TIDMCREI
RNS Number : 8854U
Custodian REIT PLC
24 January 2017
24 January 2017
Custodian REIT plc
("Custodian REIT" or "the Company")
Unaudited Net Asset Value as at 31 December 2016
Custodian REIT (LSE: CREI), the UK commercial real estate
investment company, today reports its unaudited net asset value
("NAV") as at 31 December 2016 and highlights for the period from 1
October 2016 to 31 December 2016 ("the Period").
Financial highlights
-- NAV total return per share(1) for the Period of 1.8%
-- Dividend approved for the Period of 1.5875p per share
-- NAV per share of 101.9p (30 September 2016: 101.7p)
-- Net gearing(2) of 17.8% loan-to-value ("LTV") (30 September 2016: 21.1%)
-- GBP32.7m(3) of new equity raised during the Period at an
average premium of 4.0% to dividend adjusted NAV
-- Market capitalisation GBP353.4m (30 September 2016: GBP306.7m)
Portfolio highlights
-- Portfolio value of GBP407.9m (30 September 2016: GBP383.5m)
-- GBP1.0m valuation uplift from successful asset management initiatives
-- Occupancy(4) 98.4% (30 September 2016: 97.8%)
-- GBP25.4m(5) invested in five property acquisitions and one on-going development
-- Disposal of car dealership for GBP1.9m, GBP0.4m ahead of 30 September 2016 valuation
-- GBP6.8m committed pipeline of property acquisition opportunities
-- Since the Period end, GBP10.3m invested in the acquisition of
six retail units and two restaurants
(1) NAV movement including dividends paid.
(2) Gross borrowings less unrestricted cash divided by portfolio
valuation.
(3) Before costs and expenses of GBP0.6m.
(4) Portfolio passing rent divided by portfolio passing rent
plus the estimated rental value ("ERV") of vacant space.
(5) Before acquisition costs of GBP1.5m.
Net asset value
The unaudited NAV of the Company at 31 December 2016 was
GBP329.6 million, reflecting approximately 101.9 pence per share,
an increase of 0.2% since 30 September 2016:
Pence
per share GBPm
----------------------------------------- --------------- ----------
NAV at 30 September 2016 101.7 297.1
Issue of equity (net of costs) 0.1 32.1
101.8 329.2
Valuation movements relating to:
- Asset management activity 0.3 1.0
- Profit on disposal of investment
properties 0.1 0.3
- Other valuation movements (0.1) (0.3)
----------------------------------------- --------------- ----------
0.3 1.0
Acquisition costs (0.5) (1.5)
Net valuation movement (0.2) (0.5)
Income earned for the Period 2.3 7.4
Expenses and net finance costs for
the Period (0.6) (1.9)
Dividends paid(6) (1.4) (4.6)
NAV at 31 December 2016 101.9 329.6
----------------------------------------- --------------- ----------
(6) Dividends of 1.5875p per share were paid on shares in issue
throughout the Period. Dividends paid on shares in issue at the end
of the Period averaged 1.4p per share due to new shares being
issued ex-dividend.
During the Period the initial costs (primarily stamp duty) of
investing GBP25.4 million in property acquisitions and developments
diluted NAV per share total return by circa 0.5p, partially offset
by raising GBP32.1 million (net of costs) at an average 4% premium
to dividend adjusted NAV, which added 0.3p per share(7) .
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation as at 31 December
2016 and income for the Period, but does not include any provision
for the approved dividend for the Period, to be paid on 31 March
2017.
(7) 0.1p per share through new issuance plus 0.2p per share
notional dividend saving due to new shares being issued
ex-dividend.
The Company completed the following acquisitions during the
Period:
-- A distribution unit in Burton upon Trent let to Kings Road
Tyres and Repairs Limited for GBP7.06 million, with a net initial
yield ("NIY") of 6.77%;
-- A distribution unit in Daventry let to Cummins Limited for
GBP3.08 million, with a NIY of 6.75%;
-- A distribution unit in Bedford let to Heywood Williams
Components Limited for GBP3.25 million, with a NIY of 6.78%;
-- A retail and leisure property in Liverpool consisting of a
restaurant let to Ocean Park Limited (trading as Tai Pan) and a
health centre let to Liverpool Community Health NHS Trust for
GBP6.4 million with a NIY of 6.96%; and
-- A health and fitness centre in Stoke-on-Trent let to Greens
Health & Fitness Limited (trading as Nuffield Health) for
GBP4.855 million, with a NIY of 6.75%.
Since the Period end the Company has acquired a block of six
retail properties and two restaurants in Shrewsbury for GBP10.3
million, with a combined NIY of 6.07%, which increased net gearing
to 19.6% LTV.
Asset management
Our continuing focus on active asset management including rent
reviews, new lettings, lease extensions and the retention of
tenants beyond their contractual break clauses resulted in a GBP1.0
million valuation increase, with further initiatives expected to
complete in the coming months.
These strategies have also had a positive impact on the
portfolio's weighted average unexpired lease term to the first
lease break or expiry ("WAULT"), which only decreased to 6.0 years
from 6.2 years at 30 September 2016 despite the WAULT of properties
acquired during the Period being 5.5 years.
Key asset management initiatives undertaken during the Period
include:
-- Letting the vacant unit at Tilbrook 44 in Milton Keynes to
Saint Gobain Building Distribution Limited on a 10 year lease with
a rent of GBP265,000 per annum;
-- Surrendering Metaswitch Networks Limited's lease over 4,700
sq ft at Causewayside House, Edinburgh as at January 2017 and
re-granting a lease expiring in January 2027 over 9,500 sq ft;
and
-- Extending R Scott Bathrooms Limited's lease at Causewayside
House, Edinburgh with expiry moving from November 2017 to November
2027.
The Company sold a car dealership on Coventry Road, Solihull to
a special purchaser for GBP1.9 million in November 2016, GBP0.4
million ahead of the September 2016 valuation. The Company intends
to redeploy the sale proceeds on property with better short-term
income growth and long-term capital growth potential.
Property market
Commenting on the commercial property market, Richard
Shepherd-Cross, Managing Director of Custodian Capital Limited (the
Company's discretionary investment manager) said:
"We were delighted to see the New Year heralding Custodian REIT
hitting a market capitalisation of over GBP350 million.
"A widely expected busy fourth quarter of 2016 didn't
materialise until mid-November and the market was not quite as we
had predicted. There was a tighter supply than we had forecast as a
result of less selling from the open-ended funds which had eased
their redemption demand either by selling prime central London
assets to overseas buyers in July and August, or simply remaining
gated.
"This was coupled with a high level of demand resulting from a
number of factors. Many funds, which had done little in the run up
to the EU referendum and in the immediate post referendum period of
market shock, finally got busy in the fourth quarter. Private
investors continued to target smaller lot size property for its
stability and income credentials. There was a general acceptance
that the EU referendum had not called time on the underlying
fundamental benefits of UK property investment, particularly in
regional markets. There was also a clear bias in the market for
undoubted income and for the industrial sector. In essence many of
the key planks of Custodian REIT's investment strategy: income,
regional markets, sub-GBP10 million lots, a preference for
industrial, and a focus on occupational market dynamics had all
come centre stage.
"Despite competition in the market, we were delighted to invest
GBP25.4 million (net of acquisition costs) during the Period
including five high quality acquisitions all yielding in excess of
6.75%."
Activity and pipeline
Commenting on pipeline, Richard Shepherd-Cross said:
"By 31 December 2016 Custodian REIT had completed GBP92.4
million of acquisitions in the financial year to date, GBP72.9
million of which related to the period following the EU referendum,
demonstrating our confidence in the market.
"We have access to a strong pipeline and have a track record of
committing available capital promptly to the property market. We
are considering a number of current opportunities, having recently
completed the acquisition of a retail and leisure block located in
a prime area of central Shrewsbury, and have a further committed
pipeline of GBP6.8 million.
"We are seeing some premium prices being paid for sub-GBP2
million properties, with a very active private investor market. We
exchanged on the sale of one small property in January 2017 and
intend to take advantage of this pricing arbitrage to sell further
smaller assets and to re-invest in our core GBP2-10 million lot
size assets where we have yet to witness significant price
inflation."
Financing
Equity
The Company issued 31.4 million new ordinary shares of 1 pence
each in the capital of the Company during the Period ("the Shares")
raising GBP32.7 million (before costs and expenses). The Shares
were issued at an average premium of 4.0% to the unaudited NAV per
share at 30 September 2016, adjusted to exclude the dividend paid
on 31 December 2016 to shareholders on the register at the close of
business on 14 October 2016.
Debt
The Company operates a GBP35 million revolving credit facility
("RCF") with Lloyds Bank plc, which attracts interest of 2.45%
above three month LIBOR and expires on 13 November 2020. The
Company also operates a GBP20 million term loan with Scottish
Widows plc, which attracts interest fixed at 3.935% and is
repayable on 13 August 2025, and a GBP45 million term loan facility
with Scottish Widows plc which attracts interest fixed at 2.987%
and is repayable on 5 June 2028.
An additional GBP50 million term loan facility ("the New Loan")
has been agreed, repayable 15 years from drawdown at a fixed rate
of interest. The loan is to be drawn down in two tranches of GBP35
million and GBP15 million respectively, with the first drawdown
expected before the end of this financial year. The Company intends
to use the proceeds from the New Loan to first repay any remaining
amounts drawn under the RCF, with the remaining proceeds expected
to be used to acquire additional UK commercial real estate that can
further diversify the portfolio and enhance income yield.
Portfolio analysis
At 31 December 2016 the Company's property portfolio comprised
132 assets and 256 contractual tenants with a NIY(8) of 6.94% and
current passing rent of GBP30.1 million per annum.
(8) Portfolio passing rent divided by portfolio valuation plus
estimated purchasers' costs of 6.5%.
The portfolio is split between the main commercial property
sectors, in line with the Company's objective to maintain a
suitably balanced investment portfolio, but with a relatively low
exposure to office and a relatively high exposure to industrial and
to alternative sectors, often referred to as 'other' in property
market analysis. Sector weightings are shown below:
Valuation Period Weighting Weighting
31 Dec valuation by income(9) by income(9)
2016 movement 31 Dec 30 Sep
Sector GBPm GBPm 2016 2016
---------------- -------------- --------------- ------------------ ------------------
Industrial 182.2 0.6 45% 44%
Retail 109.5 (0.4) 26% 27%
Other(10) 64.3 0.3 15% 14%
Office 51.9 0.2 14% 15%
Total 407.9 0.7 100% 100%
------------------ -------------- --------------- ------------------ ------------------
(9) Current passing rent plus estimated rental value of vacant
properties.
(10) Includes car showrooms, petrol filling stations, children's
day nurseries, restaurants, health and fitness, hotels and
healthcare units.
While deemed to be outside the core sectors of office, retail
and industrial the 'other' sector offers diversification of income
without adding to portfolio risk, containing assets considered
mainstream but which typically have not been owned by institutional
investors. The 'other' sector has proved to be an out-performer
over the long-term and continues to be a target for
acquisitions.
Office rents are growing strongly and supply is constrained by a
lack of development and the extensive conversion of secondary
offices to residential making returns very attractive. However, the
Company's relatively low exposure to the office sector is a
long-term strategic decision rather than a short-term comment on
the state of the office market. We are conscious that obsolescence
can be a real cost of office ownership, which can hit cash flow and
be at odds with the Company's relatively high target dividend.
Similar to the office market, occupational demand is driving
rental growth in the industrial sector and returns are positive. As
industrial property is less exposed to obsolescence this sector
remains a very good fit with the Company's strategy.
Retail is split between high street and out-of-town retail
(retail warehousing). Strong comparison retail pitches in dominant
regional towns continue to show very low vacancy rates and offer
stable long-term cash flow, with the opportunity for rental growth.
Retail warehousing is witnessing close to record low vacancy rates
as a restricted planning policy and lack of development combine
with retailers' requirements to offer large format stores, free
parking and 'click and collect' to consumers.
The Company operates a geographically diversified portfolio
across the UK, seeking to ensure that no one area represents the
majority of the portfolio. The geographic analysis of the Company's
portfolio at 31 December 2016 is as follows:
Weighting
Valuation by income(11) Weighting
Period valuation
31 Dec 2016 movement 31 Dec by income(11)
Location 30 Sep
GBPm GBPm 2016 2016
---------------- -------- -------- ------------------ --------------------- -------------------- --------------------
South-East 79.7 0.0 20% 20%
West Midlands 72.8 0.5 16% 15%
North-West 63.5 (0.1) 15% 16%
East Midlands 45.5 0.0 11% 11%
South-West 41.5 0.3 10% 10%
North-East 35.2 (0.1) 8% 8%
Eastern 35.0 (0.1) 10% 10%
Scotland 29.7 0.4 8% 8%
Wales 5.0 (0.2) 2% 2%
Total 407.9 0.7 100% 100%
------------------------------------ ------------------ --------------------- -------------------- --------------------
(11) Current passing rent plus estimated rental value of vacant
properties.
For details of all properties in the portfolio please see
www.custodianreit.com/property/portfolio.php.
Dividends
An interim dividend of 1.5875 pence per share for the quarter
ended 30 September 2016 was paid on 31 December 2016. The Board has
approved an interim dividend relating to the Period of 1.5875 pence
per share payable on 31 March 2017 to shareholders on the register
on 20 January 2017.
In the absence of unforeseen circumstances, the Board intends to
pay a further quarterly dividend to achieve a target dividend(12)
for the year ending 31 March 2017 of 6.35 pence per share (2016:
6.25 pence per share, 2015: 5.25 pence per share). The Board's
objective is to grow the dividend on a sustainable basis, at a rate
which is fully covered by projected net rental income and does not
inhibit the flexibility of the Company's investment strategy.
(12) This is a target only and not a profit forecast. There can
be no assurance that the target can or will be met and it should
not be taken as an indication of the Company's expected or actual
future results. Accordingly, shareholders or potential investors in
the Company should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
- Ends -
Further information:
Further information regarding the Company can be found at the
Company's website www.custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Nathan Imlach / Ian Tel: +44 (0)116 240
Mattioli MBE 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260
1000
www.numis.com/funds
Camarco
Ed Gascoigne-Pees Tel: +44 (0)20 3757
4984
www.camarco.co.uk
Notes to Editors
Custodian REIT plc is a UK real estate investment trust, which
listed on the main market of the London Stock Exchange on 26 March
2014. Its portfolio comprises properties predominantly let to
institutional grade tenants on long leases throughout the UK and is
characterised by properties with individual property values of less
than GBP10 million at acquisition.
The Company offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. By targeting sub GBP10 million lot size,
regional properties, the Company intends to provide investors with
an attractive level of income with the potential for capital
growth.
Custodian Capital Limited is the discretionary investment
manager of the Company.
For more information visit www.custodianreit.com and
www.custodiancapital.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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