Custodian REIT plc : Interim Results
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Custodian REIT plc (CREI)   6 December 2018   Custodian REIT plc  ("Custodian REIT" or "the Company")  Interim Results  Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its interim results for the six months ended 30 September 2018 ("the Period").  Financial highlights and performance Â
 Alternative performance measures, including EPRA Best Practice Recommendations, are used to assess the Company's performance. Explanations as to why alternative performance measures give valuable further insight into the Company's performance are given in the Company's Annual Report. Supporting calculations for alternative performance measures and reconciliations between non-statutory performance measures and their IFRS equivalents are set out in the 'Additional disclosures' section of the interim financial statements.  David Hunter, Chairman of Custodian REIT, said:  "I am pleased to report another successful period of positive shareholder returns and cautious investment in a market where value can still be found with a disciplined approach to deployment. We continue to target growth to realise the potential economies of scale offered by the Company's relatively fixed administrative cost base and tiered annual management charge.  "The Board and Investment Manager are closely monitoring the potential impact of evolving trends in the UK retail industry and 'Brexit' on commercial property markets.  Our role is to look beyond the media coverage to weigh up dispassionately the associated risks, which often create opportunity, and we expect proactive asset management will continue to drive performance in the portfolio, as rental growth at lease renewal or rent review remains robust. We also expect occupational demand, combined with a limited supply of new development, to maintain low vacancy rates across our regional portfolio.  "We are well placed to meet our target of paying further quarterly dividends, fully covered by net income, to achieve an annual dividend for the year of 6.55p per share, and remain committed to both growing the dividend on a sustainable basis and delivering capital value growth for our shareholders over the long-term."  Further information  Further information regarding the Company can be found at the Company's website www.custodianreit.com or please contact: Â
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 I am pleased to report the Company delivered further positive returns for the six months ended 30 September 2018. Earnings per share increased by 13% to 4.3p (2017: 3.8p) and the property portfolio increased through the investment of £27.7m in seven acquisitions, one refurbishment and one development. This expansion was funded by £8.4m raised from the issue of new shares and through the Company's existing debt facilities. We continue to target growth to realise the potential economies of scale offered by the Company's relatively fixed administrative cost base and the reducing scale of management charges. The Company continues to adhere to its investment policy and seeks to maintain the quality of both properties and income.  At the same time as growing the portfolio, we have continued to pay fully covered dividends in line with target and we have minimised 'cash drag' on the issue of new shares by taking advantage of the flexibility offered by the Company's £35m revolving credit facility.  The successful deployment of new monies on the acquisition of high quality regional assets at an average net initial yield[11] of 7.2% supports our objective to deliver strong income returns from a portfolio principally of sub £10m lots in strong, regional markets.  The Company's share price performance has allowed the Board to issue equity at an average premium of 13.2% above dividend adjusted NAV, more than covering the costs of issue and deployment.  Market  During the Period we have taken a cautious approach to acquisitions in a market where, in general, industrial values are increasing and certain retail asset values are decreasing, with little clarity on where they will settle. The Company has stuck firmly to its investment strategy of deploying its available resources into the right property assets and disposed of two weaker retail assets to improve the quality of the Company's retail portfolio. Property market conditions have restricted our ability to acquire properties that meet our strategy at a sufficient rate to satisfy demand for new equity issuance. As a result new issuance has been limited which, in turn, has seen the Company's shares trade at a premium well ahead of most of our peers.  The Board and the Investment Manager follow closely the evolving trends in the UK retail industry, and its impact on commercial property markets.  Our role is to look beyond the media coverage to weigh up dispassionately the risks in a sector which often creates opportunity through a sweeping market reaction, and we believe the current retail environment is no different. Since the Period end we have acquired £25.0m of retail warehousing and £2.1m of high street retail at a significant discount to recent market pricing. These properties have been carefully selected with strong underlying attributes, are leased at affordable rents to tenants with sustainable business models and which trade strongly from those locations.  Net asset value  The Company delivered NAV per share total return of 4.3% for the Period, where the initial costs (primarily stamp duty) of investing £27.7m in property acquisitions, one development and one refurbishment diluted NAV per share total return by circa 0.4p, partially offset by raising £8.3m from the issue of new equity (net of costs), which added 0.2p per share. Â
 Activity during the Period also centred on pro-active asset management, which generated a £3.9m valuation uplift. However, these gains were largely offset by a £3.5m valuation decrease due to the CVAs of Homebase, Office Outlet (formerly Staples) and Carpetright impacting the Company's units in Leighton Buzzard, Milton Keynes and Grantham respectively. Â
 Share price total return for the first half of the financial year was 10.3%, with a closing price of 121.4p per share on 30 September 2018 representing a 11.8% premium to NAV. During the Period the Company shares traded consistently at a premium to NAV with low volatility offering shareholders stable returns. I believe the increasing, but still relatively stable premium to NAV, has been a function of strong demand for closed-ended property funds, the increasing daily liquidity of the Company's shares, the Company's regional property investment strategy, focused asset management and the attractive level of income offered by the Company's dividend policy.  Issue of new ordinary shares  The Company issued 7.0m new shares during the Period at an average premium to the prevailing dividend adjusted NAV of 13.2%. These issues have been accretive to NAV with positive investor demand for the Company's shares a testament to the successful implementation of our strategy to date.  At the Annual General Meeting ("AGM") of the Company held on 19 July 2018, shareholders voted to limit the authority to issue new shares with pre-emption rights disapplied to a maximum of 10% of the Company's issued share capital ("Limit"). The Board had proposed a Limit of 20% in line with the 2017 changes to the EU Prospectus Directive, which increased the maximum proportion of the Company's issued share capital that can be issued over a 12-month period on a non-pre-emptive basis before the Company is required to publish a prospectus from 10% to 20%.  The Pre-Emption Group's Statement of Principles on Disapplying Pre-emption Rights, however, continues to support a Limit of 10%. Accordingly, 26.0m votes against a Limit of 20% were received, representing 47.4% of votes cast but only 7.4% of eligible votes, largely from shareholders following institutional proxy voting adviser recommendations which typically follow the Pre-emption Group's guidance.  In the Board's opinion, a Limit of 20% is justified to continue the Company's programme of tap issuance, allowing the Company to fund suitable property acquisitions in a cost-efficient manner by avoiding the significant costs of publishing a prospectus.  The Board believes that growing the Company efficiently is in the best interests of all shareholders as it reduces the Company's ongoing charges, diversifies income and increases share liquidity.  Due to the votes against a 20% Limit only representing 7.4% of eligible votes, and based on feedback from Shareholders since the 2018 AGM, the Board currently expects to request approval for a 20% Limit at the 2019 AGM.  Borrowings  As at 30 September 2018 net gearing equated to 20.5% LTV. The Board's strategy is to: Â
ÂÂ Â Â Â Â Â Â Taking advantage of low interest rates to secure long-term, fixed rate borrowing; and ÂÂ Â Â Â Â Â Â Managing the weighted average maturity ("WAM") of the Company's debt facilities. Â The Company operates the following debt facilities: Â
a)     £35m Tranche 1 repayable on 6 April 2032 attracting fixed annual interest of 3.02%; and b)     £15m Tranche 2 repayable on 3 November 2032 attracting fixed annual interest of 3.26%.  The weighted average cost of the Company's agreed debt facilities is 3.1% (2017: 3.1%) with a WAM of 9 years (2017: 10 years) and 77% (2017: 77%) of the Company's debt facilities are at a fixed rate of interest, significantly mitigating interest rate risk. Â
 The Board is pleased with the Investment Manager's performance, particularly the timely deployment of new monies on high quality assets, securing the earnings required to fully cover the target dividend.  The Investment Manager is appointed under an investment management agreement ("IMA") to provide property management and administrative services to the Company. Fees payable to the Investment Manager are set out in Note 16.  Dividends  Income is a major component of total return.  The Company paid dividends totalling 3.25p per share during the six-month Period, all classified as property income distributions, comprising interim dividends of 1.6125p per share and 1.6375p per share relating to the quarters ended 31 March 2018 and 30 June 2018 respectively.  The Board has approved an interim dividend of 1.6375p per share for the quarter ended 30 September 2018 which was paid on 30 November 2018. In the absence of unforeseen circumstances the Board believes the Company is well placed to meet its target[13] of paying further quarterly dividends, fully covered by income, to achieve an annual dividend per share for the year ending 31 March 2019 of 6.55p (2018: 6.45p).  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.  Outlook  Notwithstanding our cautious approach to investment in the current market we believe that value can still be found with a disciplined approach to deployment. The strength of the occupational market and softening yields for prime retail warehouse assets let to blue chip tenants both represent exciting opportunities, discussed more fully in the Investment Manager's report. Rental growth at lease renewal and rent review remains robust. We expect proactive asset management and rental growth will continue to drive performance in the portfolio and are confident we can maintain occupancy levels, which in turn will sustain our policy of paying a growing and fully-covered dividend to shareholders.  While we can never rule out some future impact on NAV as a result of falling confidence in the property market or general economic and political turbulence, we believe our strategy of securing sustainable income will support future dividends through any medium-term market volatility and deliver capital growth for shareholders over the long-term.  David Hunter Chairman 5 December 2018    Investment Manager's report  Property market  Investment market demand has continued in 2018 Q3 from property companies, institutions, private investors and overseas investors. While there have been marginal outflows from the open-ended funds and many REITs are trading at a discount to NAV (whereas the Company is currently trading at a premium to NAV), the demand for income focused investments has not abated. The rise in UK interest rates was sufficiently well forecast that it only had an imperceptible impact on the market and there does not appear to be an imminent threat of meaningful rate rises in prospect.  The continued demand for industrial/logistics properties has led to the sector showing the lowest initial yields in regional markets, in large part explained by the rental growth prospects in the sector which are being driven by occupational demand and more crucially, a lack of supply. This demand has led to an increase in speculative development, principally of 'big box' logistics units. We have yet to witness an increase in the development of smaller or mid-sized industrial units so the rental growth dynamics might be stronger at this end of the market.  The strength of the industrial market was evident in the sale of the Company's industrial building in Southwark. Not only had we recently secured a rental uplift from £9 per sq ft to £16 per sq ft, demonstrating extraordinary rental growth but subsequently negotiated the sale of the property to a special purchaser for £12.0m, £4.4m or 58% ahead of its 30 June 2018 valuation. Industrial property remains a very good fit with the Company's strategy but recent price inflation is limiting the opportunity to acquire properties that meet the investment mandate. Notwithstanding this challenge we added to the industrial sector of the portfolio during the Period and I expect the sector to remain a strong driver of rental growth for the Company.  Investment in the regional office market has also been consistently strong which has coincided with a number of the UK's 'big six' regional cities[14] hitting record rental levels for prime offices. Like the industrial sector it is restricted supply, the lack of development and the extensive conversion of secondary offices to residential which is maintaining the upward pressure on rents. However, we are conscious that economic and environmental obsolescence and lease incentives 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, so we remain very selective although open to opportunities.  There is a general move against retail as many institutional investors feel overweight in the sector where we have also witnessed an increase in CVA activity. While the easy explanation for the changing retail market is the rise of online retailing, the real picture is much more complex. Over-gearing, poor management strategy and an inability to modernise over an extended period of time has had a more detrimental impact on certain retailers than the internet. The challenge in the retail sector is not so much identifying the retailers who will prevail in the modern retail environment but to identify trends in rental levels in both retail sub-sectors and locations. In many locations rents need to adjust to support retailers, not least because labour costs are increasing and business rates are too high.  We generally feel comfortable that retail warehousing, with low rents per sq ft, 'big box' formats and free parking will be more robust than the High Street. Following in the footsteps of the USA the UK retail landscape is increasingly polarising, with robust city centre retail in the major conurbations where the experience of retail and leisure together has remained attractive and resilient out of town retail in smaller towns where convenience and choice is the stock-in-trade.  There is continued weakness in secondary high street retail locations with rental levels still under pressure and a very real threat of vacancy, but retailers are still keen to have representation on prime high streets. The challenge across all high street retail locations is to understand where rental levels will settle following the current retail shakeout.  We will continue to rebalance the portfolio to focus on strong retail locations while working on the orderly disposal of those assets we believe are ex-growth.  Across the portfolio we settled eight rent reviews and agreed six new lettings during the Period with a weighted average rental increase of 11.1% (5.4% simple average). This growth has come across all sectors from open market lettings and rent reviews and two RPI linked rent reviews. These rent reviews demonstrate the continuing opportunity to enhance earnings across Custodian REIT's diverse regional portfolio.  Portfolio performance  At 30 September 2018 the Company's property portfolio comprised 151 assets, 218 tenants and 259 tenancies with an aggregate net initial yield ("NIY") of 6.6%. The portfolio is split between the main commercial property sectors, in line with the Company's objective to maintain a suitably balanced investment portfolio, with a relatively low exposure to office and a relatively high exposure to industrial, retail warehouse and alternative sectors, often referred to as 'other' in property market analysis. The current sector weightings are: Â
 Pipeline  We continue to find opportunities that fit our investment strategy as demonstrated by the investment of £27.7m during the Period at an average NIY of 7.2%.  Since the Period end, we have invested £27.1m in the following acquisitions: Â
 Investment objective  The Company's key objective is to provide shareholders with an attractive level of income by maintaining the high level of dividend, fully covered by earnings, with a conservative level of net gearing.  We continue to pursue a pipeline of new investment opportunities with the aim of deploying the Company's undrawn debt facilities up to the net gearing target of 25% LTV. While the cost of debt remains near historical lows, we believe this strategy will improve dividend cover as net gearing increases towards the target level.  We expect to see continuing strong asset management performance as we secure rental increases and extend contractual income.  We remain committed to a strategy principally focused on sub £10m lot-size regional property, diversified across sector, geography and a broad tenant mix stands the portfolio in good stead against market shocks. The largest tenant in the portfolio, B&M, represents only 3.2% of the rent roll across four properties, with the average tenant representing only 0.5% of the rent roll. Â
 During the Period the Company completed the following property acquisitions:  Industrial Â
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 For details of all properties in the portfolio please see www.custodianreit.com/property/portfolio. Â
 The portfolio's security of income is enhanced by 13% of income benefitting from either fixed or indexed rent reviews although there is increasingly strong evidence of open market rental growth across all sectors.  Short-term income at risk is a relatively low proportion of the portfolio's total income, with 33% expiring in the next three years (8% within one year).  The Investment Manager does not anticipate any changes to the principal risks and uncertainties set out in the Company's Annual Report for the year ended 31 March 2018 over the remainder of the financial year. The Board considers it is too early to understand the full impact of 'Brexit' on revenues and portfolio valuation while the terms of the UK's future trading arrangement with the EU remain unclear. However, subject to there not being a 'no deal' Brexit, this political risk is not considered likely to have a material impact on the Company's performance due to the 'Mitigating factors' set out on page 64 of the Annual Report.  Asset management  Owning the right properties at the right time is one key element of effective portfolio management, which necessarily involves some selling from time to time to balance the portfolio. While Custodian REIT is not a trader, identifying opportunities to dispose of assets significantly ahead of valuation or that no longer fit within the Company's investment strategy, is important.  After focused pre-sale asset management, the following three properties were sold during the Period for a total of £15.4m, realising a profit on disposal of £4.3m at an aggregate NIY of 4.1%, with gross proceeds 39.8% ahead of aggregate valuation: Â
 We intend to use the proceeds from these disposals to fund acquisitions better aligned to the Company's long-term investment strategy.  Our continued 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 £3.9m valuation increase in the Period. Key asset management initiatives completed during the Period include: Â
 Further initiatives on other properties currently under review are expected to complete during the remainder of the financial year, although growth in rents and positive asset management outcomes were tempered by the following events: Â
 The portfolio's WAULT decreased from 5.9 years at 31 March 2018 to 5.6 years principally due to the natural 0.5 of a year's decline due to the passage of time over the Period and the Crewe lease forfeiture, partially offset by the positive impact of acquisitions with an aggregate WAULT of 6.2 years and asset management activities completed during the Period. Â
 We do not expect to see a meaningful change in investor demand for UK real estate over the next few months. The conundrum of a 'soft Brexit' or a 'no deal Brexit' appears increasingly to be occupying investors' thoughts and we anticipate continued relative inaction while investors wait to see what happens next. Meanwhile the occupational market in the regions remains short of supply which continues to support rental growth in office and industrial markets.  Secondary retail is also worrying the market and we may see further asset sales with falling values to match. We also expect a clearer picture to emerge as to which retail assets are in demand by occupiers which, in turn, might start to allay investors' fears in this sector.  We remain confident that the Company's strategy of targeting income with conservative net gearing in a well-diversified regional portfolio will continue to deliver the stable long-term returns demanded by our shareholders.  Richard Shepherd-Cross for and on behalf of Custodian Capital Limited Investment Manager 5 December 2018   Portfolio Â
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  Condensed consolidated statement of comprehensive income For the six months ended 30 September 2018
 The profit for the Period arises from the Company's continuing operations.
As at 30 September 2018 Registered number: 08863271 Â
 These interim financial statements of Custodian REIT plc were approved and authorised for issue by the Board of Directors on 5 December 2018 and are signed on its behalf by:    David Hunter Director  Condensed consolidated statement of cash flows For the six months ended 30 September 2018 Â
 Condensed consolidated statements of changes in equity For the six months ended 30 September 2018
 For the six months ended 30 September 2017
  Notes to the interim financial statements for the period ended 30 September 2018 Â
 The Company is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the London Stock Exchange plc's main market for listed securities. The interim financial statements have been prepared on a historical cost basis, except for the revaluation of investment property, and are presented in pounds sterling with all values rounded to the nearest thousand pounds (£000), except when otherwise indicated.  The interim financial statements were authorised for issue in accordance with a resolution of the Directors on 5 December 2018. Â
 2.1.      Basis of preparation  The interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.  The interim financial statements do not include all the information and disclosures required in the annual financial statements. The annual report for the year ending 31 March 2019 will be prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB (together "IFRS") as adopted by the European Union, and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.  The information relating to the Period is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. A copy of the statutory financial statements for the year ended 31 March 2018 has been delivered to the Registrar of Companies. The auditor's report on those financial statements was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.  The interim financial statements have been reviewed by the auditor and its report to the Company is included within these interim financial statements. Â
 2.2.      Significant accounting policies  The principal accounting policies adopted by the Company and applied to these interim financial statements are consistent with those policies applied to the Company's annual report and financial statements, except for the following new accounting standards in issue and effective from 1 April 2018: Â
 The Directors are currently assessing the impact on the financial statements of IFRS 16 'Leases' (effective 1 January 2019), which is not yet effective and has not been early adopted in this financial information.  The Directors do not expect the adoption of this standard to have a material impact on the financial statements, other than on presentation and disclosure.  2.3.      Going concern  The Directors believe the Company is well placed to manage its business risks successfully. The Company's projections show that the Company should continue to be cash generative and able to operate within the level of its current financing arrangements. Accordingly, the Directors continue to adopt the going concern basis for the preparation of the interim financial statements.  2.4.      Segmental reporting  An operating segment is a distinguishable component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the Company's chief operating decision maker to make decisions about the allocation of resources and assessment of performance and about which discrete financial information is available.  As the chief operating decision maker reviews financial information for, and makes decisions about, the Company's investment property as a portfolio the Directors have identified a single operating segment, that of investment in commercial properties.  2.5.      Principal risks and uncertainties  The Company's assets consist of direct investments in UK commercial property.  Its principal risks are therefore related to the UK commercial property market in general, the particular circumstances of the properties in which it is invested and their tenants.  Other risks faced by the Company include economic, strategic, regulatory, management and control, financial and operational.  These risks, and the way in which they are mitigated and managed, are described in more detail under the heading 'Principal risks and uncertainties' within the Company's Annual Report for the year ended 31 March 2018. The Company's principal risks and uncertainties have not changed materially since the date of that report. The Company's principal risks and uncertainties are not expected to change materially for the remaining six months of the Company's financial year. Â
 Basic earnings per share ("EPS") amounts are calculated by dividing net profit for the Period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the Period.  Diluted EPS amounts are calculated by dividing the net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the Period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. There are no dilutive instruments.  The following reflects the income and share data used in the basic and diluted earnings per share computations: Â
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 The effective tax rate for the Period is lower than the standard rate of corporation tax in the UK during the Period of 19.0%. The differences are explained below: Â
 The Company operates as a Real Estate Investment Trust and hence profits and gains from the property investment business are normally exempt from corporation tax.  Â
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 All dividends paid are classified as property income distributions.  The Directors approved an interim dividend relating to the quarter ended 30 September 2018 of 1.6375p per ordinary share in October 2018 which has not been included as a liability in these interim financial statements. This interim dividend was paid on 30 November 2018 to shareholders on the register at the close of business on 27 October 2018. In the absence of unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve an annual dividend of 6.55p per share for the financial year ending 31 March 2019[19]. Â
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 The investment property is stated at the Directors' estimate of its 30 September 2018 fair values. Lambert Smith Hampton Group Limited ("LSH"), a professionally qualified independent valuer, valued the properties as at 30 September 2018 in accordance with the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. LSH has recent experience in the relevant location and category of the properties being valued.  Investment property has been valued using the investment method which involves applying a yield to rental income streams. Inputs include yield, current rent and ERV. For the Period end valuation, the equivalent yields used ranged from 4.8% to 9.4%. 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 are subject to the Company's overall control environment, and assumptions applied by the valuer e.g. ERVs and yields. These assumptions are based on market observation and the valuer's professional judgement. In estimating the fair value of the property, the highest and best use of the properties is their current use. Â
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 The Company has provided fully for those receivable balances that it does not expect to recover. This assessment has been undertaken by reviewing the status of all significant balances that are past due and involves assessing both the reason for non-payment and the creditworthiness of the counterparty. Â
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 The Directors consider that the carrying amount of trade and other payables approximates their fair value. Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. For most suppliers interest is charged if payment is not made within the required terms. Thereafter, interest is chargeable on the outstanding balances at various rates. The Company has financial risk management policies in place to ensure that all payables are paid within the credit timescale. Â
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 Cash and cash equivalents include £1.3m (2017: £1.4m, 2018: £1.3m) of restricted cash comprising £1.2m rental deposits and £0.1m retentions held on behalf of tenants.  Â
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 All of the Company's borrowing facilities require minimum interest cover of 250% of the net rental income of the security pool. The maximum LTV of the Company combining the value of all property interests (including the properties secured against the facilities) must be no more than 35%.  The Company's borrowing position at 31 March 2018 is set out in the Annual Report for the year ended 31 March 2018. Â
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 The Company has made no further issues of new shares since the Period end.  The following table describes the nature and purpose of each reserve within equity: Â
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 Fair values  The fair values of financial assets and liabilities are not materially different from their carrying values in the half yearly financial report. The IFRS 13 Fair Value Measurement fair value hierarchy levels are as follows: Â
 There have been no transfers between Levels 1, 2 and 3 during the Period. The main methods and assumptions used in estimating the fair values of financial instruments and investment property are detailed below.  Investment property - level 3  Fair value is based on valuations provided by an independent firm of chartered surveyors and registered appraisers.  These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment property held by the Company.  The fair value hierarchy of investment property is level 3. At 30 September 2018, the fair value of investment property was £547.0m and during the Period the net valuation decrease was £1.4m.  Interest bearing loans and borrowings - level 3  As at 30 September 2018, the amortised cost of the Company's loans with Lloyds Bank plc, Scottish Widows plc and Aviva Real Estate Investors approximated their fair value.  Trade and other receivables/payables - level 3  The carrying amount of all receivables and payables deemed to be due within one year are considered to reflect the fair value. Â
 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 plc ("Mattioli Woods"), the parent company of the Investment Manager, and is a director of the Investment Manager. As a result, Ian Mattioli is not independent. The Company Secretary, Nathan Imlach, is also a director of Mattioli Woods and the Investment Manager. Â
 The Investment Manager was reappointed under a three year IMA with effect from 1 June 2017, under which the Investment Manager is delegated responsibility for the property 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.  During the Period the Investment Manager was paid an annual management charge ("AMC") calculated by reference to the NAV of the Company each quarter as follows: Â
 The Investment Manager provides day-to-day administration of the Company and provides the services of the Company Secretary, including maintenance of accounting records and preparing the annual financial statements of the Company.  During the Period the Company paid the Investment Manager an administrative fee calculated by reference to the NAV of the Company each quarter as follows: Â
 The IMA is terminable by either party by giving not less than 12 months' prior written notice to the other, which notice may only be given after the expiry of the three year term. 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 fee of 0.25% (2017: 0.25%) of the aggregate gross proceeds from any issue of new shares in consideration of the marketing services it provides to the Company.  During the Period the Investment Manager charged the Company £1.73m (2017: £1.54m, 2018: £3.12m) in respect of the AMC, £0.21m (2017: £0.20m, 2018: £0.49m) in respect of administrative fees and £0.02m (2017: £0.05m, 2018: £0.14m) in respect of marketing fees.  Properties  The Company owns MW House and Gateway House located at Grove Park, Leicester, which were partially let to Mattioli Woods during the Period. Mattioli Woods paid the Company rentals of £0.18m (2017: £0.21m, 2018: £0.35m) during the Period. Â
 Property acquisitions  On 16 November 2018 the Company acquired the Evesham Shopping Park for £14.2m comprising a terrace of five units occupied by Next, M&S, Boots, Argos and Poundstretcher. The units have a WAULT of 6.8 years, and the price reflects a NIY of 6.04%.  On 3 December 2018 the Company acquired Jubilee Close Retail Park in Weymouth for £10.8m comprising a terrace of three units occupied by B&Q, Halfords and Sports Direct. The units have a WAULT of 7.8 years, and the price reflects a NIY of 6.97%.  On 2 November 2018 the Company acquired a high street unit on The Grove in Stratford, East London for £2.1m let to Foxton's Estate Agents and The Incorporated Trustees of the Universal Church of the Kingdom of God with leases expiring on 30 April 2031 and 2 May 2025 respectively and the price reflects a NIY of 6.78%. Â
 We have been engaged by the Company to review the condensed half yearly financial report for the six-month period ended 30 September 2018 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows, the condensed consolidated statement of changes in equity and the related notes 1-17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.  This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.  Directors' responsibilities  The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.  As disclosed in note 2.1, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.  Our responsibility  Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Â
 We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.  Conclusion  Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.    Deloitte LLP Statutory Auditor Crawley, United Kingdom 5 December 2018  Directors' responsibilities for the interim financial statements  The Directors have prepared the interim financial statements of the Company for the period from 1 April 2018 to 30 September 2018.  We confirm that to the best of our knowledge:  a)     The condensed interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU; b)     The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R; c)     The interim financial statements includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year, and their impact on the Condensed Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and d)     The interim financial statements includes a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being material related party transactions that have taken place in the first six months of the current financial year and any material changes in the related party transactions described in the last Annual Report.  A list of the current directors of Custodian REIT plc is maintained on the Company's website at www.custodianreit.com.  By order of the Board  David Hunter Chairman 5 December 2018    Additional disclosures  1       NAV per share total return  A measure of performance taking into account both capital returns and dividends by assuming dividends declared are reinvested at NAV at the time the shares are quoted ex-dividend, shown as a percentage change from the start of the period. Â
 2       Net gearing  Gross borrowings less unrestricted cash, divided by portfolio value. Â
  3       EPRA EPS  EPRA earnings represent the earnings from core operational activities, excluding investment property valuation movements and gains or losses on asset disposals. It demonstrates the extent to which dividend payments are underpinned by recurring operational activities. Â
 4       EPRA vacancy rate  EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of the whole portfolio. Â
 - Ends - [1] Net Asset Value ("NAV") movement including dividends paid and approved relating to the Period on shares in issue at 31 March 2018. [2] Profit after tax divided by weighted average number of shares in issue. [3] The European Public Real Estate Association ("EPRA"). [4] Profit after tax excluding net gain on investment property divided by weighted average number of shares in issue. [5] Before costs and expenses of £0.1m. [6] Before acquisition costs of £1.6m. [7] Comprising £3.9m of valuation uplift from successful asset management initiatives less £3.7m of other valuation decreases and £1.6m of acquisition costs. [8] Estimated rental value ("ERV") of let property divided by total portfolio ERV. [9] Share price movement including dividends paid and approved for the Period. [10] Gross borrowings less unrestricted cash, divided by portfolio value. [11] Passing rent divided by valuation plus assumed purchaser's costs. [12] Dividends of 3.25p per share were paid on shares in issue throughout the Period. Dividends paid on shares in issue at the end of the Period averaged 3.2p per share due to new shares being issued after the Period's first ex-dividend date. [13] 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. [14] Edinburgh, Glasgow, Leeds Manchester, Liverpool and Birmingham. [15] Current passing rent plus ERV of vacant properties. [16] Includes car showrooms, petrol filling stations, children's day nurseries, restaurants, gymnasiums, hotels and healthcare units. [17] Purchase price stated for each acquisition represents purchase consideration before acquisition costs. [18] % of portfolio passing rent plus ERV of vacant units. [19] 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. |
| ISIN: | GB00BJFLFT45 |
| Category Code: | IR |
| TIDM: | CREI |
| LEI Code: | 2138001BOD1J5XK1CX76 |
| OAM Categories: | 1.2. Half yearly financial reports and audit reports/limited reviews |
| Sequence No.: | 6776 |
| EQS News ID: | 754923 |
| Â | |
| End of Announcement | EQS News Service |
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