 3.0%
(2021: 3.0%), with a weighted average maturity (“WAM”) of 5.2 years (2021: 7.4 years). At 31 March
2022 the Company had £nil drawn under its Lloyds RCF and £22.8m drawn under its RBS RCF, meaning 84%
(2021: 82%) of the Company’s drawn debt facilities, and 61% (2021: 70%) of its agreed debt facilities,
were at fixed rates.
On completion of the new tranche of Aviva debt and repayment and cancellation of the £25m RCF with
RBS, the Company’s WAC of its agreed debt facilities increases to 3.2% with 74% at a fixed rate of
interest and a WAM of 6.3 years.
This high proportion of fixed rate debt significantly mitigates long-term interest rate risk for the
Company and provides shareholders with a beneficial margin between the fixed cost of debt and income
returns from the property portfolio.
LIBOR, the London Inter Bank Offer Rate interest rate benchmark used for setting the interest rate
charged on the Company’s RCF facilities was discontinued during the year and has been replaced by
SONIA. The transition has not had a material impact on the interest rates on the RCFs.
Outlook
The Company’s business model has remained resilient during the year and we have further mitigated
against interest rate rises by refinancing £25m of variable rate debt at a fixed rate. We have a
scalable cost structure and flexible capital structure to be on the front foot when opportunities
present themselves to raise new equity and exploit acquisition opportunities.
Ed Moore
Finance Director
for and on behalf of Custodian Capital Limited
Investment Manager
16 June 2022
Property portfolio
Industrial
Tenant Location % portfolio income
Menzies Distribution Various 3.4%
H&M Winsford 1.4%
Teleperformance Ashby 1.2%
ATL Transport Burton 1.1%
Restore Salford 1.0%
Saint Gobain Building Distribution Milton Keynes 1.0%
DS Smith Packaging Redditch 0.9%
Daher Aerospace Hilton 0.9%
Silgan Closures Doncaster 0.9%
PDS Group Holdings West Bromwich 0.9%
Next Eurocentral 0.8%
Life Technologies Warrington 0.8%
Massmould Milton Keynes 0.8%
ICT Express Tamworth 0.8%
Royal Mail Coventry/Kilmarnock 0.8%
Yesss (B) Electrical Normanton 0.7%
Turpin Distribution Biggleswade 0.7%
Harbour International Freight Manchester 0.7%
HellermannTyton Cannock 0.7%
Yodel Bellshill 0.7%
Multi-Colour Daventry England Daventry 0.6%
Zentia Profiles Gateshead - Team Valley 0.6%
Sherwin Williams Plymouth 0.6%
DX Network Service Nuneaton 0.6%
BSS Group Bristol 0.5%
Heywood Williams Components Bedford 0.5%
Ichor Systems Hamilton 0.5%
Morrison Utility Services Stevenage 0.5%
Brenntag UK Cambuslang 0.5%
A Share & Sons (t/a SCS) Livingston 0.5%
Sytner Oldbury 0.5%
MTS Logistics Coalville 0.4%
Procurri Europe Warrington 0.4%
Semcon Warwick 0.4%
Green Retreats Farnborough 0.4%
VP Packaging Kettering 0.4%
West Midlands Ambulance Service NHS Trust Erdington 0.4%
Warburton Langley Mill 0.4%
Northern Commercials Irlam 0.4%
Synergy Health Sheffield Parkway 0.3%
Bunzl Castleford 0.3%
Powder Systems Liverpool, Speke 0.3%
Tricel Composites Leeds 0.3%
Arkote Sheffield 0.3%
Hickling and Squires Nottingham 0.3%
Sealed Air Kettering 0.3%
North Warwickshire Borough Council Atherstone 0.3%
DHL International Liverpool, Speke 0.3%
PHS Group Huntingdon 0.2%
Synertec Warrington 0.2%
DHL Global Forwarding Glasgow Airport 0.2%
Acorn Web Offset Normanton 0.2%
ITM Power Sheffield 0.2%
Rapid Vehicle Repairs Kettering 0.2%
Med Imaging Knowsley 0.2%
MP Bio Science Hilton 0.1%
Central Electrical Armature Winding Knowsley 0.1%
Equinox Aromas Kettering 0.1%
Engineering Solutions & Automation Services Knowsley 0.1%
Portakabin Knowsley 0.1%
Jangala Softplay Hilton 0.1%
Midon Knowsley 0.1%
Precision Pumping and Metering Aberdeen 0.1%
RTV - Worldnet Shipping Aberdeen 0.1%
Shakespeare Pharma Hilton 0.1%
Grampian Geotechnical (Scotland) Aberdeen 0.1%
Razor Oiltools Aberdeen 0.1%
Industrial Control Distributors Kettering 0.1%
Other smaller tenants 0.1%
VACANT 3.7%
38.5%
Retail Warehouse
B&M Various 2.7%
B&Q Banbury/Weymouth 2.4%
Wickes Burton/Southport/Winnersh 1.8%
HHGL (t/a Homebase) Cromer/Leighton Buzzard 1.4%
Matalan Leicester 1.1%
Magnet Gloucester/Leicester/Plymouth 1.0%
Halfords Carlisle/Sheldon/Weymouth 0.8%
Oak FurnitureLand Group Carlisle/Plymouth 0.5%
Poundstretcher* Grantham/Southport 0.5%
A Share & Sons (t/a SCS) Plymouth 0.5%
M&S Evesham 0.5%
CDS (t/a The Range) Burton 0.5%
Sainsbury’s Torpoint 0.5%
Dreams* Sheldon/Southport 0.5%
Pets at Home Sheldon/Winnersh 0.4%
Boots Evesham 0.4%
Argos Evesham 0.4%
Next Evesham 0.4%
TJ Morris (t/a Homebargains) Portishead 0.3%
Smyths Toys Gloucester 0.3%
Iceland Foods Carlisle 0.3%
Sofology Southport 0.2%
Poundland Carlisle 0.2%
Just For Pets Evesham 0.2%
Pure Gym Grantham 0.2%
SportsDirect.com Weymouth 0.2%
Farmfoods Gloucester 0.2%
Majestic Wine Portishead 0.1%
Parts Alliance Group Southport 0.1%
InstaVolt Various 0.1%
Other smaller tenants 0.1%
VACANT 2.3%
21.1%
*Tenants in occupation paying £nil rent through CVAs where ERV has been used to calculate % portfolio
income.
Office
First Title (t/a Enact) Leeds 1.4%
Regus (Maidstone West Malling) West Malling 1.4%
The Skills Development Scotland Co Glasgow 0.9%
National Grid Castle Donnington 0.7%
Wienerberger Cheadle 0.7%
Agilent Technologies Cheadle 0.7%
Home Office Sheffield 0.6%
Dehns Oxford 0.6%
Edwards Geldards Derby 0.6%
Countryside Properties Leicester 0.4%
Lyons Davidson Solihull 0.4%
Nucana Edinburgh 0.4%
Galliford Try Construction Leicester 0.4%
Regus (Leicester Grove Park) Leicester 0.3%
Worldpay Gateshead 0.3%
Systra Birmingham 0.3%
Oxentia Oxford 0.3%
Cognizant Technology Solutions Glasgow 0.2%
Spa Medica Leicester 0.2%
Health & Safety Executive Sheffield 0.2%
NatWest Oxford 0.2%
Carbide Properties Leicester 0.2%
Charles Stanley Oxford 0.2%
Erskine Murray Leicester 0.2%
Meridian Healthcomms Manchester Fountain Street 0.2%
Nucana Biomed Edinburgh 0.2%
Datawright Computer Services Gateshead 0.2%
Tony Gee and Partners Manchester Arthur House 0.1%
IJ Tours Manchester Arthur House 0.1%
Venditan Manchester Fountain Street 0.1%
Livingstone Brown Glasgow 0.1%
Copeland Wedge Associates Birmingham 0.1%
KWB Property Management Birmingham 0.1%
Fourthline Manchester Fountain Street 0.1%
Bell Cornwall Associates Birmingham 0.1%
UK Speeder Consulting Manchester Arthur House 0.1%
Smith Institute Oxford 0.1%
Quantem Consulting Birmingham 0.1%
Coulters Legal LLP Edinburgh 0.1%
GoFor Finance Edinburgh 0.1%
Bradley & Cuthbertson LLP Birmingham 0.1%
Safe Deposits Glasgow 0.1%
Reality Law Birmingham 0.1%
Other smaller tenants 0.3%
VACANT 2.3%
16.6%
Other
VW Group Derby/Shrewsbury 1.2%
TH UK & Ireland (t/a Tim Hortons) Leicester/Perth/Watford 0.8%
MKM Buildings Supplies Castleford/Lincoln 0.7%
Nuffield Health Stoke 0.7%
Total Fitness Lincoln 0.6%
Co-Operative Gillingham 0.6%
Bannatyne Fitness Perth 0.6%
Pendragon Property Holdings York 0.5%
Liverpool Community Health NHS Trust Liverpool 0.4%
Parkwood Health & Fitness Salisbury 0.4%
Listers Group Loughborough 0.4%
Mecca Bingo Crewe 0.3%
Chokdee Bath 0.3%
TJ Vickers & Sons Shrewsbury 0.3%
Stonegate Pub Co High Wycombe 0.3%
Starbucks Maypole 0.3%
Kbeverage (t/a Starbucks) Nottingham 0.3%
Mecca Bingo (sublet to Odeon Cinemas) Crewe 0.2%
The Gym Group Carlisle 0.2%
AGO Hotels Portishead 0.2%
Iguanas Torquay 0.2%
Bistrot Pierre Torquay 0.2%
Ask Italian Restaurant Shrewsbury 0.2%
McDonalds Plymouth 0.2%
JD Wetherspoons Portishead 0.2%
Scotco Eastern (t/a KFC) Perth 0.2%
Wedgmoor Crewe 0.2%
Loungers Torquay 0.1%
The Universal Church of the Kingdom of God Stratford 0.1%
1 Oak (t/a Starbucks) Burton 0.1%
Knutsford Day Nursery Knutsford 0.1%
F1 Autocentres Crewe 0.1%
Ashbourne Day Nurseries Chesham 0.1%
Sam's Club (t/a House of the Rising Sun) Shrewsbury 0.1%
Edmundson Electrical Crewe 0.1%
Other smaller tenants 0.1%
VACANT 1.0%
12.6%
Retail
Superdrug Southsea/Weston-super-Mare/Worcester 1.1%
Sainsbury’s Gosforth 0.9%
Specsavers Cardiff 0.5%
Sportswift Cardiff/Gosforth/Portsmouth 0.5%
The Works Bury St Edmunds/Portsmouth 0.4%
URBN UK Southampton 0.4%
Reiss Guildford 0.4%
Phase Eight Edinburgh 0.3%
Poundland Portsmouth 0.3%
Nationwide Building Society Shrewsbury 0.2%
Portsmouth City Council Southsea 0.2%
Foxtons Stratford 0.2%
Wilko Retail Taunton 0.2%
Loungers Shrewsbury 0.2%
Signet Trading (t/a Ernest Jones) Chester 0.2%
Savers Health & Beauty Bury St Edmunds/Newcastle 0.2%
Tesco Birmingham 0.2%
Boots Gosforth 0.2%
Holland & Barrett Shrewsbury 0.2%
Kruidvat Real Estate (t/a Savers) Colchester 0.1%
Crepeaffaire St Albans 0.1%
Lush Colchester 0.1%
H Samuel Colchester 0.1%
Der Touristik Chester 0.1%
WH Smith Gosforth 0.1%
Barrhead Travel Dunfermline 0.1%
British Red Cross Society Dunfermline 0.1%
Lloyds Bank Gosforth 0.1%
Ramsdens Financials Glasgow 0.1%
Clogau Gold Shrewsbury 0.1%
Felldale Retail (t/a Lakeland) Chester 0.1%
Your Phone Care Portsmouth 0.1%
Ciel (Concessions) (t/a Chesca) Chester 0.1%
Aslan Jewellery Chester 0.1%
Virgin Money Gosforth 0.1%
Greggs Birmingham/Dunfermline 0.1%
Brook Taverner Cirencester 0.1%
Leeds Building Society Colchester 0.1%
Subway Birmingham/Dunfermline 0.1%
Diamonds of Chester Camelot Chester 0.1%
CHAS Trading Dunfermline 0.1%
Lloyds Pharmacy Dunfermline 0.1%
Indigo Sun Retail Dunfermline 0.1%
Johnson Cleaners Dunfermline 0.1%
Viva Italia Dunfermline 0.1%
The Danish Wardrobe (t/a Noa Noa) Cirencester 0.1%
Coral Birmingham 0.1%
Costa Gosforth 0.1%
Cancer Research UK Gosforth 0.1%
RMS Estate Agents Gosforth 0.1%
Other smaller tenants 0.5%
VACANT 0.9%
11.3%
Principal risks and uncertainties
The Board has overall responsibility for reviewing the effectiveness of the system of risk management
and internal control which is operated by the Investment Manager. The Company’s risk management
process is designed to identify, evaluate and mitigate the significant risks the Company faces. At
least annually, the Board undertakes a risk review, with the assistance of the Audit and Risk
Committee, to assess the effectiveness of the Investment Manager’s risk management and internal
control systems. During this review, no significant failings or weaknesses were identified in respect
of risk management, internal control and related financial and business reporting.
The Company holds a portfolio of high quality property let to institutional grade tenants and is
primarily financed by fixed rate debt. It does not undertake speculative development.
There are a number of potential risks and uncertainties which could have a material impact on the
Company's performance over the forthcoming financial year and could cause actual results to differ
materially from expected and historical results. The Directors have assessed the risks facing the
Company, including risks that would threaten the business model, future performance, solvency or
liquidity. The table below outlines the principal risks identified, but does not purport to be
exhaustive as there may be additional risks that materialise over time that the Company has not yet
identified or has deemed not likely to have a potentially material adverse effect on the business.
Risk Assessment Mitigating factors
• Diverse property portfolio
covering all key sectors and
Loss of revenue geographical areas
• The Company has 339 individual
• Tenant default due to a cessation tenancies with the largest
or curtailment of trade tenant accounting for 3.8% of
• An increasing number of tenants the rent roll
exercising contractual breaks or • Investment policy limits the
not renewing at lease expiry Company’s rent roll to no more
• Enforced reduction in contractual Likelihood: Moderate than 10% from a single tenant
rents through a CVA or legislative and 50% from a single sector
changes due to the COVID-19 • Primarily institutional grade
pandemic tenants
• Property environmental performance Impact: High • Focused on established business
insufficient to attract tenants locations for investment
• Decreases in ERVs resulting in • Active management of lease
decreases in passing rent to expiry profile considered in
secure long-term occupancy Overall change in risk from forming acquisition decisions
• Expiries or breaks concentrated in last year: Decreased - • Building specifications
a specific year reduced impact of the typically not tailored to one
• Unable to re-let void units COVID-19 pandemic user
• Low UK economic growth impacting • Strong tenant relationships
the commercial property market • Significant focus on
asset-by-asset ESG performance
and pro-actively investing in
environmental performance to
maintain or improve rental
levels
Decreases in property portfolio
valuation • Active property portfolio
diversification between office,
• Decreases in sector-specific ERVs industrial (distribution,
• Loss of contractual revenue manufacturing and warehousing),
• Tenants exercising contractual Likelihood: Moderate retail warehousing, high street
breaks or not renewing at lease retail and other
expiry • Investment policy limits the
• Market pricing affecting value Company’s property portfolio to
• Change in demand for space Impact: Moderate no more than 50% in any
• Property environmental performance specific sector or geographical
insufficient to attract tenants region
• Properties concentrated in a • Smaller lot-size business model
specific geographical location or Overall change in risk from limits exposure to individual
sector last year: Decreased – asset values
• Reduced property market sentiment reduced impact of the • High quality assets in good
and investor demand COVID-19 pandemic and locations should remain popular
• Lack of transactional evidence stabilisation of the retail with investors
sector valuations • Significant focus on
asset-by-asset ESG performance
and pro-actively investing in
environmental performance to
maintain or improve demand
• The Company has three lenders
• Target net gearing of 25% LTV
Financial Likelihood: Moderate on property portfolio
• 84% of drawn debt facilities at
• Reduced availability or increased the year end at a fixed rate of
cost of arranging or servicing interest
debt Impact: High • Additional fixed-rate debt
• Breach of borrowing covenants agree post year-end
• Significant increases in interest • Significant unencumbered
rates properties available to cure
• Refinancing risk from acquiring Overall change in risk from any potential breaches of LTV
£25m of debt due to expire in 2022 last year: Increased due to covenants
upward pressure in interest • Ongoing monitoring and
rates management of the forecast
liquidity and covenant position
Likelihood: Low
• Ongoing review of performance
Operational by independent Board of
Directors
• Inadequate performance, controls • Outsourced internal audit
or systems operated by the Impact: High function reporting directly to
Investment Manager the Audit and Risk Committee
• External depositary with
responsibility for safeguarding
assets and performing cash
monitoring
Overall change in risk from
last year: No change
• Strong compliance culture
Likelihood: Moderate • External professional advisers
Regulatory and legal are engaged to review and
advise upon control
• Adverse impact of new or revised environment, ensure regulatory
legislation or regulations, or by compliance and advise on the
changes in the interpretation or impact of changes due to the
enforcement of existing government Impact: High COVID-19 pandemic
policy, laws and regulations • Business model and culture
• Non-compliance with the REIT embraces FCA principles
regime 41 38 or changes to the • REIT regime compliance is
Company’s tax status considered by the Board in
assessing the Company’s
Overall change in risk from financial position and setting
last year: No change dividends and by the Investment
Manager in making operational
decisions
• Investment Manager staff are
all capable of working from
home for an extended period
• Data is regularly backed up and
Likelihood: Moderate replicated and the Investment
Business interruption Manager’s IT systems are
protected by anti-virus
• Cyber-attack results in the software and firewalls that are
Investment Manager being unable to Impact: High regularly updated
use its IT systems and/or losing • Fire protection and
data access/security procedures are
• Terrorism or pandemics interrupt in place at all of the
the Company’s operations through Overall change in risk from Company’s managed properties
impact on either the Investment last year: No change • Comprehensive property damage
Manager or the Company’s assets or and business interruption
tenants insurance is held, including
three years’ lost rent and
terrorism
• At least annually, a fire risk
assessment and health and
safety inspection is performed
for each property in the
Company’s managed portfolio
• The Company has engaged
specialist environmental
consultants to advise the Board
ESG on compliance with requirements
and adopting best practice
• Failure to appropriately manage Likelihood: Moderate where possible
the environmental performance of • The Company has a published ESG
the property portfolio, resulting which seeks to improve energy
in it not meeting the required efficiency and reduce emissions
standards of environmental Impact: Moderate • In April 2021 the Company
legislation and making properties constituted an ESG Committee to
unlettable or unsellable ensure compliance with
• ESG policies and targets being environmental requirements, the
insufficient to meet the required Overall change in risk from ESG policy and environmental
standards of stakeholders last year: Increased due to KPIs, detailed in the ESG
• Non-compliance with environmental increasing best practice Committee report
reporting requirements requirements • At a property level an
environmental assessment is
undertaken which influences
decisions regarding
acquisitions, refurbishments
and asset management
initiatives
Likelihood: Low
Acquisitions
• Comprehensive due diligence is
• Unidentified liabilities undertaken in conjunction with
associated with the acquisition of Impact: Moderate professional advisers and the
new properties (whether acquired provision of insured warranties
directly or via a corporate and indemnities are sought from
structure) vendors where appropriate
Overall change in risk from • Acquired companies’ trade and
last year: Increased due to assets are hive-up into
the acquisition of DRUM Custodian REIT plc and the
REIT acquired entities liquidated
Emerging risks
The following emerging risks have been identified:
• Inflation - the recovery in global demand following the COVID-19 pandemic and the ongoing war in
Ukraine have contributed to global supply chain issues, inflation and the risk of agricultural
shortages. These impact the Company in terms of the cost and availability of materials and labour
in carrying out redevelopments, refurbishments and maintenance, their effect on increasing
interest rates and indirectly through their impact on the UK economy in terms of growth and
consumer spending and the consequential impact on occupational demand for real estate.
• COVID-19 - the COVID-19 pandemic impacted the Company in previous financial years and there
remains a principal risk around potential new variants and the associated impact on the global
economy.
The Board believes the Company is well placed to weather the longer-term impact of these risks because
the Company has:
• A diverse portfolio by sector and location with an institutional grade tenant base;
• Low gearing with 84% of drawn debt facilities at the year end at a fixed rate of interest; and
• A stable investment portfolio and does not undertake speculative development.
No other emerging risks have been added to the Company’s Risk Register during the year.
Going concern and longer-term viability
In accordance with Provision 31 of the UK Corporate Governance Code 2018 issued by the Financial
Reporting Council (“the Code”), the Directors have assessed the prospects of the Company over a period
longer than 12 months. The Board resolved to conduct this review for a period of three years,
because:
• The Company’s forecasts cover a three-year period; and
• The Board believes a three-year horizon maintains a reasonable level of accuracy regarding
projected rental income and costs, allowing robust sensitivity analysis to be conducted.
The Directors have assessed the following factors in assessing the Company’s status as a going concern
and its longer-term viability, including events up to the date of authorisation of the financial
statements:
• A decrease in revenue through losses of contractual rent or tenant default;
• Diminished demand for leasing the Company’s assets going forwards resulting in rental decreases or
an increase in void units;
• Contractual obligations due or anticipated within one year;
• Potential liquidity and working capital shortfalls;
• Access to funding and compliance with banking covenants; and
• Ongoing compliance with regulatory requirements including the REIT regime.
The Directors note that the Company has performed strongly during the year with rent collection rates
back a pre-pandemic levels and industrial valuations and rents in particular improving over the last
12 months.
Results of the assessment
Based on prudent assumptions within the Company’s forecasts regarding losses of contractual rent,
tenant default, void rates and property valuation movements, the Directors expect that over the
three-year period of their assessment:
• The Company has surplus cash to continue in operation and meet its liabilities as they fall due;
• Borrowing covenants are complied with; and
• REIT tests are complied with.
Sensitivities
These assessments are subject to sensitivity analysis, which involves flexing a number of key
assumptions and judgements included in the financial projections:
• A decrease in revenue through losses of contractual rent or 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.
This sensitivity analysis also evaluates the potential impact of the principal risks and uncertainties
should they occur which, together with the steps taken to mitigate them, are highlighted above and in
the Audit and Risk Committee report. The Board seeks to ensure that risks are mitigated appropriately
and managed within its risk appetite all times.
Sensitivity analysis considered the following areas:
Covenant compliance
The Company operates the loan facilities summarised in Note 15. At 31 March 2022 the Company had
significant headroom on lender covenants at a portfolio level with:
• Company net gearing of 19.1% compared to a maximum LTV covenant of 35% and £207.2m (31% of the
property portfolio) unencumbered by the Company’s borrowings; and
• Had 207% minimum headroom on interest cover covenants for the quarter ended 31 March 2022.
Reverse stress testing has been undertaken to understand what circumstances would result in potential
breaches of financial covenants. While the assumptions applied in these scenarios are possible, they
do not represent the Board’s view of the likely outturn, but the results help inform the Directors’
assessment of the viability of the Company. The testing indicated that:
• The rate of loss or deferral of contractual rent on the borrowing facility with least headroom
would need to deteriorate by 45% from the levels included in the Company’s prudent forecasts to
breach interest cover covenants; or
• At a portfolio level property valuations would have to decrease by 41% from the 31 March 2022
position to risk breaching the overall 35% LTV covenant.
The Board notes that the February 2022 IPF Forecasts for UK Commercial Property Investment survey
suggests an average 2.5% increase in rents during 2022 with capital value increases of 4.1%. The
Board believes that the valuation of the Company’s property portfolio will prove resilient due to its
higher weighting to industrial assets and overall diverse and high-quality asset and tenant base
comprising 160 assets and over 300 typically 'institutional grade' tenants across all commercial
sectors.
Liquidity
At 31 March 2022 the Company had:
• £11.6m of cash-in-hand and £52.2m undrawn RCF, with gross borrowings of £137.8m resulting in low
net gearing, with no short-term refinancing risk (on refinancing the RBS RCF in June 2022) and a
weighted average debt facility maturity of six years; and
• An annual contractual rent roll of £40.5m, with interest costs on drawn loan facilities of only c.
£4.6m per annum.
The Company’s forecast model projects it will have sufficient cash and undrawn facilities to settle
its target dividends and its expense and interest liabilities for a period of at least 12 months.
As detailed in Note 15, the Company’s Lloyds RCF expires in September 2024. The Board anticipates
lender support in agreeing subsequent facilities, and would seek to refinance the RCF with another
lender or dispose of sufficient properties to repay it in September 2024 in the unlikely event of
lender support being withdrawn.
Impact of emerging risks
The Board believes it too early to understand fully the longer-term impact of the COVID-19 pandemic,
Brexit and the war in Ukraine but the Board believes the Company is well placed to weather any
shorter-term impacts due to the reasons set out in the Principal risks and uncertainties section.
Section 172 statement and stakeholder relationships
The Directors consider that in conducting the business of the Company over the course of the year they
have complied with Section 172(1) of the Companies Act 2006 (“the Act”) by fulfilling their duty to
promote the success of the Company and act in the way they consider, in good faith, would be most
likely to promote the success of the Company for the benefit of its members as a whole.
Issues, factors and stakeholders
The Board has direct engagement with the Company’s shareholders and seeks a rounded and balanced
understanding of the broader impact of its decisions through regular engagement with its stakeholder
groups (detailed below) to understand their views, typically through feedback from the Investment
Manager and the Company’s broker, which is regularly communicated to the Board via quarterly
meetings. Stakeholder engagement also ensures the Board is kept aware of any significant changes in
the market, including the identification of emerging trends and risks, which in turn can be factored
into its strategy discussions.
Management of the Company’s day-to-day operations has been delegated to the Investment Manager,
Custodian Capital Limited, and the Company has no employees. This externally managed structure allows
the Board and the Investment Manager to have due regard to the impact of decisions on the following
matters specified in Section 172 (1) of the Act:
Section 172(1) factor
Approach taken
The business model and strategy of the Company is set out within the
Strategic Report. Any deviation from or amendment to that strategy is
subject to Board and, if necessary, shareholder approval. The
Company’s Management Engagement Committee ensures that the Investment
Manager is operating within the scope of the Company’s investment
objectives.
At least annually, the Board considers a budget for the delivery of
its strategic objectives based on a three year forecast model. The
Investment Manager reports non-financial and financial key performance
indicators to the Board, set out in detail in the Business model and
strategy section of the Strategic report, at least quarterly which are
used to assess the outcome of decisions made.
The Board’s commitment to keeping in mind the long-term consequences
Likely consequences of any of its decisions underlies its focus on risk, including risks to the
decision in the long-term long-term success of the business. This approach resulted in the
change to dividend policy during the year to preserve cash resources
by broadly paying dividends from net rental income, in response to the
political and market uncertainty caused by the COVID 19 pandemic.
The investment strategy of the Company is focused on medium to
long-term returns and minimising the Company’s impact on communities
and the environment and as such the long-term is firmly within the
sights of the Board when all material decisions are made.
The board gains an understanding of the views of the Company’s key
stakeholders from the Investment Manager, broker and Management
Engagement Committee, and considers those stakeholders’ interests and
views in board discussions and long-term decision-making.
The Company has no employees as a result of its external management
structure, but the Directors have regard to the interests of the
individuals responsible for delivery of the property management and
administration services to the Company to the extent that they are
The interests of the Company’s able to.
employees
The Company’s Nominations Committee is responsible for applying the
diversity policy set out in the Nominations Committee Report to Board
recruitment.
Business relationships with suppliers, tenants and other
counterparties are managed by the Investment Manager. Suppliers and
other counterparties are typically professional firms such as lenders,
property agents and other property professionals, accounting firms and
legal firms and tenants with which the Investment Manager often has a
longstanding relationship. Where material counterparties are new to
the business, checks, including anti money laundering checks where
appropriate, are conducted prior to transacting any business to ensure
that no reputational or legal issues would arise from engaging with
The need to foster the that counterparty. The Company also periodically reviews the
Company’s business compliance of all material counterparties with relevant laws and
relationships with suppliers, regulations such as the Modern Slavery Act 2015. The Company pays
customers and others suppliers in accordance with pre-agreed terms. The Management
Engagement Committee engages directly with the Company’s key service
providers providing a direct line of communication for receiving
feedback and resolving issues.
Because the Investment Manager directly invoices most tenants and
collects rent without using managing agents, it has open lines of
communication with tenants and can understand and resolve any issues
promptly.
The Board recognises the importance of supporting local communities
where the Company’s assets are located and seeks to invest in
properties which will be fit for future purpose and which align with
ESG targets. The Company also seeks to benefit local communities by
creating social value through employment, viewing its properties as a
key part of the fabric of the local economy.
The impact of the Company’s
operations on the community and
the environment The Board takes overall responsibility for the Company’s impact on the
community and the environment and its ESG policies are set out in the
ESG report.
The Company’s approach to preventing bribery, money laundering,
slavery and human trafficking is disclosed in the Governance report.
The Board believes that the ability of the Company to conduct its
The desirability of the Company investment business and finance its activities depends in part on the
maintaining a reputation for reputation of the Board and Investment Manager’s team. The risk of
high standards of business falling short of the high standards expected and thereby risking its
conduct business reputation is included in the Board’s review of the Company’s
risk register, which is conducted periodically. The principal risks
and uncertainties facing the business are set out in that section of
the Strategic report. The Company’s requirements for a high standard
of conduct and business ethics are set out in the Governance report.
The Company’s shareholders are a very important stakeholder group.
The Board oversees the Investment Manager’s formal investor relations
programme which involves the Investment Manager engaging routinely
with the Company’s shareholders. The programme is managed by the
Company’s broker and the Board receives prompt feedback from both the
Investment Manager and broker on the outcomes of meetings and
presentations. The Board and Investment Manager aim to be open with
shareholders and available to them, subject to compliance with
relevant securities laws. The Chairman of the Company and other
Non-Executive Directors make themselves available for meetings as
The need to act fairly as appropriate and attend the Company’s AGM.
between members of the Company
The investor relations programme is designed to promote formal
engagement with investors and is typically conducted after each
half-yearly results announcement. The Investment Manager also engages
with existing investors who may request meetings and with potential
new investors on an ad hoc basis throughout the year, including where
prompted by Company announcements. Shareholder presentations are made
available on the Company’s website. The Company has a single class of
share in issue with all members of the Company having equal rights.
Methods used by the Board
The main methods used by the Directors to perform their duties include:
• Board Strategy Days held at least annually to review all aspects of the Company’s business model
and strategy and assess the long-term sustainable success of the Company and its impact on key
stakeholders;
• The Management Engagement Committee engages with the Company’s key service providers and reports
on their performance to the Board. The responsibilities of the Management Engagement Committee
are detailed in the Management Engagement Committee report;
• The Board is ultimately responsible for the Company’s ESG activities set out in the ESG Committee
report, which it believes are a key part of benefitting the local communities where the Company’s
assets are located;
• The Board’s risk management procedures set out in the Governance report identify the potential
consequences of decisions in the short, medium and long-term so that mitigation plans can be put
in place to prevent, reduce or eliminate risks to the Company and wider stakeholders;
• The Board sets the Company’s purpose, values and strategy, detailed in the Business model and
strategy section of the Strategic report, and the Investment Manager ensures they align with its
culture;
• The Board carries out direct shareholder engagement via the AGM and Directors attend shareholder
meetings on an ad hoc basis;
• External assurance is received through internal and external audits and reports from brokers and
advisers; and
• Specific training for existing Directors and induction for new Directors as set out in the
Governance report.
Principal decisions in the year
The Board has delegated operational functions to the Investment Manager and other key service
providers. In particular, responsibility for management of the Company’s property portfolio has been
delegated to the Investment Manager. The Board retains responsibility for reviewing the engagement of
the Investment Manager and exercising overall control of the Company, reserving certain key matters as
set out in the Governance report.
The principal non-routine decisions taken by the Board during the year were:
• Completing the corporate acquisition of DRUM REIT as detailed in the Investment Manager’s report;
• Appointing Savills as one of the Company’s independent valuers from 30 June 2021 replacing Lambert
Smith Hampton;
• Extending the term of the RCF as detailed in Note 15;
• Finalising the Company’s policy on cladding explained further in the ESG Committee report;
• Appointing new Directors as detailed in the Chairman’s statement; and
• Constituting an ESG Committee as detailed in the ESG Committee report.
Due to the nature of these decisions, a variety of stakeholders had to be factored into the Board’s
discussions. Each decision was announced at the time, so that all stakeholders were aware of the
decisions.
Stakeholders
The Board recognises the importance of stakeholder engagement to deliver its strategic objectives and
believes its stakeholders are vital to the continued success of the Company. The Board is mindful of
stakeholder interests and keeps these at the forefront of business and strategic decisions. Regular
engagement with stakeholders is fundamental to understanding their views. The below section
highlights how the Company engages with its key stakeholders, why they are important and the impact
they have on the Company and therefore its long-term success, which the Board believes helps
demonstrate the successful discharge of its duties under s172(1) of the Act.
Stakeholder Stakeholder interests Stakeholder engagement
Tenants • Regular dialogue through
rent collection process
The Investment Manager understands the • High quality assets • Review published data, such
businesses occupying the Company’s • Profitability as accounts, trading
assets and seeks to create long-term • Efficient operations updates and analysts’
partnerships and understand their needs • Knowledgeable and reports
to deliver fit for purpose real estate committed landlord • Ensured buildings comply
and develop asset management • Flexibility to adapt to with the necessary safety
opportunities to underpin long-term the changing UK commercial regulations and insurance
sustainable income growth and maximise landscape • Most tenants contacted to
occupier satisfaction • Buildings with strong request environmental
environmental credentials performance data
• Occupancy has remained at
over 90% during the year
The Investment Manager and its
employees • Long-term viability of the • Board and Committee
Company meetings
As an externally managed fund the • Long-term relationship • Face-to-face and
Company’s key service provider is the with the Company video-conference meetings
Investment Manager and its employees • Well-being of the with the Chairman and other
are a key stakeholder. The Investment Investment Manager’s Board Directors
Manager’s culture aligns with that of employees • Monthly and quarterly KPI
the Company and its long-standing • Being able to attract and reporting to the Board
reputation of operating in the smaller retain high-calibre staff • Board evaluation, including
lot-size market is key when • Maintaining a positive and feedback from key
representing the Company transparent relationship Investment Manager
with the Board personnel
• Informal meetings and calls
Suppliers
• Collaborative and • Board and Committee
A collaborative relationship with our transparent working meetings
suppliers, including those to whom key relationships • One-to-one meetings
services are outsourced, ensures that • Responsive communication • Annual review of key
we receive high quality services to • Being able to deliver service providers for the
help deliver strategic and investment service level agreements Management Engagement
objectives Committee
• Annual and half year
Shareholders • Sustainable growth presentations
• Attractive level of income • AGM
Building a strong investor base through returns • Market announcements and
clear and transparent communication is • Strong Corporate corporate website
vital to building a successful and Governance and • Regular investor feedback
sustainable business and generating environmental credentials received from the Company’s
long-term growth • Transparent reporting broker
framework • On-going dialogue with
analysts
Lenders • Stable cash flows
• Stronger covenants
Our lenders play an important role in • Being able to meet
our business. The Investment Manager interest payments
maintains close and supportive • Maintaining agreed gearing
relationships with this group of ratios • Regular covenant reporting
long-term stakeholders, characterised • Regular financial • Regular catch-up calls
by openness, transparency and mutual reporting
understanding • Proactive notification of
issues or changes
• Openness and transparency
Government, local authorities and • Proactive compliance with
communities new legislation
• Proactive engagement
As a responsible corporate citizen the • Support for local economic • Engagement with local
Company is committed to engaging and environmental plans authorities where we
constructively with central and local and strategies operate
government and ensuring we support the • Playing its part in • Two way dialogue with
wider community providing the real estate regulators and HMRC
fabric of the economy,
giving employers a place
of business
Approval of Strategic report
The Strategic report, (incorporating the Business model and strategy, Chairman’s statement, Investment
Manager’s report, Asset management report, ESG Committee report, Financial report, Property portfolio,
Principal risks and uncertainties and Section 172 statement and stakeholder relationships) was
approved by the Board of Directors and signed on its behalf by:
David Hunter
Chairman
16 June 2022
Board of Directors and Investment Manager personnel
The Board currently comprises seven non-executive directors. A short biography of each director is
set out below:
David Hunter - Independent Chairman, age 68
David is a professional non-executive director and strategic adviser focused principally on UK and
international real estate. He chairs the Company and its Nominations Committee and is on the boards
of both listed and unlisted companies in the UK and overseas, as well as holding corporate advisory
roles. He qualified as a chartered surveyor in 1978 and has over 25 years’ experience as a fund
manager, including as Managing Director of Aberdeen Asset Management’s property fund business. David
is a former President of the British Property Federation and was actively involved in the introduction
of REITs to the UK. He is also Honorary Swedish Consul to Glasgow and an Honorary Professor of real
estate at Heriot-Watt University.
David is Non-Executive Chair of Capital & Regional plc (“C&R”). The Board perceives no material
conflicts of interest between Custodian REIT and the activities of C&R due to their divergent property
strategies.
David’s other roles are not considered to impact his ability to allocate sufficient time to the
Company to discharge his responsibilities effectively.
Elizabeth McMeikan – Senior Independent Director, age 60
Elizabeth joined the Board as Senior Independent Director (“SID”) on 1 April 2021. Her substantive
executive career was with Tesco plc where she was a Stores Board Director before embarking on a
non-executive career in 2005.
Elizabeth is currently SID and Remuneration Committee Chair at The Unite Group Plc, the UK's largest
owner, manager and developer of purpose-built student accommodation and Non-Executive Director and ESG
Committee Chair of Dalata Hotel Group plc, the largest hotel group in the Republic of Ireland. Her
other Board roles include Non-Executive Director and Remuneration Committee Chair at McBride plc,
Europe’s leading manufacturer of cleaning and hygiene products, and Non-Executive Director of Fresca
Group Limited, a fruit and vegetable import/export company.
Previously she was SID of JD Wetherspoon plc, SID and Remuneration Committee Chair of Flybe plc and
Chair of Moat Homes Limited.
Elizabeth’s other roles are not considered to impact her ability to allocate sufficient time to the
Company to discharge her responsibilities effectively.
Matthew Thorne FCA - Independent Director, age 69
Matthew chairs the Company’s Audit and Risk Committee. Matthew qualified as a chartered accountant in
1978 with Price Waterhouse. He was an independent non-executive director for nine years of Bankers
Investment Trust plc, retiring in 2018 having chaired the Audit Committee. Since May 2007 Matthew has
been an adviser to Consensus Business Group (led by Vincent Tchenguiz). Matthew was also Audit
Committee chair and the finance member of the Advisory Board and Advisory Panel of Greenwich Hospital,
the Naval Charity, until January 2020. Matthew’s previous executive roles have included Group Finance
Director of McCarthy & Stone plc from 1993 to 2007, Finance Director of Ricardo plc from 1991 to 1992
and Investment Director of Beazer plc from 1983 to 1991.
Matthew is expected to retire from the Board at the AGM on 31 August 2022.
Hazel Adam - Independent Director, age 53
Hazel was an investment analyst with Scottish Life until 1996 and then joined Standard Life
Investments. As a fund manager she specialised in UK and then Emerging Market equities. In 2005
Hazel joined Goldman Sachs International as an executive director on the new markets equity sales desk
before moving to HSBC in 2012, holding a similar equity sales role until 2016.
Hazel is an independent non-executive director of Aberdeen Latin American Income Fund Limited and
holds the CFA Level 4 certificate in ESG Investing and the Financial Times Non-Executive Directors
Diploma.
Hazel’s other role is not considered to impact her ability to allocate sufficient time to the Company
to discharge her responsibilities effectively.
Chris Ireland FRICS - Independent Director, age 64
Chris was appointed as an Independent Director on 1 April 2021. Chris joined international property
consultancy King Sturge in 1979 as a graduate and has worked his whole career across the UK investment
property market. He ran the investment teams at King Sturge before becoming Joint Managing Partner
and subsequently Joint Senior Partner prior to its merger with JLL in 2011.
Chris was appointed as Chief Executive Officer of JLL UK in 2016 and became its Chair in April 2021.
He will continue to play an active role in the capital markets business and is committed to leading
the property sector on sustainability and supporting the debate around the climate emergency.
Chris is a former Chair of the Investment Property Forum and is a Non-Executive Director of Le
Masurier, a Jersey based family trust with assets across the UK, Germany and Jersey. Chris is also a
keen supporter of the UK homelessness charity Crisis.
Chris’ other roles are not considered to impact his ability to allocate sufficient time to the Company
to discharge his responsibilities effectively.
Malcolm Cooper FCCA FCT - Independent Director, age 63
Malcolm was appointed to the Board on 6 June 2022.
He is a qualified accountant and an experienced FTSE 250 company Audit Committee Chair with an
extensive background in corporate finance and a wide experience in infrastructure and property.
Malcolm worked with Arthur Andersen and British Gas/BG Group/Lattice before spending 15 years with
National Grid with roles including Managing Director of National Grid Property and Global Tax and
Treasury Director, and culminated in the successful sale of a majority stake in National Grid’s gas
distribution business, now known as Cadent Gas.
Malcolm is currently a Non-Executive Director of Morgan Sindall Group plc, a FTSE 250 UK construction
and regeneration business, Chairing its Audit and Responsible Business Committees. He is also Senior
Independent Director of MORhomes plc, Non-Executive Director and Audit Committee Chair at Southern
Water Services Limited and Non-Executive Director and Audit and Risk Committee Chair at Local Pensions
Partnership Investment.
Malcolm was previously Senior Independent Director and Audit Committee chair at CLS Holdings plc, a
Non-Executive Director of St William Homes LLP, President of the Association of Corporate Treasurers
and a member of the Financial Conduct Authority’s Listing Authority Advisory Panel.
Malcolm’s other roles are not considered to impact his ability to allocate sufficient time to the
Company to discharge his responsibilities effectively.
Ian Mattioli MBE - Director, age 59
Ian is CEO of Mattioli Woods plc (“Mattioli Woods”) with over 35 years’ experience in financial
services, wealth management and property businesses and is the founder director of Custodian REIT.
Together with Bob Woods, Ian founded Mattioli Woods, the AIM-listed wealth management and employee
benefits business which is the parent company of the Investment Manager. Mattioli Woods now has over
£15bn of assets under management, administration and advice. Ian is responsible for the vision and
operational management of Mattioli Woods and instigated the development of its investment proposition,
including the syndicated property initiative that developed into the seed portfolio for the launch of
Custodian REIT. His personal achievements include winning the London Stock Exchange AIM Entrepreneur
of the Year award and CEO of the year in the 2018 City of London wealth management awards.
Ian was awarded an MBE in the Queen's 2017 New Year's Honours list for his services to business and
the community in Leicestershire and was appointed High Sheriff of Leicestershire in March 2021, an
independent non-political Royal appointment for a single year. Ian is also Non-Executive Chair of K3
Capital Group plc, which is listed on AIM and specialises in business transfer, business brokerage and
corporate finance across the UK.
Ian’s other roles are not considered to impact his ability to allocate sufficient time to the Company
to discharge his responsibilities effectively.
Investment Manager personnel
Short biographies of the Investment Manager’s key personnel and senior members of its property team
are set out below:
Richard Shepherd-Cross MRICS - Managing Director
Richard qualified as a Chartered Surveyor in 1996 and until 2008 worked for JLL, latterly running its
national portfolio investment team.
Since joining Mattioli Woods in 2009, Richard established Custodian Capital as the Property Fund
Management subsidiary to Mattioli Woods and in 2014 was instrumental in the establishment of
Custodian REIT plc from Mattioli Woods’ syndicated property portfolio and its 1,200 investors.
Following the successful IPO of the Company, Richard has overseen the growth of the Company to its
current property portfolio of over £0.6bn. Richard and his family own 371,381 shares in the Company.
Ed Moore FCA – Finance Director
Ed qualified as a Chartered Accountant in 2003 with Grant Thornton, specialising in audit, financial
reporting and internal controls across its Midlands practice. He is Finance Director of Custodian
Capital with responsibility for all day-to-day financial aspects of its operations. Ed is also a
member of the Custodian Capital Investment Committee.
Since IPO in 2014 Ed has overseen the Company raising over £300m of new equity, arranging or
refinancing seven loan facilities and completing four corporate acquisitions, including leading on the
acquisition of DRUM REIT. Ed’s key responsibilities for Custodian REIT are accurate external and
internal financial reporting, ongoing regulatory compliance and maintaining a robust control
environment. Ed is Company Secretary of Custodian REIT and is a member of the Investment Manager’s
Investment Committee. Ed is also responsible for the Investment Manager’s environmental initiatives,
attending Custodian REIT ESG Committee meetings and co-leading the Investment Manger’s ESG working
group.
Ian Mattioli MBE - Founder and Chair
Ian’s biography is set out above.
Alex Nix MRICS – Assistant Investment Manager
Alex graduated from Nottingham Trent University with a degree in Real Estate Management before joining
Lambert Smith Hampton, where he spent eight years and qualified as a Chartered Surveyor in 2006.
Alex is Assistant Investment Manager to Custodian REIT having joined Custodian Capital in 2012. Alex
heads the Company’s property management and asset management initiatives, assists in sourcing and
executing new investments and is a member of the Investment Manager’s Investment Committee.
Tom Donnachie MRICS – Portfolio Manager
Tom graduated from Durham University with a degree in Geography before obtaining an MSc in Real Estate
Management from Sheffield Hallam University. Tom worked in London for three years where he qualified
as a Chartered Surveyor with Workman LLP before returning to the Midlands first with Lambert Smith
Hampton and then CBRE.
Tom joined Custodian Capital in 2015 as Portfolio Manager with a primary function to maintain and
enhance the existing property portfolio and assist in the selection and due diligence process
regarding new acquisitions. Tom co-leads the Investment Manager’s environmental working group and
attends Custodian REIT ESG Committee meetings.
Javed Sattar MRICS – Portfolio Manager
Javed joined Custodian Capital in 2011 after graduating from Birmingham City University with a degree
in Estate Management Practice. Whilst working as a trainee surveyor on Custodian REIT’s property
portfolio for Custodian Capital he completed a PGDip in Surveying via The College of Estate Management
and qualified as a Chartered Surveyor in 2017.
Javed operates as Portfolio Manager managing properties predominantly located in the North-West of
England.
Consolidated statements of comprehensive income
For the year ended 31 March 2022
Group Company
Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
Note £000 £000 £000 £000
Revenue 4 39,891 39,578 38,490 39,578
Investment management (3,854) (3,331) (3,782) (3,331)
Operating expenses of rental property
• rechargeable to tenants (852) (914) (852) (914)
• directly incurred (3,422) (5,559) (3,174) (5,559)
Professional fees (617) (489) (579) (489)
Directors’ fees (291) (218) (291) (218)
Administrative expenses (776) (551) (774) (551)
Expenses (9,812) (11,062) (9,452) (11,062)
Operating profit before financing and revaluation of
investment property
30,079 28,516 29,038 28,516
Unrealised profits/(losses) on revaluation of
investment property:
10 93,977 (19,611) 86,656 (19,611)
• relating to property revaluations
• relating to costs of acquisition 10 (2,273) (707) (2,273) (707)
Valuation increase/(decrease) 91,704 (20,318) 84,383 (20,318)
Profit on disposal of investment property 5,369 393 5,369 393
Net profit/(loss) on investment property 97,073 (19,925) 89,752 (19,925)
Operating profit before financing 127,152 8,591 118,790 8,591
Finance income 6 - 61 - 61
Finance costs 7 (4,827) (4,903) (4,615) (4,903)
Net finance costs (4,827) (4,842) (4,615) (4,842)
Profit before tax 122,325 3,749 114,175 3,749
Income tax expense 8 - - - -
Profit for the year and total comprehensive income
for the year, net of tax 122,325
3,749 114,175 3,749
Attributable to:
Owners of the Company 122,325 3,749 114,175 3,749
Earnings per ordinary share:
Basic and diluted (p) 3 28.5 0.9
EPRA (p) 3 5.9 5.6
The profit for the year arises from continuing operations.
Consolidated and Company statements of financial position
As at 31 March 2022
Registered number: 08863271
Group Company
31 March
31 March 2022 31 March 2022 31 March 2021
2021
Note £000 £000 £000
£000
Non–current assets
Investment property 10 665,186 551,922 616,211 551,922
Investments 11 - - 22,538 3,405
Total non-current assets 665,186 551,922 638,749 555,327
Current assets
Trade and other receivables 12 5,201 6,001 3,365 6,001
Cash and cash equivalents 14 11,624 3,920 9,217 3,920
Total current assets 16,825 9,921 12,582 9,921
Total assets 682,011 561,843 651,331 565,248
Equity
Issued capital 16 4,409 4,201 4,409 4,201
Share premium 16 250,970 250,469 250,970 250,469
Merger reserve 16 18,931 - 18,931 -
Retained earnings 16 253,330 155,196 245,180 155,196
Total equity attributable to equity holders of
the Company
527,640 409,866 519,490 409,866
Non-current liabilities
Borrowings 15 113,883 138,604 113,883 138,604
Other payables 570 572 570 572
Total non-current liabilities 114,453 139,176 114,453 139,176
Current liabilities
Borrowings 15 22,727 - - -
Trade and other payables 13 9,783 6,185 10,985 9,590
Deferred income 7,408 6,616 6,403 6,616
Total current liabilities 39,918 12,801 17,388 16,206
Total liabilities 154,371 151,977 131,841 155,382
Total equity and liabilities 682,011 561,843 651,331 565,248
These consolidated and Company financial statements of Custodian REIT plc were approved and authorised
for issue by the Board of Directors on 16 June 2022 and are signed on its behalf by:
David Hunter
Chairman
Consolidated and Company statements of cash flows
For the year ended 31 March 2022
Group Company
Year Year
Year ended Year ended
ended ended
31 March 31 March
31 March 31 March
2022 2022
2021 2021
Note £000 £000 £000 £000
Operating activities
Profit for the year 122,325 3,749 114,175 3,749
Net finance costs 4,827 4,842 4,615 4,842
Valuation (increase)/decrease of investment property 10 (91,704) 20,318 (84,383) 20,318
Impact of rent free 10 (1,112) (1,932) (1,157) (1,932)
Amortisation of right-of-use asset 7 7 7 7
Profit on disposal of investment property (5,369) (393) (5,369) (393)
Cash flows from operating activities before changes in
working capital and provisions
28,974 26,591 27,888 26,591
(Increase)/decrease in trade and other receivables 1,923 (704) 2,636 (704)
(Decrease)/increase in trade and other payables and 1,702 (2,065) 1,180 (2,065)
deferred income
Cash generated from operations 32,599 23,822 31,704 23,822
Interest and other finance charges (4,463) (4,556) (4,279) (4,556)
Net cash flows from operating activities 28,136 19,266 27,425 19,266
Investing activities
Purchase of investment property (21,529) (11,443) (21,529) (11,443)
Capital expenditure and development (3,515) (2,308) (3,510) (2,308)
Acquisition costs (2,272) (707) (2,272) (707)
Disposal of investment property 54,403 4,422 54,403 4,422
Costs of disposal of investment property (479) (69) (479) (69)
Interest and finance income received 6 - 61 - 61
Net cash used in investing activities 26,608 (10,044) 26,613 (10,044)
Financing activities
Proceeds from the issue of share capital 16 558 - 558 -
Costs of share issue (51) - (51) -
Repayment of borrowings and origination costs 15 (25,057) (10,066) (25,057) (10,066)
Dividends paid 9 (24,191) (20,635) (24,191) (20,635)
Net cash from financing activities (48,741) (30,701) (48,741) (30,701)
Net increase/(decrease) in cash and cash equivalents 6,003 (21,479) 5,297 (21,479)
Cash acquired through the acquisition of DRUM REIT 1,701 - - -
Cash and cash equivalents at start of the year 3,920 25,399 3,920 25,399
Cash and cash equivalents at end of the year 11,624 3,920 9,217 3,920
Consolidated statement of changes in equity
For the year ended 31 March 2022
Issued Share Retained Total
Merger reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
As at 31 March 2020 4,201 - 250,469 172,082 426,752
Profit for the year - - - 3,749 3,749
Total comprehensive income for year - - - 3,749 3,749
Transactions with owners of the Company,
recognised directly in equity
Dividends 9 - - - (20,635) (20,635)
Issue of share capital 16 - - - - -
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 122,325 122,325
Total comprehensive income for year - - - 122,325 122,325
Transactions with owners of the Company,
recognised directly in equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 16 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 253,330 527,640
Company statement of changes in equity
For the year ended 31 March 2022
Issued Share Retained Total
Merger reserve
capital premium earnings equity
£000
Note £000 £000 £000 £000
As at 31 March 2020 4,201 - 250,469 172,082 426,752
Profit for the year - - - 3,749 3,749
Total comprehensive income for year - - - 3,749 3,749
Transactions with owners of the Company,
recognised directly in equity
Dividends 9 - - - (20,635) (20,635)
Issue of share capital 16 - - - - -
As at 31 March 2021 4,201 - 250,469 155,196 409,866
Profit for the year - - - 114,175 114,175
Total comprehensive income for year - - - 114,175 114,175
Transactions with owners of the Company,
recognised directly in equity
Dividends 9 - - - (24,191) (24,191)
Issue of share capital 16 208 18,931 501 - 19,640
As at 31 March 2022 4,409 18,931 250,970 245,180 519,490
Notes to the financial statements for the year ended 31 March 2022
1. Corporate information
The Company is a public limited company incorporated and domiciled in England and Wales, whose shares
are publicly traded on the London Stock Exchange plc’s main market for listed securities. The
consolidated financial statements have been prepared on a historical cost basis, except for the
revaluation of investment property, and are presented in pounds sterling with all values rounded to
the nearest thousand pounds (£000), except when otherwise indicated. The consolidated financial
statements were authorised for issue in accordance with a resolution of the Directors on 16 June 2022.
2. Basis of preparation and accounting policies
◦ Basis of preparation
The consolidated financial statements and the separate financial statements of the parent company have
been prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and International Financial Reporting Standards adopted by the
UK. The financial statements have also been prepared in accordance with International Financial
Reporting Standards as issued by the IASB.
Certain statements in this report are forward looking statements. By their nature, forward looking
statements involve a number of risks, uncertainties or assumptions that could cause actual results or
events to differ materially from those expressed or implied by those statements. Forward looking
statements regarding past trends or activities should not be taken as representation that such trends
or activities will continue in the future. Accordingly, undue reliance should not be placed on
forward looking statements.
◦ Basis of consolidation
The consolidated financial statements consolidate those of the parent company and its subsidiaries.
The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its
involvement with the subsidiary and has the ability to affect those returns through its power over the
subsidiary. Custodian Real Estate Limited has a reporting date in line with the Company. Other
subsidiaries have September or December accounting reference dates which have not been amended since
their acquisition as those companies are expected to be liquidated during the next financial year.
All transactions and balances between group companies are eliminated on consolidation, including
unrealised gains and losses on transactions between group companies. Where unrealised losses on
intra-group asset sales are reversed on consolidation, the underlying asset is also tested for
impairment from a group perspective. Amounts reported in the financial statements of the subsidiary
are adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year
are recognised from the effective date of acquisition, or up to the effective date of disposal, as
applicable.
◦ Business combinations
Where property is acquired, via corporate acquisitions or otherwise, the substance of the assets and
activities of the acquired entity are considered in determining whether the acquisition represents a
business combination or an asset purchase under IFRS 3 - Business Combinations. Where such
acquisitions are not judged to be a business combination the cost to acquire the corporate entity is
allocated between the identifiable assets and liabilities of the entity based on their relative fair
values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises.
Otherwise, acquisitions are accounted for as business combinations using the acquisition method.
◦ Application of new and revised International Financial Reporting Standards
During the year the Company adopted the following new standards with no impact on reported financial
performance or position:
• IFRS 17 – ‘Insurance Contracts’
IFRS 17 became effective for periods commencing on or after 1 January 2021. IFRS 17 establishes the
principles for the recognition, measurement, presentation and disclosure of insurance contracts and
supersedes IFRS 4 Insurance Contracts.
At the date of authorisation of these financial statements, there were no new and revised IFRSs which
have not been applied in these financial statements were in issue but not yet effective.
◦ Significant accounting policies
The principal accounting policies adopted by the Group and Company and applied to these financial
statements are set out below.
Going concern
The Directors believe the Company is well placed to manage its business risks successfully and the
Company’s projections show that it should be able to operate within the level of its current financing
arrangements for at least the next 12 months, set out in more detail in the Directors’ report and
Principal risks and uncertainties section of the Strategic report. Accordingly, the Directors
continue to adopt the going concern basis for the preparation of the financial statements.
Income recognition
Contractual revenues are allocated to each performance obligation of a contract and revenue is
recognised on a basis consistent with the transfer of control of goods or services. Revenue is
measured at the fair value of the consideration received, excluding discounts, rebates, VAT and other
sales taxes or duties.
Rental income from operating leases on properties owned by the Company is accounted for on a
straight-line basis over the term of the lease. Rental income excludes service charges and other
costs directly recoverable from tenants.
Lease incentives are recognised on a straight-line basis over the lease term.
Revenue and profits on the sale of properties are recognised on the completion of contracts. The
amount of profit recognised is the difference between the sale proceeds and the carrying amount.
Finance income relates to bank interest receivable and amounts receivable on ongoing development
funding contracts.
Taxation
The Group operates as a REIT and hence profits and gains from the property rental business are
normally expected to be exempt from corporation tax. The tax expense represents the sum of the tax
currently payable and deferred tax relating to the residual (non-property rental) business. The tax
currently payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the statement of comprehensive income because it excludes items of income and expense that
are taxable or deductible in other years and it further excludes items that are never taxable or
deductible. The Company’s liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the reporting date.
Investment property
Investment property is held to earn rentals and/or for capital appreciation and is initially
recognised at cost including direct transaction costs. Investment property is subsequently valued
externally on a market basis at the reporting date and recorded at valuation. Any surplus or deficit
arising on revaluing investment property is recognised in profit or loss in the year in which it
arises. Dilapidations receipts are held in the statement of financial position and offset against
subsequent associated expenditure. Any ultimate gains or shortfalls are measured by reference to
previously published valuations and recognised in profit or loss, offset against any directly
corresponding movement in fair value of the investment properties to which they relate.
Group undertakings
Investments are included in the Company only statement of financial position at cost less any
provision for impairment.
Non-listed equity investments
Non-listed equity investments are classified at fair value through profit and loss and are
subsequently measured using level 3 inputs, meaning valuation techniques for which the lowest level
input that is significant to the fair value measurement is unobservable.
Financial assets
The Company’s financial assets include cash and cash equivalents and trade and other receivables.
Interest resulting from holding financial assets is recognised in profit or loss on an accruals basis.
Loans and receivables are measured subsequent to initial recognition at amortised cost using the
effective interest method, less provision for impairment. Provision for impairment of trade and other
receivables is made when objective evidence is received that the Company will not be able to collect
all amounts due to it in accordance with the original terms of the receivable. The amount of the
impairment is determined as the difference between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the effective rate computed at initial recognition. Any
change in value through impairment or reversal of impairment is recognised in profit or loss.
A financial asset is de-recognised only where the contractual rights to the cash flows from the asset
expire or the financial asset is transferred and that transfer qualifies for de-recognition. A
financial asset is transferred if the contractual rights to receive the cash flows of the asset have
been transferred or the Company retains the contractual rights to receive the cash flows of the asset
but assumes a contractual obligation to pay the cash flows to one or more recipients. A financial
asset that is transferred qualifies for de-recognition if the Company transfers substantially all the
risks and rewards of ownership of the asset.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and on-demand deposits, and other short-term highly
liquid investments that are readily convertible into a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any contract that evidences a residual
interest in the assets of the Company after deducting all of its liabilities. Equity instruments
issued by the Company are recorded at the proceeds received, net of direct issue costs.
Share capital represents the nominal value of equity shares issued. Share premium represents the
excess over nominal value of the fair value of the consideration received for equity shares, net of
direct issue costs.
Retained earnings include all current and prior year results as disclosed in profit or loss. Retained
earnings include realised and unrealised profits. Profits are considered unrealised where they arise
from movements in the fair value of investment properties that are considered to be temporary rather
than permanent.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the fair value of proceeds received, net of
direct issue costs. Finance charges, including premiums payable on settlements or redemption and
direct issue costs, are accounted for on an accruals basis in profit or loss using the effective
interest rate method and are added to the carrying amount of the instrument to the extent that they
are not settled in the period in which they arise.
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost,
using the effective interest rate method.
Leases
Where an investment property is held under a leasehold interest, the headlease is initially recognised
as an asset at cost plus the present value of minimum ground rent payments. The corresponding rental
liability to the head leaseholder is included in the balance sheet as a liability. Lease payments are
apportioned between the finance charge and the reduction of the outstanding liability so as to produce
a constant periodic rate of interest on the remaining lease liability.
Segmental reporting
An operating segment is a distinguishable component of the Company that engages in business activities
from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by
the Company’s chief operating decision maker (the Board) to make decisions about the allocation of
resources and assessment of performance and about which discrete financial information is available.
As the chief operating decision maker reviews financial information for, and makes decisions about the
Company’s investment properties as a portfolio, the Directors have identified a single operating
segment, that of investment in commercial properties.
Key sources of judgements and estimation uncertainty
The preparation of the financial statements requires the Company to make estimates and assumptions
that affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of
contingent liabilities. If in the future such estimates and assumptions, which are based on the
Directors’ best judgement at the date of preparation of the financial statements, deviate from actual
circumstances, the original estimates and assumptions will be modified as appropriate in the period in
which the circumstances change.
Judgements
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. Where an investment property is being redeveloped the property continues to be treated as
an investment property. Surpluses and deficits attributable to the Company arising from
revaluation are recognised in profit or loss. Valuation surpluses reflected in retained earnings
are not distributable until realised on sale. In making its judgement over the valuation of
properties, the Company considers valuations performed by the independent valuers in determining
the fair value of its investment properties. The valuers make reference to market evidence of
transaction prices for similar properties. The valuations are based upon assumptions including
future rental income, anticipated maintenance costs and appropriate discount rates.
Estimates
Areas where accounting estimates are significant to the financial statements are:
• Doubtful debt provisioning – the approach to providing for ‘expected credit losses’ is detailed in
Note 12 and uses estimates within a matrix of how much the credit risk of trade receivables has
increased since initial recognition based on a number of days overdue, taking into account
qualitative and quantitative supportable information. Each individual property rental receivable
is reviewed to assess whether there is a probability of default and expected credit loss given the
Investment Manager’s knowledge of the specific tenant over and above the provision calculated from
the matrix.
3. Earnings per ordinary share
Basic EPS amounts are calculated by dividing net profit for the year attributable to ordinary equity
holders of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would be issued on the conversion of all the dilutive
potential ordinary shares into ordinary shares. There are no dilutive instruments in issue. Any
shares issued after the year end are disclosed in Note 20.
The Company is a FTSE EPRA/NAREIT index series constituent and EPRA performance measures have been
disclosed to facilitate comparability with the Company’s peers through consistent reporting of key
performance measures. EPRA has issued recommended bases for the calculation of EPS which the
Directors consider are better indicators of performance.
Year Year
ended ended
31 March 31 March
2022 2021
Group
Net profit and diluted net profit attributable to equity holders of the Company
(£000)
122,325 3,749
Net (profit)/loss on investment property (£000) (97,073) 19,925
EPRA net profit attributable to equity holders of the Company (£000) 25,252 23,674
Weighted average number of ordinary shares:
Issued ordinary shares at start of the year (thousands) 420,053 420,053
Effect of shares issued during the year (thousands) 8,649 -
Basic and diluted weighted average number of shares (thousands) 428,702 420,053
Basic and diluted EPS (p) 28.5 0.9
EPRA EPS (p) 5.9 5.6
4. Revenue
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Gross rental income from investment property 39,039 38,664 37,638 38,664
Income from recharges to tenants 852 914 852 914
39,891 39,578 38,490 39,578
5. Operating profit
Operating profit is stated after (crediting)/charging:
Group Company
Year Year Year Year
ended ended ended ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Profit on disposal of investment property (5,369) (393) (5,369) (393)
Investment property valuation (increase)/decrease (91,704) 20,318 (91,704) 20,318
Fees payable to the Company’s auditor and its associates for the
audit of the Company’s annual financial statements
138 106 138 106
Fees payable to the Company’s auditor and its associates for other 25 20 25 20
services
Administrative fee payable to the Investment Manager 459 416 459 416
Directly incurred operating expenses of vacant rental property 1,826 822 1,611 822
Directly incurred operating expenses of let rental property 1,444 1,142 1,418 1,142
Movement in doubtful debt provision, write offs due to tenant
business failure and rent concessions
7 3,591 (26) 3,591
Amortisation of right-of-use asset 7 7 7 7
Fees payable to the Company’s auditor, Deloitte LLP, are further detailed in the Audit and Risk
Committee report.
6. Finance income
Group Company
Year Year Year Year
ended ended
ended ended
31 March 31 March
31 March 31 March
2022 2022
2021 2021
£000 £000
£000 £000
Bank interest - 28 - 28
Finance income - 33 - 33
- 61 - 61
7. Finance costs
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Amortisation of arrangement fees on debt facilities 364 347 337 347
Other finance costs 307 287 302 287
Bank interest 4,156 4,269 3,976 4,269
4,827 4,903 4,615 4,903
8. Income tax
The tax charge assessed for the year is lower than the standard rate of corporation tax in the UK
during the year of 19.0%. The differences are explained below:
Group Company
Year Year
ended Year ended ended Year ended
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Profit before income tax 122,325 3,749 114,175 3,749
Tax charge on profit at a standard rate of 19.0% (2021: 19.0%) 23,242 712 21,693 712
Effects of:
REIT tax exempt rental profits and gains (23,242) (712) (21,693) (712)
Income tax expense - - - -
Effective income tax rate 0.0% 0.0% 0.0% 0.0%
The Company operates as a REIT and hence profits and gains from the property investment business are
normally exempt from corporation tax.
9. Dividends
Year Year
ended ended
31 March 31 March
2022 2021
£000 £000
Group and Company
Interim dividends paid on ordinary shares relating to the quarter ended:
Prior year
- 31 March 2021: 1.25p (2020: 1.6625p) 5,257 6,983
- 31 March 2021: 0.5p (2020: nil) 2,102 -
Current year
- 30 June 2021: 1.25p (2020: 0.95p) 5,257 3,990
- 30 September 2021: 1.25p (2020: 1.05p) 5,511 4,411
- 31 December 2021: 1.375p (2020: 1.25p) 6,062 5,251
24,191 20,635
The Company paid a fourth interim dividend relating to the quarter ended 31 March 2022 of 1.375p per
ordinary share (totalling £6.1m) on 31 May 2022 to shareholders on the register at the close of
business on 13 May 2022 which has not been included as liabilities in these financial statements.
10. Investment property
Group Company
£000 £000
At 31 March 2020 559,817 559,817
Impact of lease incentives 1,932 1,932
Additions 12,150 12,150
Amortisation of right-of-use asset (7) (7)
Capital expenditure and development 2,308 2,308
Disposals (3,960) (3,960)
Valuation decrease before acquisition costs (19,611) (19,611)
Acquisition costs (707) (707)
Valuation decrease including acquisition costs (20,318) (20,318)
At 31 March 2021 551,922 551,922
Impact of lease incentives 1,112 1,158
Additions 65,495 23,801
Amortisation of right-of-use asset (7) (7)
Capital expenditure and development 3,515 3,510
Disposals (48,555) (48,555)
Valuation increase before acquisition costs 93,977 86,655
Acquisition costs (2,273) (2,273)
Valuation increase including acquisition costs 91,704 84,382
At 31 March 2022 665,186 616,211
£458.0m (2021: £391.9m) of investment property was charged as security against the Company’s
borrowings at the year end. £0.6m (2021: £0.6m) of investment property comprises right-of-use assets.
The carrying value of investment property at 31 March 2022 comprises £557.8m freehold (2021: £444.1m)
and £107.4m leasehold property (2021: £107.8m).
Investment property is stated at the Directors’ estimate of its 31 March 2022 fair value. Savills
(UK) Limited (“Savills”) and Knight Frank LLP (“KF”), professionally qualified independent valuers,
each valued approximately half of the property portfolio as at 31 March 2022 in accordance with the
Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors (“RICS”).
Savills and KF have recent experience in the relevant locations and categories of the property being
valued.
Investment property has been valued using the investment method which involves applying a yield to
rental income streams. Inputs include yield, current rent and ERV. For the year end valuation, the
equivalent yields used ranged from 4.3% to 12.3%. 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 each
property, the highest and best use of the properties is their current use.
All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of
investment property, and an increase in the current or estimated future rental stream would have the
effect of increasing capital value, and vice versa. However, there are interrelationships between
unobservable inputs which are partially determined by market conditions, which could impact on these
changes.
11. Investments
Shares in subsidiaries
Company
31 March 31 March
Country of Principal Ordinary 2022 2021
registration and activity shares held
Company incorporation £000 £000
number
Name
Custodian Real Estate 08882372 England and Wales Non-trading 100% - -
Limited
Custodian Real Estate BL
Limited 09270501 England and Wales Non-trading – in 100% - -
liquidation
Custodian Real Estate
(Beaumont Leys) Limited* 04364589 England and Wales Non-trading – in 100% 4 4
liquidation
Custodian Real Estate
(Leicester) Limited* 04312180 England and Wales Non-trading – in 100% 497 497
liquidation
Custodian Real Estate 11187952 England and Wales Non-trading – in 100% 2,904 2,904
(JMP4) Limited liquidation
Custodian Real Estate (DROP Property
Holdings) Limited (formerly 9511797 England and Wales investment 100% 19,133 -
DRUM Income Plus REIT plc)
Custodian Real Estate Property
(DROP) Limited (formerly 9515513 England and Wales investment 100% - -
DRUM Income Plus Limited)*
22,538 3,405
* Held indirectly
The Company’s non-trading UK subsidiaries have claimed the audit exemption available under Section
479A of the Companies Act 2006. The Company’s registered office is also the registered office of each
UK subsidiary.
Custodian Real Estate (JMP4) Limited was dissolved on 18 April 2022.
DRUM REIT acquisition
The acquisition of DRUM REIT during the year has been accounted for as an asset acquisition.
Consideration of £19.1m comprised the issue of 20,247,040 shares at their market value of 94.5p. This
consideration was allocated between the fair value of the acquired assets and liabilities of DRUM REIT
comprising £0.15m of working capital, £22.7m of net borrowings and £41.65m of investment property.
Non-listed equity investments
Group and
Company
31 March 31 March
Country of registration and Principal Ordinary 2022 2021
incorporation activity shares held
Company £000 £000
number
Name
AGO Hotels 12747566 England and Wales Operator of 4.5% - -
Limited hotels
- -
The Company was allotted 4.5% of the ordinary share capital of AGO Hotels Limited on 31 January 2021
as part of a new letting of its hotel asset in Portishead.
12. Trade and other receivables
Group Company
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Falling due in less than one year:
Trade receivables 3,094 4,192 2,642 4,192
Other receivables 1,960 1,706 576 1,706
Prepayments and accrued income 147 103 147 103
5,201 6,001 3,365 6,001
The Company regularly monitors the effectiveness of the criteria used to identify whether there has
been a significant increase in credit risk and revises them as appropriate to ensure that the criteria
are capable of identifying significant increases in credit risk before amounts become past due.
The Company considers the following as constituting an event of default for internal credit risk
management purposes as historical experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
• When there is a breach of financial covenants by the debtor; or
• Available information indicates the debtor is unlikely to pay its creditors.
Such balances are provided for in full. For remaining balances the Company has applied an expected
credit loss (“ECL”) matrix based on its experience of collecting rent arrears. The ECL matrix fully
provides for receivable balances more than 180 days past due and partially provides against receivable
balances between 60 and 180 days past due.
Group Company
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Expected credit loss provision
Opening balance 3,030 341 3,030 341
(Decrease)/increase in provision relating to trade receivables (291) 2,689 (291) 2,689
that are credit-impaired
Closing balance 2,739 3,030 2,739 3,030
The decrease in provision during the year is due to the collection of previously provided for debts.
Tenant rent deposits of £1.1m (2021: £0.9m) are held as collateral against certain trade receivable
balances.
13. Trade and other payables
Group Company
31 March 31 March
31 March 2022 31 March 2022
2021 2021
£000 £000
£000 £000
Falling due in less than one year:
Trade and other payables 3,960 1,730 1,973 1,730
Social security and other taxes 456 882 366 882
Accruals 4,226 2,665 4,100 2,665
Rental deposits 1,141 908 1,141 908
Amounts due to subsidiary undertakings - - 3,405 3,405
9,783 6,185 10,985 9,590
The Directors consider that the carrying amount of trade and other payables approximates to their fair
value. Trade payables and accruals principally comprise amounts outstanding for trade purchases and
ongoing costs. For most suppliers interest is charged if payment is not made within the required
terms. Thereafter, interest is chargeable on the outstanding balances at various rates. The Company
has financial risk management policies in place to ensure that all payables are paid within the credit
timescale.
Amounts payable to subsidiary undertakings are due on demand.
14. Cash and cash equivalents
Group Company
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Cash and cash equivalents 11,624 3,920 9,217 3,920
Group and Company cash and cash equivalents at 31 March 2022 include £1.7m (2021: £2.6m) of restricted
cash comprising: £1.1m (2021: £0.9m) rental deposits held on behalf of tenants, £0.3m (2021: £nil)
exchange deposits on pipeline acquisitions, £0.3m (2021: £0.2m) retentions held in respect of
development fundings and £nil (2021: £1.5m) interest prepayments.
15. Borrowings
Group Company
Costs incurred in Costs incurred in
the arrangement of the arrangement of
bank borrowings bank borrowings
Bank £000 Total Bank £000 Total
borrowings borrowings
£000 £000 £000 £000
Falling due within one
year:
At 31 March 2021 - - - - - -
Borrowings arising
from the acquisition 22,760 (60) 22,700 - - -
of DRUM REIT
Amortisation of - 27 27 - - -
arrangement fees
At 31 March 2022 22,760 (33) 22,727 - - -
Falling due in more
than one year:
At 31 March 2021 140,000 (1,396) 138,604 140,000 (1,396) 138,604
Net repayment of (25,000) - (25,000) (25,000) - (25,000)
borrowings
Arrangement fees - (57) (57) - (57) (57)
incurred
Amortisation of • 336 336 - 336 336
arrangement fees
At 31 March 2022 115,000 (1,117) 113,883 115,000 (1,117) 113,883
Total borrowings:
At 31 March 2022 137,760 (1,150) 136,610 115,000 (1,117) 113,883
During the year the Company and Lloyds agreed to extend the term of the RCF by one year to expire in
2024.
At the year end the Company has the following facilities available:
• A £20m RCF with Lloyds with interest of between 1.5% and 1.8% above three-month LIBOR and is
repayable on 17 September 2024. The RCF limit was increased to £50m with Lloyds’ consent since
the year end;
• A £25m RCF with RBS with interest of 1.75% above SONIA, expiring on 30 September 2022;
• A £20m term loan with Scottish Widows plc with interest fixed at 3.935% and is repayable on
13 August 2025;
• A £45m term loan with Scottish Widows plc with interest fixed at 2.987% and is repayable on 5 June
2028; and
• A £50m term loan with Aviva comprising:
• £35m Tranche 1 repayable on 6 April 2032 attracting fixed annual interest of 3.02%; and
• £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 covenants:
• The maximum LTV of the discrete security pool is between 45% and 50%, with an overarching covenant
on the Company’s property portfolio of a maximum 35% LTV; and
• Historical interest cover, requiring net rental receipts from each discrete security pool, over
the preceding three months, to exceed 250% of the facility’s quarterly interest liability.
The Company’s debt facilities contain market-standard cross-guarantees such that a default on an
individual facility will result in all facilities falling into default.
Since the year end the Company has arranged a £25m tranche of 10 year debt with Aviva at a fixed rate
of interest of 4.10% per annum to refinance the £25m variable rate revolving credit facility with RBS.
16. Share capital
Group and Company
Ordinary shares
of 1p
Issued share capital £000
At 1 April 2020 420,053,344 4,201
Issue of share capital - -
At 31 March 2021 420,053,344 4,201
Issue of share capital 20,797,054 208
At 31 March 2022 440,850,398 4,409
During the year, the Company raised £19.7m (before costs and expenses) through the placing of
20,797,054 new ordinary shares.
Rights, preferences and restrictions on shares
All ordinary shares carry equal rights and no privileges are attached to any shares in the Company.
All the shares are freely transferable, except as otherwise provided by law. The holders of ordinary
shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at meetings of the Company. All shares rank equally with regard to the Company’s residual
assets.
At the AGM of the Company held on 25 August 2021, the Board was given authority to issue up to
140,201,115 shares, pursuant to section 551 of the Companies Act 2006 (“the Authority”). The
Authority is intended to satisfy market demand for the ordinary shares and raise further monies for
investment in accordance with the Company’s investment policy. 20,797,054 ordinary shares have been
issued under the Authority since 25 August 2021, leaving an unissued balance of 119,404,061 at 31
March 2022. The Authority expires on the earlier of 15 months from 25 August 2021 and the subsequent
AGM, due to take place on 31 August 2022.
In addition, the Company was granted authority to make market purchases of up to 42,060,344 ordinary
shares under section 701 of the Companies Act 2006. No market purchases of ordinary shares have been
made.
Company Group Group and Company
Retained earnings Share premium account
Retained earnings £000 Merger reserve
£000
Other reserves £000 £000
At 1 April 2020 172,082 172,082 250,469 -
Shares issued during the - - - -
year
Costs of share issue - - - -
Profit for the year 3,749 3,749 - -
Dividends paid (20,635) (20,635) - -
At 31 March 2021 155,196 155,196 250,469 -
Shares issued during the - - 552 18,931
year
Costs of share issue - - (51) -
Profit for the year 114,175 122,325 - -
Dividends paid (24,191) (24,191) - -
At 31 March 2022 245,180 253,330 250,970 18,931
The nature and purpose of each reserve within equity are:
• Share premium - Amounts subscribed for share capital in excess of nominal value less any
associated issue costs that have been capitalised.
• Retained earnings - All other net gains and losses and transactions with owners (e.g. dividends)
not recognised elsewhere.
• Merger reserve - A non-statutory reserve that is credited instead of a company's share premium
account in circumstances where merger relief under section 612 of the Companies Act 2006 is
obtained.
17. Commitments and contingencies
Company as lessor
Operating leases, in which the Company is the lessor, relate to investment property owned by the
Company with lease terms of between 0 to 15 years. The aggregated future minimum rentals receivable
under all non-cancellable operating leases are:
Group Company
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Not later than one year 36,512 36,191 33,565 36,191
Year 2 32,830 31,771 30,332 31,771
Year 3 27,986 27,987 25,819 27,987
Year 4 23,367 23,875 21,975 23,875
Year 5 19,764 19,300 18,546 19,300
Later than five years 67,843 72,428 62,418 72,428
208,302 211,552 192,655 211,552
The following table presents amounts reported in revenue:
Group Company
31 March 31 March 31 March 31 March
2022 2021 2022 2021
£000 £000 £000 £000
Lease income on operating leases 38,884 38,621 37,483 38,621
Therein lease income relating to variable lease payments that do 155 152 155 152
not depend on an index or rate
39,039 38,773 37,638 38,773
18. Related party transactions
Save for transactions described below, the Company is not a party to, nor had any interest in, any
other related party transaction during the year.
Transactions with directors
Each of the directors is engaged under a letter of appointment with the Company and does not have a
service contract with the Company. Under the terms of their appointment, each director is required to
retire by rotation and seek re-election at least every three years. Each director’s appointment under
their respective letter of appointment is terminable immediately by either party (the Company or the
director) giving written notice and no compensation or benefits are payable upon termination of office
as a director of the Company becoming effective.
Ian Mattioli is Chief Executive of Mattioli Woods, the parent company of the Investment Manager, and
is a director of the Investment Manager. As a result, Ian Mattioli is not independent. The Company
Secretary, Ed Moore, is also a director of the Investment Manager.
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.
On 22 June 2020 the terms of the IMA were varied to secure the appointment of the Investment Manager
for a further three years, with a further year’s notice, and to introduce further fee hurdles such
that annual management fees payable to the Investment Manager under the IMA are now:
• 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 are now:
• 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 Initial three year term. 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% (2021: 0.25%) of the aggregate gross proceeds
from any issue of new shares in consideration of the marketing services it provides to the Company.
During the year the Investment Manager charged the Company £4.41m (2021: £3.75m) comprising £3.86m
(2021: £3.33m) in respect of annual management fees, £0.46m (2021: £0.42m) in respect of
administrative fees, £nil (2021: £nil) in respect of marketing fees and a transaction fee of £0.09m
relating to work carried out on the acquisition of DRUM REIT.
Mattioli Woods arranges insurance on behalf of the Company’s tenants through an insurance broker and
the Investment Manager is paid a commission by the Company’s tenants for administering the policy.
19. Financial risk management
Capital risk management
The Company manages its capital to ensure it can continue as a going concern while maximising the
return to stakeholders through the optimisation of the debt and equity balance within the parameters
of its investment policy. The capital structure of the Company consists of debt, which includes the
borrowings disclosed below, cash and cash equivalents and equity attributable to equity holders of the
parent, comprising issued ordinary share capital, share premium and retained earnings.
Net gearing ratio
The Board reviews the capital structure of the Company on a regular basis. As part of this review,
the Board considers the cost of capital and the risks associated with each class of capital. The
Company has a target net gearing ratio of 25% determined as the proportion of debt (net of
unrestricted cash) to investment property. The net gearing ratio at the year-end was 19.1% (2021:
24.9%).
Externally imposed capital requirements
The Company is not subject to externally imposed capital requirements, although there are restrictions
on the level of interest that can be paid due to conditions imposed on REITs.
Financial risk management
The Company seeks to minimise the effects of interest rate risk, credit risk, liquidity risk and cash
flow risk by using fixed and floating rate debt instruments with varying maturity profiles, at low
levels of net gearing.
Interest rate risk management
The Company’s activities expose it primarily to the financial risks of increases in interest rates, as
it borrows funds at floating interest rates. The risk is managed by maintaining:
• An appropriate balance between fixed and floating rate borrowings;
• A low level of net gearing; and
• The RCF whose flexibility allows the Company to manage the risk of changes in interest rates.
The Board periodically considers the availability and cost of hedging instruments to assess whether
their use is appropriate and also considers the maturity profile of the Company’s borrowings.
Interest rate sensitivity analysis
Interest rate risk arises on interest payable on the RCFs only, as interest on all other debt
facilities is payable on a fixed rate basis. At 31 March 2022, the RBS RCF was drawn at £22.8m.
Assuming this amount was outstanding for the whole year and based on the exposure to interest rates at
the reporting date, if three-month LIBOR/SONIA had been 0.5% higher/lower and all other variables were
constant, the Company’s profit for the year ended 31 March 2022 would decrease/increase by £0.1m due
to its variable rate borrowings.
Market risk management
The Company manages its exposure to market risk by holding a portfolio of investment property
diversified by sector, location and tenant.
Market risk sensitivity
Market risk arises on the valuation of the Company’s property portfolio in complying with its bank
loan covenants (Note 15). The Company would breach its overall borrowing covenant if the valuation of
its property portfolio fell by 45% (2021: 29%).
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations
resulting in a financial loss to the Company. The Company’s credit risk is primarily attributable to
its trade receivables and cash balances. The amounts included in the statement of financial position
are net of allowances for bad and doubtful debts. An allowance for impairment is made where a debtor
is in breach of its financial covenants, available information indicates a debtor can’t pay or where
balances are significantly past due.
The Company has adopted a policy of only dealing with creditworthy counterparties as a means of
mitigating the risk of financial loss from defaults. The maximum credit risk on financial assets at
31 March 2022 was £3.1m (2021: £4.2m).
The Company has no significant concentration of credit risk, with exposure spread over a large number
of tenants covering a wide variety of business types. Further detail on the Company’s credit risk
management process is included within the Strategic report.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board, which has built an
appropriate liquidity risk management framework for the management of the Company’s short, medium and
long-term funding and liquidity management requirements. The Company manages liquidity risk by
maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously
monitoring forecast and actual cash flows and matching the maturity profile of financial assets and
liabilities.
The following tables detail the Company’s contractual maturity for its financial liabilities. The
table has been drawn up based on undiscounted cash flows of financial liabilities based on the
earliest date on which the Company can be required to pay. The table includes both interest and
principal cash flows.
31 March 2022 31 March 2022
31 March 2022 3 months – 1
Group Weighted average effective 0-3 months year 31 March 2022 5 years +
interest rate % 1-5 years
£000 £000 £000
£000
Trade and other N/a 9,783 - 151 420
payables
Borrowings:
Variable rate 2.491 100 299 16,585 -
Variable rate 2.441 139 139 - -
Fixed rate 3.935 197 590 2,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
10,941 3,196 30,953 107,948
31 March 2022
31 March 2022 3 months – 1 31 March 2022
Company Weighted average effective 0-3 months year 31 March 2022 5 years +
interest rate % 1-5 years
£000 £000 £000
£000
Trade and other N/a 10,985 - 151 420
payables
Borrowings:
Variable rate 2.491 100 299 16,585
Fixed rate 3.935 197 590 2,656 -
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
12,004 3,057 30,953 107,949
31 March 2021 31 March 2021
31 March 2021 3 months – 1
Group Weighted average effective 0-3 months year 31 March 2021 5 years +
interest rate % 1-5 years
£000 £000 £000
£000
Trade and other N/a 6,185 - 151 421
payables
Borrowings:
Variable rate 1.888 118 354 25,692 •
Fixed rate 3.935 197 590 2,656 •
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
7,222 3,112 40,060 107,949
31 March 2021
31 March 2021 3 months – 1 31 March 2021
Company Weighted average effective 0-3 months year 31 March 2021 5 years +
interest rate % 1-5 years
£000 £000 £000
£000
Trade and other N/a 9,590 - 151 421
payables
Borrowings:
Variable rate 1.888 118 354 25,692 -
Fixed rate 3.935 197 590 2,656 •
Fixed rate 2.987 336 1,008 5,377 47,939
Fixed rate 3.020 264 793 4,228 41,362
Fixed rate 3.260 122 367 1,956 18,227
10,627 3,112 40,060 107,949
Fair values
The fair values of financial assets and liabilities are not materially different from their carrying
values in the financial statements. The fair value hierarchy levels are as follows:
• Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2 – inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 – inputs for the assets or liabilities that are not based on observable market data
(unobservable inputs).
There have been no transfers between Levels 1, 2 and 3 during the year. The main methods and
assumptions used in estimating the fair values of financial instruments and investment property are
detailed below.
Investment property – level 3
Fair value is based on valuations provided by an independent firm of chartered surveyors and
registered appraisers, which uses the inputs set out in Note 10. These values were determined after
having taken into consideration recent market transactions for similar properties in similar locations
to the investment properties held by the Company. The fair value hierarchy of investment property is
level 3. At 31 March 2021, the fair value of the Company’s investment properties was £665.2m (2021:
£551.9m).
Interest bearing loans and borrowings – level 3
As at 31 March 2022 the value of the Company’s loans with Lloyds, RBS, SWIP and Aviva all held at
amortised cost was £137.8m (2021: £140.0m). The difference between the carrying value of Company’s
loans and their fair value is detailed in Note 21.
Trade and other receivables/payables – level 3
The carrying amount of all receivables and payables deemed to be due within one year are considered to
reflect their fair value.
Impact of the COVID-19 pandemic
As set out in the Principal risks and uncertainties section of the Strategic report, the Board
believes it too early to understand fully the longer-term impact of the COVID-19 pandemic, but the
Board believes the Company is well placed to weather any short-term impact due to the reasons set out
in the Strategic report.
The Board does therefore not consider it necessary or possible to carry out sensitivity analysis on
its valuation or cashflow assumptions.
20. Events after the reporting date
Property transactions
Since the year 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%; and
• A 5k sq ft retail asset in Winchester for £3.65m occupied by Nationwide Building Society and Hobbs
with an aggregate annual passing rent of £249k, reflecting a NIY of 6.4%.
Since the year end the Company has sold a 25k sq ft car showroom occupied by Audi for £5.6m.
Borrowings
Since the year end the Company has arranged a £25m tranche of 10 year debt with Aviva at a fixed rate
of interest of 4.10% per annum to refinance a £25m variable rate revolving credit facility with RBS.
21. Alternative performance measures
NAV per share total return
A measure of performance taking into account both capital returns and dividends by assuming
42 dividends declared are reinvested at NAV at the time the shares are quoted 43 ex-dividend, shown
as a percentage change from the start of the year.
Year ended Year ended
31 March 31 March
2022 2021
Group
Net assets (£000) 527,640 409,866
Shares in issue at 31 March (thousands) 440,850 420,053
NAV per share at the start of the year (p) 97.6 101.6
Dividends per share paid during the year (p) 5.625 4.9125
NAV per share at the end of the year (p) 119.7 97.6
NAV per share total return 28.4% 0.9%
Share price total return
A measure of performance taking into account both share price returns and dividends by assuming
44 dividends declared are reinvested at the ex-dividend share price, shown as a percentage change
from the start of the year.
Year ended Year ended
31 March 31 March
2022 2021
Group
Share price at the start of the year (p) 91.8 99.0
Dividends per share paid during the year (p) 5.625 4.9125
Share price at the end of the year (p) 101.8 91.8
Share price total return 17.0% (2.3%)
Dividend cover
The extent to which dividends relating to the year are supported by recurring net income.
Year ended Year ended
31 March 31 March
2022 2021
£000 £000
Group
Dividends paid relating to the year 16,830 13,652
Dividends approved relating to the year 6,062 7,354
22,892 21,006
Profit after tax 122,325 3,749
One-off costs - -
Net (profit)/loss on investment property (97,073) 19,925
25,252 23,674
Dividend cover 110.3% 112.7%
Net gearing
Gross borrowings less cash (excluding rent deposits), divided by property portfolio value.
Year ended Year ended
31 March 31 March
2022 2021
£000 £000
Group
Gross borrowings 137,760 140,000
Cash (11,624) (3,920)
Cash held on behalf of tenants 1,141 1,179
Net borrowings 127,277 137,259
Investment property 665,186 551,922
Net gearing 19.1% 24.9%
Ongoing charges
A measure of the regular, recurring costs of running an investment company expressed as a percentage
of average NAV.
Year ended Year ended
31 March 31 March
2022 2021
Group £000 £000
Average quarterly NAV during the year 462,501 408,703
Expenses 9,812 11,062
Operating expenses of rental property rechargeable to tenants (852) (914)
8,960 10,148
Operating expenses of rental property directly incurred (3,422) (5,559)
One-off costs - -
5,538 4,589
OCR 1.94% 2.48%
OCR excluding direct property expenses 1.20% 1.12%
EPRA performance measures
EPRA promotes, develops and represents the European public real estate sector, providing leadership in
matters of common interest by publishing research and encouraging discussion of issues impacting the
property industry, both within the membership and with a wide range of stakeholders, including the EU
institutions, governmental and regulatory bodies and business partners. The Board supports EPRA’s
drive to bring parity to the comparability and quality of information provided in this report to
investors and other key stakeholders.
EPRA earnings per share
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.
Year ended Year ended
31 March 31 March
2022 2021
£000 £000
Group
Profit for the year after taxation 122,325 3,749
Net (profit)/loss on investment property (97,073) 19,925
EPRA earnings 25,252 23,674
Weighted average number of shares in issue (thousands) 428,702 420,053
EPRA earnings per share (p) 5.9 5.6
EPRA NAV per share metrics
EPRA NAV metrics make adjustments to the IFRS NAV to provide stakeholders with the most relevant
information on the fair value of the assets and liabilities of a real estate investment company, under
different scenarios.
EPRA Net Reinstatement Value (“NRV”)
NRV assumes the Company never sells its assets and aims to represent the value required to rebuild the
entity.
31 March 31 March
2022 2021
Group £000 £000
IFRS NAV 527,640 409,865
Fair value of financial instruments - -
Deferred tax - -
EPRA NRV 527,640 409,865
Weighted average number of shares in issue (thousands) 428,702 420,053
EPRA NRV per share (p) 123.1 97.6
EPRA Net Tangible Assets (“NTA”)
Assumes that the Company buys and sells assets for short-term capital gains, thereby crystallising
certain deferred tax balances.
31 March 31 March
2022 2021
Group £000 £000
IFRS NAV 527,640 409,865
Fair value of financial instruments - -
Deferred tax - -
Intangibles - -
EPRA NTA 527,640 409,865
Weighted average number of shares in issue (thousands) 428,702 420,053
EPRA NTA per share (p) 123.1 97.6
EPRA Net Disposal Value (“NDV”)
Represents the shareholders’ value under a disposal scenario, where deferred tax, financial
instruments and certain other adjustments are calculated to the full extent of their liability, net of
any resulting tax.
31 March 31 March
2022 2021
Group £000 £000
IFRS NAV 527,640 409,865
Fair value of fixed rate debt - (9,468)
Deferred tax - -
EPRA NDV 400,397
Weighted average number of shares in issue (thousands) 428,702 420,053
EPRA NDV per share (p) 123.1 95.3
The fair value of the liability of Company’s interest-bearing loans included in the balance sheet at
amortised cost has been calculated based on prevailing swap rates, and excludes ‘break’ costs
chargeable should the Company settle loans ahead of their contractual expiry. At 31 March 2022 all of
the Company’s fixed rate debt instruments were ‘in the money’ so no fair value adjustment has been
made in calculating EPRA NDV.
EPRA NIY and EPRA ‘topped-up’ NIY
EPRA NIY represents annualised rental income based on cash rents passing at the balance sheet date,
less non-recoverable property operating expenses, divided by the gross property valuation. The EPRA
‘topped-up’ NIY is calculated by making an adjustment to the EPRA NIY in respect of the expiration of
rent free periods (or other unexpired lease incentives such as discounted rent periods and stepped
rents).
31 March 31 March
2022 2021
Group £000 £000
Investment property 665,186 551,922
Allowance for estimated purchasers’ costs 45 39 43,237 35,875
Gross-up property portfolio valuation 708,423 587,797
Annualised cash passing rental income 37,367 36,314
Property outgoings (1,719) (1,004)
Annualised net rents 35,648 35,310
Impact of expiry of current lease incentives 3,126 2,378
38,773 37,688
EPRA NIY 5.0% 6.0%
EPRA ‘topped-up’ NIY 5.5% 6.4%
EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of the whole property
portfolio.
31 March 31 March
2022 2021
Group £000 £000
Annualised potential rental value of vacant premises 4,643 3,562
Annualised potential rental value for the property portfolio 45,580 42,554
EPRA vacancy rate 10.2% 8.4%
EPRA cost ratios
EPRA cost ratios reflect overheads and operating costs as a percentage of gross rental income.
Year ended Year ended
31 March 31 March
2022 2021
£000 £000
Group
Directly incurred operating expenses and administrative fees 8,960 10,147
Ground rent costs (37) (37)
EPRA costs (including direct vacancy costs) 8,923 10,110
Property void costs (1,525) (888)
EPRA costs (excluding direct vacancy costs) 7,398 9,222
Gross rental income 39,039 38,698
Ground rent costs (37) (37)
Rental income net of ground rent costs 39,002 38,661
EPRA cost ratio (including direct vacancy costs) 22.9% 26.1%
EPRA cost ratio (excluding direct vacancy costs) 19.0% 23.9%
EPRA capital expenditure
Capital expenditure incurred on the Company’s property portfolio during the year.
31 March 31 March
2022 2021
Group £000 £000
Acquisitions 65,495 12,150
Development - 691
Like-for-like portfolio 3,515 1,617
Total capital expenditure 69,010 14,458
EPRA like-for-like rental growth
Like-for-like rental growth of the property portfolio by sector.
31 March 2022
Retail warehouse
Industrial Retail Other Office Total
£000
Group £000 £000 £000 £000 £000
Like-for-like rent 14,637 7,887 3,167 5,397 4,168 35,256
Acquired properties 218 182 538 - 1,074 2,012
Sold properties 976 100 149 546 - 1,771
15,831 8,169 3,854 5,943 5,242 39,039
31 March 2021
Retail warehouse
Industrial Retail Other Office Total
£000
Group £000 £000 £000 £000 £000
Like-for-like rent 16,143 8,641 3,653 6,355 3,500 38,292
Acquired properties 38 - - 26 127 191
Sold properties 18 - 163 - - 181
16,199 8,641 3,816 6,381 3,627 38,664
Distribution of the Annual Report and accounts to members
The financial information set out above does not constitute the Company's statutory accounts for the
years ended 31 March 2022 or 2021, but is derived from those accounts. Statutory accounts for 2021
have been delivered to the Registrar of Companies and those for 2022 will be delivered following the
Company's AGM. The auditor has reported on the 2022 accounts: their report was unqualified, did not
draw attention to any matters by way of emphasis and did not contain statements under 46 s498(2) or
47 (3) of the Companies Act 2006. The Annual Report and accounts will be posted to shareholders in
due course, and will be available on our website (custodianreit.com) and for inspection by the public
at the Company’s registered office address: 1 New Walk Place, Leicester LE1 6RU during normal business
hours on any weekday. Further copies will be available on request.
- Ends -
══════════════════════════════════════════════════════════════════════════════════════════════════════
^ 48 1 The European Public Real Estate Association (“EPRA”).
^ 49 2 Profit after tax excluding net gains or losses on investment property divided by weighted
average number of shares in issue.
^ 50 3 Profit after tax divided by weighted average number of shares in issue.
^ 51 4 Dividends paid and approved for the year.
^ 52 5 Profit after tax, excluding net gains or losses on investment property, divided by dividends
paid and approved for the year.
^ 53 6 Net Asset Value (“NAV”) movement including dividends paid during the year on shares in issue
at 31 March 2021.
^ 54 7 Share price movement including dividends paid during the year.
^ 55 8 EPRA net tangible assets (“NTA”) does not differ from the Company’s IFRS NAV or EPRA NAV.
^ 56 9 Gross borrowings less cash (excluding rent deposits) divided by property portfolio value.
^ 57 10 Expenses (excluding operating expenses of rental property recharged to tenants) divided by
average quarterly NAV.
^ 58 11 Expenses (excluding operating expenses of rental property) divided by average quarterly NAV.
^ 59 12 For properties in Scotland, English equivalent EPC ratings have been obtained.
^ 60 13 Before acquisition costs of £2.3m.
^ 61 14 Before rent top-ups of £0.3m.
^ 62 15 Net of disposal costs of £0.5m.
^ 63 16 A full version of the Company’s Investment Policy is available at
custodianreit.com/wp-content/uploads/2021/02/CREIT-Investment-policy.pdf.
^ 64 17 The Board proposes increasing this upper lot-size limit to £15m at the Company’s forthcoming
AGM.
^ 65 18 A risk score of two represents “lower than average risk”.
^ 66 19 The Board proposes broadening the definition of refurbishment to include the redevelopment
of existing holdings, to a maximum 10% of the Company’s gross assets, at the Company’s forthcoming
AGM.
^ 67 20 Source: Numis Securities Limited.
^ 68 21 EPRA earnings per share divided by average share price.
^ 69 22 Comprising the tap issue of 550,000 shares on 7 May 2021 at 101.5p per share, a 6% premium
to NAV, and the issue of 20,247,040 shares as consideration for the acquisition of DRUM REIT on 3
November 2021 at their market value of 94.5p.
^ 70 23 Dividends totalling 5.625p per share (1.75p relating to the prior year and 3.875p relating
to the year) were paid on shares in issue throughout the year.
^ 71 24 An increase in the valuation of a property due to an excess of demand over supply.
^ 72 25 Current passing rent plus ERV of vacant properties.
^ 73 26 Includes car showrooms, petrol filling stations, children’s day nurseries, restaurants,
health and fitness units, hotels and healthcare centres.
^ 74 27 Passing rent divided by purchase price plus assumed purchasers’ costs.
^ 75 28 Weighted average unexpired lease term to first break or expiry.
^ 76 29 ERV of portfolio divided by property valuation plus purchaser’s costs.
^ 77 30 As defined by the LPCB Loss Prevention Standards.
^ 78 31 Excluding assets with no car parking facilities.
^ 79 32 Equating to 56 75kW ‘Rapid’ Chargers.
^ 80 33 Equating to 140 7kW ‘Fast’ Chargers.
^ 81 34 A ‘green lease’ incorporates clauses where the owner and occupier undertake specific
responsibilities/obligations regarding the sustainable operation/occupation of a property, for
example: energy efficiency measures, waste reduction/management and water efficiency.
^ 82 35 One EPC letter represents 25 energy performance asset rating points.
^ 83 36 As defined by the Committee on Climate Change.
^ 84 37 The sterling overnight index average (“SONIA”) which has replaced LIBOR as the UK’s main
interest rate benchmark.
^ 85 38 As defined by the Corporation Tax Act 2010.
^ 86 39 Assumed at 6.5% of investment property valuation.
══════════════════════════════════════════════════════════════════════════════════════════════════════
ISIN: GB00BJFLFT45
Category Code: MSCM
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
Sequence No.: 168905
EQS News ID: 1377669
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
87 fncls.ssp?fn=show_t_gif&application_id=1377669&application_name=news&site_id=reuters9
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