Final Results

RNS Number : 5767P

Custodian REIT PLC

09 June 2015

 

9 June 2015

Custodian REIT plc

("Custodian REIT" or "the Company")

Final Results

Custodian REIT (LSE: CREI), the UK commercial real estate investment company, which listed on the main market of the London Stock Exchange on 26 March 2014 ("Admission"), today reports its final results for the 53 weeks ended 31 March 2015. 

Financial highlights

·     Net asset value ("NAV") total return¹ of 7.0% since Admission

·     Share price total return² of 13.3% on issue price

·     NAV per share up 3.2% to 101.3p (Admission: 98.2p)

·     Portfolio value £207.3m (Admission: £95.2m)

·     £107.6m invested in 39 acquisitions completed during the period

·     Average portfolio net initial yield 7.2%, unexpired lease term 7.2 years, occupancy rate 99.1%

·     £47.6m³ of new equity raised since Admission at average premium of 5% to NAV

·     Profit before tax of £8.7m

·     Total dividends paid of 3.75p per share, proposed Q4 dividend of 1.50p per share

·     Dividend cover⁴ of 104%

·     Net gearing⁵ of 11.4%

1.NAV movement including dividends paid

2.Increase in share price, including dividends paid

3.Before costs and expenses of £0.6 million

4.Realised profit for the period, excluding exceptional items, divided by dividends paid and proposed for the period

5.Gross borrowings less unrestricted cash divided by property portfolio valuation

 

Performance summary

	Period ended 31 Mar 2015		At Admission	% change
Total return
NAV total return	7.0%
Share price total return	13.3%
IPD all property return	17.1%
Dividends paid (p per share)	3.75
Earnings per share (p)	6.0
Dividend cover	104%
Capital values
NAV (£m)	180.0		129.5	38.8
NAV per share (p)	101.3		98.2	3.0
Ordinary share price (p)	109.5		100.06	9.0
Premium to NAV per share	8.1%		1.8%	3.6
Investment property portfolio valuation7 (£m)	207.3		95.2	117.4
Net gearing	11.4%		Nil	n/a
Costs
Ongoing charges ratio8	1.7%
Ongoing charges ratio excluding direct property expenses9	1.4%

Commenting on the final results, David Hunter, Chairman of Custodian REIT, said:

"I am pleased to report the Company's first annual results since its successful Admission to the main market.  We completed £107.6 million of high quality acquisitions in the year, more than doubling the size of the initial portfolio at Admission. 

"While the investment market has tightened significantly, in large part this is being matched by the strengthening occupational market.  This, combined with a dearth of modern, vacant space, is leading to rental growth in most office and industrial markets, reducing vacancy rates on the High Street and driving a return to rental growth in many retail centres.  This dynamic supports the Company's strategy of targeting a high income return, fully covered by income from smaller lot size properties across regional markets, which I expect to underpin the delivery of long term NAV growth and strong shareholder returns. 

"The Board intends to pay a fourth interim dividend of 1.5 pence per share on 30 June 2015, meaning total dividends for the period ended 31 March 2015 will be in line with our target of 5.25 pence per share.  The Company is well placed to meet its target of paying further quarterly dividends, fully covered by income, to achieve an annual dividend of 6.25 pence per share for the year ending 31 March 2016 and in subsequent years."  

6.Issue price

7.Includes impact of gearing

8.Expenses (excluding exceptional costs and operating expenses of rental property rechargeable to tenants) divided by average quarterly NAV

9.Expenses (excluding exceptional costs and operating expenses of rental property) divided by average quarterly NAV

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 Mattioli	Tel: [phone]
	www.custodiancapital.com

Numis Securities Limited
Nathan Brown / Hugh Jonathan	Tel: [phone]
	www.numiscorp.com

Camarco
Ed Gascoigne-Pees	Tel: [phone]
	www.camarco.co.uk

Analyst call

There will be an analyst call to discuss the results with Richard Shepherd-Cross, Managing Director of Custodian Capital Limited, the Company's discretionary investment manager, at 11:00am today. 

Those analysts wishing to attend are asked to contact Ed Gascoigne-Pees at Camarco on [phone] or at [e-mail]. 

 

Chairman's statement

I am pleased to report the Company's first annual results since its successful Admission to the premium segment of the main market of the London Stock Exchange on 26 March 2014. 

The Company was seeded with a £95.2 million portfolio ("the Initial Portfolio") and raised £55 million of new money on Admission, plus another £47.6 million via further share issues in October 2014 and February 2015.  As at 31 March 2015 these funds had been fully deployed together with £24.3 million of debt. 

The Board's initial objective was to invest the new monies raised on Admission promptly, minimising cash drag to ensure the target dividend of 5.25 pence for the period was fully covered, while enhancing NAV. 

The Board has appointed Custodian Capital Limited as the Company's external investment manager ("the Investment Manager") and were delighted this initial objective was achieved by 30 September 2014, the end of the first half year. 

In the second half our objective was to grow the fund to take advantage of the economies of scale offered by the Company's relatively fixed cost base while maintaining both the quality of property and length of income, with fully covered target dividends.  

Against this backdrop we completed £107.6 million of high quality acquisitions in the period, more than doubling the size of the Initial Portfolio, and demonstrating the continuing success of the Company's strategy of focusing on smaller lots in strong, regional markets. 

Market

Custodian REIT was one of only a few real estate investment trusts ("REITs") to launch successfully in 2014.  A combination of market timing, matched with the strong appeal of the Company's strategy to target single-let, smaller lot sized regional assets with low gearing and an attractive level of income return, met with investor approval. 

When the UK REIT regime was established in 2007 the principal focus was the conversion of existing listed property companies into REITs.  However, the onset of the global financial crisis meant the creation of new REITs all but dried up.  2014 marked a turning point, spurred on by removal of the 2% REIT conversion charge in the 2012 Finance Act.  Since then, new REITs have been established and off-shore listed funds have been converting to on-shore REITs, with a pipeline of new and exciting opportunities in the REIT arena. 

Going forward I believe REITs may become the default choice for many institutional investors, discretionary wealth managers and private clients looking to invest in the property market. 

 

Net Asset Value

The Company delivered NAV total return of 7.0% for the period, in line with the Board's expectations.  This was a period of significant new investment, where the initial costs (primarily stamp duty) of acquiring 39 new properties diluted the overall portfolio NAV total return by circa 4%. 

	Pence per share	£m
NAV at admission	98.2	129.5
Issue of equity (net of costs)	0.9	47.0
	99.1	176.5
Valuation uplift in property portfolio	4.3	6.3
Impact of acquisition costs	(3.9)	(5.8)
	99.5	177.0
Income	7.7	11.6
Expenses	(2.1)	(3.1)
Dividends paid	(3.8)	(5.5)
NAV at 31 March 2015	101.3	180.0

Share price

In the period ended 31 March 2015 the total return on the issue price of 100.0 pence was 13.3%, with the closing price at 31 March 2015 of 109.5 pence representing an 8.1% premium to NAV.  I believe this premium is a function of both strong demand for closed-ended property funds and the attractive level of the Company's target dividends. 

Placing of new ordinary shares

£55.0 million was raised at IPO of which £21.1 million was used to repay borrowings on the Initial Portfolio.  On 3 October 2014 the Company raised a further £25.0 million through the placing of 23,866,349 new ordinary shares at a price of 104.75 pence per share.  A further £22.6 million was raised on 12 February 2015 through the placing of 21,750,000 new ordinary shares at a price of 104.00 pence per share. 

Since the period end, the Company has issued a further 3,400,000 new shares at an average premium to dividend adjusted NAV of 8.8%.  This has been accretive to NAV and demonstrates positive investor demand for the Company's shares, a testament to the success of the Company's strategy to date. 

 

Borrowings

The Company's target gearing ratio is 25% loan to value.  Current debt of £24.3 million represents only 11.4% loan to value but the Investment Manager expects pipeline transactions will lead to further draw down on the Company's remaining £20.7 million facilities, increasing gearing accordingly.  Further longer term, fixed rate debt facilities are under negotiation to provide sufficient headroom to reach the target gearing level.

The Company's existing facilities will allow it to expand the portfolio further and maximise the opportunity to benefit from widespread rental growth across the market.  The Investment Manager reports a strong pipeline of opportunities, which I expect to secure long term NAV growth for shareholders. 

Investment Manager

The performance and fees payable to the Investment Manager are reviewed each year by the Management Engagement Committee.  The Board is pleased with the progress and performance of the Investment Manager and its ability to absorb and integrate the Initial Portfolio, to complete the acquisition of a further 39 properties following Admission and to maintain a net initial yield sufficient to fully cover the target dividend. 

Dividends

The Company has paid three interim dividends totalling 3.75 pence per share.  Income is a major component of total return and the Board is committed to growing future dividends sensibly.  The Board intends to pay a fourth interim dividend of 1.5 pence per share for the quarter ended 31 March 2015, to be approved in June 2015 and paid on 30 June 2015, meaning total dividends relating to the period ended 31 March 2015 will be in line with target at 5.25 pence per share. 

In the absence of unforeseen circumstances, the Board believes the Company is well placed to meet its target of paying further quarterly dividends, fully covered by income, to achieve an annual dividend of 6.25 pence per share for the year ending 31 March 2016 and in subsequent years. 

Outlook

While the investment market has tightened significantly, in large part this is being matched by the strengthening occupational market.  This, combined with a dearth of modern, vacant space, is leading to rental growth in most office and industrial markets, reducing vacancy rates on the High Street and a return to rental growth in many retail centres. 

 

The current market dynamic supports the Company's strategy of targeting a high income return, fully covered by income from smaller lot size properties across regional markets, which I expect to underpin the delivery of long term NAV growth and strong shareholder returns. 

David Hunter

Chairman

8 June 2015

 

Investment Manager's report

The property market's strong performance in 2014 has continued into the first half of 2015, with unrelenting demand driven by extraordinary net inflows of money into open-ended retail property funds, reported as being over £235 million in January and £300 million in February.  This follows £3.8 billion of net inflows in 2014, which exceeded the peak inflows seen in 2006¹⁰.  This demand, combined with tighter supply than in the last quarter of 2014, has placed continued upward pressure on pricing. 

Against this backdrop we were delighted to complete £25.8 million of acquisitions in the last quarter of the period ended 31 March 2015 at an average net initial yield of over 7.5%.  Total investment in the 12 months since Admission was £107.6 million, more than doubling the size of the Initial Portfolio.  This investment has been made while maintaining both the quality of property and length of income, demonstrating the success of the Company's strategy of focusing on smaller lots in strong, regional markets.  Despite incurring significant acquisition costs during the period, NAV has increased and the portfolio profile has strengthened in respect of diversification of tenant, sector and lease break/expiry.  We believe these acquisitions, particularly in the industrial sector which now represents 46% of the portfolio, have enhanced the potential for future rental growth, and consequently NAV growth. 

10.Source: PropertyWeek.com

Investment objective

The key investment objective of Custodian REIT 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 gearing. 

I am delighted to report we have achieved this, with the Company's earnings providing 104% cover to the target dividend for the period of 5.25 pence per share, with a gearing ratio of 11.4% at the period end. 

We continue to pursue a pipeline of new investment opportunities with the aim of fully deploying the Company's undrawn debt facilities within the limit of the conservative gearing target of 25% loan-to-value.  At the current cost of debt, and given the Company's capacity for new debt, we believe this strategy can improve dividend cover as we increase gearing towards the target level. 

Since Admission minimising cash drag through the prompt deployment of funds raised at IPO and subsequent share placings has been central to realising the key investment objective.  The Company benefits from a £25 million revolving credit facility, which has been integral to reducing cash drag, giving us the flexibility to reduce debt in the Company when new equity is issued. 

As noted in the Chairman's statement, the rate of investment has been ahead of expectations and again we believe this achievement demonstrates the success of the Company's strategy of focusing on smaller lots in strong, regional markets.  We remain confident we can continue to acquire properties that meet the Company's investment criteria and improve the portfolio mix.  In 2015 we are forecasting continued rental growth and low vacancy rates, supporting the Company's investment objectives. 

Portfolio performance

The first year's trading has been dominated by acquisitions, with the Company completing on 39 new properties, adding £107.6 million of assets to the portfolio.  Against the initial portfolio valuation at Admission and aggregate acquisition price of new properties, the 31 March 2015 valuation shows a 3.0% net increase in value, split by sector as follows:

Sector	Valuation 31 March  2015  £m	Weighting by income 31 Mar  2015	Change in valuation £m	Change in valuation %
Industrial	91.3	46.0%	4.3	2.0
Retail	49.7	22.0%	(0.1)	(0.0)
Office	24.1	13.4%	0.2	0.1
Other	42.2	18.6%	1.7	0.9
	207.3	100.0%	6.1	3.0

Industrial values have grown on the back of forecast rental growth.  There is very limited vacancy in core industrial and distribution locations with occupier-led and speculative development now a factor in these markets.  The Company's investment strategy is well suited to the industrial and distribution sector by virtue of lot size, quality of building, strength of tenant covenant and relatively low obsolescence of the underlying real estate.  This sector remains a key target for acquisitions, although we are cautious around the recent squeeze on pricing. 

High street retail remains a polarised market.  There is evidence of rental growth in many locations, particularly those driven by high-end comparison retailing.  Three of the Company's 24 existing high street properties have continued to see falling rents, resulting in a small valuation decrease for the sector as leases come closer to expiry.  However, vacancy rates across the market are falling, and with re-letting costs often lower than in other sectors, retail property continues to be an important part of an income focused portfolio.  

The retail warehouse sector has recently reported vacancy rates at their lowest levels since 2004¹¹.  The market is very different from the period when the failure of businesses such as MFI, Comet, Focus DIY and Dreams led to an excess of available space.  This has now been largely taken up as the discounters have moved in and the "Click and Collect" concept gathers pace.  Very low levels of development, combined with tenant demand, have led to an expectation that vacancy rates will continue to fall from the reported 7%11 in Q4 2014.  We expect this low vacancy rate will lead to shorter void periods at lease expiry with the potential for rental growth, and have continued to target retail warehousing accordingly. 

Offices that meet the demands of growing, modern businesses are in short supply and, in key locations, the market requires new development to meet occupier demand.  These factors are driving rental growth and have even encouraged speculative development in strategic locations.  Our focus is on modern or fit-for-purpose offices where there is evidence of this growth. 

The 'other' sector of the portfolio, which includes car showrooms, restaurants, hotels, children's day nurseries and petrol filling stations, can offer long leases, indexed or fixed rental uplifts as well as portfolio diversification, and it also remains a target sector for further acquisitions. 

11.Source: The Definitive Guide to Retail & Leisure Parks 2015

Portfolio risk

The portfolio's exposure to risk is reduced by 19% of income benefitting from either fixed or indexed rent reviews and 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 income, with only 21% expiring in the next three years (6% within one year). 

Asset management

While the principal focus in the first 12 months since Admission has been the acquisition of new properties, we have also been proactively managing the portfolio to enhance income and maintain cash flow.  Over the last three months we have approached 20 tenants across the portfolio regarding various asset management initiatives, including new lettings, lease renewals, lease extensions, rent reviews, lease surrenders, refurbishment, development or a combination of the above.  We are now in active discussions with 15 of the tenants contacted with overwhelmingly positive responses received, demonstrating a strong prevailing occupational market.

Key asset management events completed during the period include:

·     Abbeyfield Road, Nottingham - This property was acquired at Admission with the intention of re-gearing the long-leasehold interest with Nottingham City Council and concluding the 2015 lease expiry negotiations with the tenant, Vision Express, which was relocating.  In advance of concluding the lease expiry negotiations, a purchaser was identified and the property successfully sold in January 2015 for £1.5 million, some £0.3 million ahead of the 30 September 2014 valuation. 

·     George St, Edinburgh - We have agreed the outstanding rent review with Phase Eight, securing a 12.9% increase. 

·     Triangle Retail Scheme, Leicester - A successful rent review negotiation with Pizza Hut culminated in an arbitration award reflecting a 5.4% increase in the passing rent. 

·     Shepcote Enterprise Park, Sheffield - Following the appointment of administrators to our tenant, Unipart Automotive, terms were agreed with Andrew Page on a new 10 year lease at £83,700 per annum incorporating a fifth year rent review and tenant only break option.  This renegotiation maintained the previous passing rent, extended the unexpired term of the previous lease and was achieved without rental void. 

Outlook and pipeline

The supply of investment opportunities has reduced in Q1 2015 relative to Q4 2014, with demand exceeding supply and a limited number of active vendors.  At the start of 2015 there were additional impediments to property being offered for sale.  Initially there was a hangover from the very busy Q4 2014, followed by political uncertainty ahead of the General Election.  We now expect supply will increase.  Despite the supply-side restrictions in Q1, less fierce competition for smaller assets has allowed the Company to secure a strong pipeline of opportunities, with circa £20 million of properties currently under offer and in solicitors' hands.  In addition, we are actively tracking in excess of £15 million of assets, both on and off market. 

Custodian REIT has an investment strategy strongly focused on income.  We believe it is still possible to identify 'value' in the market, despite recent price inflation, by targeting properties where provable rental growth will underpin long term capital growth and deliver enhanced income cover to the Company's target dividend in the years ahead.

We expect recent asset management initiatives to improve the weighted average lease term of the portfolio, with tenants keen to agree lease extensions or to waive their options to break, enhancing the rent roll as increases are agreed at review or renewal. 

Looking ahead, we anticipate the strength of the occupational market and the consequential rental growth is likely to support the rise in market pricing, and so justify continued investment into the market.  In the current low-return environment, some commentators might justify current market pricing by reference to the margin over 10 year gilt yields, which is circa 400 basis points, well ahead of the long run average.  However, we believe it is important that investment decisions are fundamentally grounded in occupational demand, rental growth and an appropriate return for the risks of long term property ownership. 

 

I am confident the Company's strategy of targeting income with low gearing in a well-diversified regional portfolio will deliver the stable long term returns demanded by our shareholders. 

Richard Shepherd-Cross

for and on behalf of Custodian Capital Limited

Investment Manager

8 June 2015

 

Portfolio

	31 March 2015	At Admission
Portfolio value	£207.3m	£95.2m
Separate tenancies	135	90
Void rate less than	1%	1%
Assets	85	48
Average unexpired lease term	7.2 years	8.5 years
Net initial yield	7.2%	7.4%

Industrial

Location: Chesford Tenant: JTF Wholesale Net initial yield: 7.45% Portfolio income: 3.08%		Location: Ashby de la Zouch Tenant: Teleperformance Net initial yield: 10.22% Portfolio income: 2.94%
Location: Salford  Tenant: Restore Scan Net initial yield: 7.65% Portfolio income: 2.56%		Location: Bedford Tenant: Emerson Network Power & Elma Electronics Net initial yield: 8.28% Portfolio income: 2.50%
Location: Doncaster Tenant: Portola Packaging Net initial yield: 7.24% Portfolio income: 2.25%		Location: Stone Tenant: Revlon International Net initial yield: 9.09% Portfolio income: 2.05%
Location: Biggleswade Tenant: Turpin Distribution Services Net initial yield: 7.42% Portfolio income: 1.91%		Location: Normanton Tenant: Yesss Electrical Net initial yield: 6.28% Portfolio income: 1.79%
Location: Milton Keynes Tenant: Massmould Net initial yield: 6.83% Portfolio income: 1.77%		Location: Redditch Tenant: SAPA Profiles  Net initial yield: 7.56% Portfolio income: 1.59%
Location: Milton Keynes Tenant: Domino's Net initial yield: 11.25% Portfolio income: 1.59%		Location: Nuneaton Tenant: DX Network Services Net initial yield: 7.73% Portfolio income: 1.53%
Location: Plymouth Tenant: Geocel  Net initial yield: 6.83% Portfolio income: 1.49%		Location: Coventry Tenant: Royal Mail Group Net initial yield: 5.85% Portfolio income: 1.47%
Location: Manchester Tenant: Unilin Distribution Net initial yield: 6.71% Portfolio income: 1.39%		Location: Avonmouth Tenant: Superdrug Stores Net initial yield: 7.04% Portfolio income: 1.36%
Location: Oldbury Tenant: Sytner BMW  Net initial yield: 6.59% Portfolio income: 1.32%		Location: Southwark Tenant: Constantine Net initial yield: 5.59% Portfolio income: 1.27%
Location: Cambuslang Tenant: Brenntag UK Net initial yield: 8.74% Portfolio income: 1.25%		Location: Aberdeen  Tenant: DHL Express (UK) Net initial yield: 7.68% Portfolio income: 1.22%
Location: Leeds Tenant: Nationwide Crash Repair Centres & Sovereign Air Movement Net initial yield: 7.51% Portfolio income: 1.19%		Location: Hamilton Tenant: Ichor Systems Net initial yield: 8.27% Portfolio income: 1.11%
Location: Erdington Tenant: West Midlands Ambulance Services NHS Trust Net initial yield: 5.19% Portfolio income: 0.96%		Location: Sheffield  Tenant: Synergy Health (UK) Net initial yield: 6.30% Portfolio income: 0.86%
Location: Liverpool  Tenant: Powder Systems Net initial yield: 7.72% Portfolio income: 0.86%		Location: Coalville  Tenant: MTS Logistics Net initial yield: 9.27% Portfolio income: 0.83%
Location: Wakefield Tenant: Bunzl UK Net initial yield: 7.50% Portfolio Income: 0.79%		Location: Liverpool Tenant: DHL International Net initial yield: 7.11% Portfolio income: 0.75%
Location: Sheffield Tenant: River Island Clothing & Andrew Page Net initial yield: 8.75% Portfolio income: 0.68%		Location: Huntingdon   Tenant: Personal Hygiene Services Net initial yield: 8.00% Portfolio income: 0.66%
Location: Kilmarnock Tenant: Royal Mail Group Net initial yield: 8.05% Portfolio income: 0.60%		Location: Hinckley Tenant: Multi-let Net initial yield: 7.93% Portfolio income: 0.48%

 

Retail

Location: Milton Keynes Tenant: Staples UK Net initial yield: 6.87% Portfolio income: 2.65%		Location: Grantham Tenant: Laura Ashley, Poundstretcher & Carpetright Net initial yield: 6.95% Portfolio income: 2.04%
Location: Colchester Tenant: Poundland & Savers Net initial yield: 8.41% Portfolio income: 1.58%		Location: Southampton Tenant: URBN UK Net initial yield: 6.69% Portfolio income: 1.39%
Location: Torpoint Tenant: Sainsbury's  Net initial yield: 6.75% Portfolio income: 1.38%		Location: Stourbridge Tenant: Multi-let  Net initial yield: 6.88% Portfolio income: 1.30%
Location: Norwich Tenant: Specsavers  Net initial yield: 7.47% Portfolio income: 1.27%		Location: Llandudno Tenant: WH Smith Net initial yield: 9.27% Portfolio income: 0.95%
Location: Nottingham Tenant: The White Company Net initial yield: 7.48% Portfolio income: 0.89%		Location: Shrewsbury Tenant: Cotswold Outdoors Net initial yield: 5.96% Portfolio income: 0.85%
Location: Jewellery Quarter Tenant: Multi-let  Net initial yield: 5.93% Portfolio income: 0.83%		Location: King's Lynn Tenant: Top Man Net initial yield: 8.69% Portfolio income: 0.79%
Location: Weston-Super-Mare Tenant: Superdrug Stores Net initial yield: 7.48% Portfolio income: 0.78%		Location: Glasgow Tenant: Greggs Net initial yield: 6.05% Portfolio income: 0.76%
Location: Southsea Tenant: Superdrug Stores & Portsmouth City Council Net initial yield: 6.03% Portfolio income: 0.73%		Location: Edinburgh Tenant: Phase Eight (Fashions & Designs) Net initial yield: 5.04% Portfolio income: 0.70%
Location: Bury St Edmunds Tenant: The Works Stores Net initial yield: 6.54% Portfolio income: 0.57%		Location: Dumfries Tenant: Iceland Foods Net initial yield: 6.99% Portfolio income: 0.54%
Location: Hinckley Tenant: WH Smith Net initial yield: 8.48% Portfolio income: 0.44%		Location: Chester Tenant: Whistles Net initial yield: 6.16% Portfolio income: 0.37%
Location: Cirencester Tenant: Framemakers Galleries Net initial yield: 6.37% Portfolio income: 0.37%		Location: Bury St Edmunds Tenant: Savers Health & Beauty Net initial yield: 7.55% Portfolio income: 0.32%
Location: Cheltenham Tenant: Done Brothers (Cash Betting) t/a Betfred Net initial yield: 6.73% Portfolio income: 0.27%		Location: Portsmouth Tenant: Vacant Net initial yield: 0.00% Portfolio income: 0.00%

Office

Location: Leicester Tenant: Mattioli Woods, Royal Bank of Scotland & Regus Net initial yield: 8.00% Portfolio income: 3.04%		Location: Leeds Tenant: Enact Properties Net initial yield: 8.41% Portfolio income: 2.14%
Location: Leeds Tenant: Enact Properties Net initial yield: 8.83% Portfolio income: 1.84%		Location: Derby Tenant: Edwards Geldards Net initial yield: 9.05% Portfolio income: 1.63%
Location: Leicester Tenant: Mattioli Woods & Chesham Insurance  Net initial yield: 7.84% Portfolio income: 1.59%		Location: Glasgow Tenant: Multi-let Net initial yield: 7.34% Portfolio income: 1.26%
Location: Solihull  Tenant: Lyons Davidson Net initial yield: 9.05 % Portfolio income: 1.20%		Location: Manchester Tenant: Central Manchester University Hospitals NHS Foundation Net initial yield: 9.07% Portfolio income: 0.76%

Other

Location: Knutsford, Parkgate Tenant: Sytner Bentley Type: Motor trade Net initial yield: 5.27% Portfolio income: 2.33%		Location: Gillingham Tenant: Somerfield Stores Type: Petrol filling station Net initial yield: 8.09% Portfolio income: 1.70%
Location: Leicester Tenant: Magnet Type: Trade counter Net initial yield: 7.33% Portfolio income: 1.57%		Location: Dudley Tenant: Premier Inn Type: Hotel Net initial yield: 5.48% Portfolio income: 1.52%
Location: Peterborough Tenant: Marshall Motor Group Type: Showroom Net initial yield: 8.53% Portfolio income: 1.43%		Location: Portishead Tenant: Travelodge Type: Hotel  Net initial yield: 6.00% Portfolio income: 1.26%
Location: Crewe   Tenant: Multi-let  Type: Trade counter  Net initial yield: 9.23% Portfolio income: 1.01%		Location: Solihull Tenant: Allen Ford (UK)  t/a Kia Type: Motor trade Net initial yield: 8.38% Portfolio income: 0.92%
Location: Redhill Tenant: Honda Motor Europe Type: Motor trade Net initial yield: 6.96% Portfolio income: 0.89%		Location: Bath   Tenant: Prezzo Type: Restaurant  Net initial yield: 5.15% Portfolio income: 0.78%
Location: High Wycombe  Tenant: Stonegate Pub Co Type: Leisure  Net initial yield: 6.69% Portfolio income: 0.73%		Location: Castleford Tenant: MKM Building Supplies Type: Trade counter Net initial yield: 6.40% Portfolio income: 0.70%
Location: Redcar  Tenant: Landmark Property Investments Type: Sub-let retail Net initial yield: 9.50% Portfolio income: 0.64%		Location: Southsea Tenant: JD Wetherspoon Type: Leisure Net initial yield: 5.49% Portfolio income: 0.54%
Location: Watford Tenant: Pizza Hut Type: Restaurant Net initial yield: 5.93% Portfolio income: 0.54%		Location: Nottingham    Tenant: Multi-let Type: Residential   Net initial yield: 6.95% Portfolio income: 0.54%
Location: Leicester Tenant: Pizza Hut Type: Restaurant Net initial yield: 7.00% Portfolio income: 0.52%		Location: Basingstoke Tenant: Teddies Nurseries Type: Nursery Net initial yield: 7.44% Portfolio income: 0.40%
Location: Chesham Tenant: Teddies Nurseries Type: Nursery   Net initial yield: 7.12% Portfolio income: 0.33%		Location: Knutsford    Tenant: Knutsford Day Nursery Type: Nursery   Net initial yield: 6.85% Portfolio income: 0.32%
Location: Portishead    Tenant: Phase II Land Type: Ongoing development

 

Tenant summary

Tenant	% portfolio income
Industrial	46.0
JTF Wholesale	3.1
Teleperformance	2.9
Restore Scan	2.5
Portola Packaging	2.2
Royal Mail Group	2.0
Revlon International	2.0
Turpin Distribution Services	1.9
Yesss Electrical	1.8
Massmould	1.8
SAPA Profiles	1.6
Domino's	1.6
DX Network Services	1.5
Geocel	1.5
Unilin Distribution	1.4
Superdrug Stores	1.3
Sytner BMW	1.3
Constantine	1.3
Brenntag UK	1.3
Elma Electronics	1.3
Emerson Network Power	1.2
DHL Express (UK)	1.2
Ichor Systems	1.1
West Midlands Ambulance Service NHS Trust	1.0
Synergy Health (UK)	0.9
Powder Systems	0.9
Bunzl UK	0.8
DHL International	0.8
MTS Logistics	0.8
Personal Hygiene Services	0.7
Nationwide Crash Repair Service Centre	0.7
River Island Clothing & Andrew Page	0.6
Sovereign Air Movement	0.5
Multi tenanted - Phoenix Park	0.5
Retail	22.0
Staples UK	2.7
URBN UK	1.4
Sainsbury's	1.4
WH Smith	1.4
Multi tenanted	1.3
Specsavers	1.3
Poundland	1.0
The White Company	0.9
Cotswold Outdoors	0.9
Savers Health & Beauty	0.9
Laura Ashley	0.8
Multi tenanted	0.8
Top Man	0.8
Superdrug Stores	0.8
Greggs	0.8
Superdrug Stores & Portsmouth City Council	0.7
Phase Eight (Fashions & Designs)	0.7
Poundstretcher	0.6
Carpetright	0.6
The Works Stores	0.6
Iceland Foods	0.5
Whistles	0.4
Done Brothers (Cash Betting) t/a Betfred	0.3
Framemakers Galleries	0.2
Danish Wardrobe Company	0.2
Office	13.4
Enact Properties	3.9
Mattioli Woods	2.2
Edwards Geldards	1.6
Multi tenanted	1.3
Lyons Davidson	1.2
Royal Bank of Scotland	1.0
Regus	1.0
Central Manchester University Hospitals NHS Foundation Trust	0.8
Chesham Insurance	0.4
Other	18.6
Sytner Bentley	2.3
Somerfield Stores	1.7
Magnet	1.6
Premier Inn	1.5
Marshall Motor Group	1.4
Travelodge	1.3
Pizza Hut	1.1
Multi tenanted	1.0
Allen Ford (UK) t/a Kia	0.9
Honda Motor Europe	0.9
Prezzo	0.8
Stonegate Pub Co	0.7
MKM Buildings Supplies	0.7
Teddies Nurseries	0.7
Landmark Property Investments	0.6
JD Wetherspoon	0.6
Multi tenanted - Residential	0.5
Knutsford Day Nursery	0.3

 

Principal risks and uncertainties

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 table below outlines the current risk factors 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 type	Risks	Mitigating factors
Investment portfolio	·     Tenant default ·     Change in demand for space ·     Market pricing affecting value ·     Excess concentration in geographical location or sector ·     Lease expiries concentrated in a specific year ·     Decrease in occupancy	·     Investment policy limits the Company's rent roll to no more than 10% to a single tenant, and no more than 50% in any particular sector or geographical region ·     Focused on established business locations for investment ·     Active portfolio diversification between office, industrial (distribution, manufacturing and warehousing), retail and other ·     Active management of lease expiry profile and taking it into account in forming acquisition decisions ·     Building specifications not tailored to one user
Financial	·     Reduced availability or increased cost of debt ·     Breach of borrowing covenants	·     Target gearing of 25% LTV on property portfolio ·     Existing facilities sufficient for spending commitments and agreed until 2019 ·     On-going monitoring and management of the forecast liquidity and covenant position
Operational	·     Inadequate performance, controls or systems operated by the Investment Manager	·     Ongoing review of performance by independent Board of Directors
Regulatory risk	·     The Company may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.	·     Strong compliance culture ·     External professional advisers are engaged to review and advise upon control environment ·     Business model and culture embraces FCA principles ·     Financial strength provides comfort should capital resource requirements be increased

 

Business model and strategy

Investment objective and policy

The Company seeks to provide shareholders with an attractive level of income together with the potential for capital growth from investing in a diversified portfolio of commercial real estate properties in the UK, characterised by small lot sizes with individual property values of less than £7.5 million at acquisition.  The target portfolio should not exceed a maximum weighting to any one property sector, or to any geographic region, of greater than 50%.

The Company's investment objectives are:

·     To hold a portfolio of UK commercial property, diversified by sector, location, tenant and lease term. 

·     To focus on areas with high residual values, strong local economies and an imbalance between supply and demand.  Within these locations, the objective is to acquire modern buildings or those that are considered fit for purpose by occupiers. 

·     To have no one tenant or property accounting for more than 10% of the total rent roll of the portfolio at the time of purchase, except:

-  In the case of a single tenant which is a governmental body or department, where no limit shall apply; or

-  In the case of a single tenant rated by Dun & Bradstreet ICC Client Services as having a credit rating of less than 60, where the exposure to such single tenant may not exceed 5% of the total rent roll (a credit rating of 60 represents "normal, limited risk potential, normal terms"). 

·     To maintain an average unexpired lease term to first break of over five years across the portfolio secured against low risk tenants and to minimise rental voids. 

·     Not to undertake speculative development (that is, development of property which has not been leased or pre-leased), save for refurbishment of existing holdings, but may (provided that it shall not exceed 20% of the gross assets of the Company) invest in forward funding agreements or forward commitments (these being arrangements by which the Company may acquire pre-development land under a structure designed to provide the Company with investment rather than development risk) of pre-let developments, where the Company intends to own the completed development. 

·     To target borrowings of up to 25% of the aggregate market value of all the properties of the Company at the time of borrowing. 

Key performance indicators

The Board meets quarterly and at each meeting reviews performance against a number of key measures:

·     Dividend per share and dividend yield - A key objective is to provide an attractive, sustainable level of income to shareholders and the Board reviews the dividend per share and dividend yield in conjunction with detailed financial forecasts to ensure that target dividends are being met and are sustainable.

·     Property voids - The Board reviews the level of property voids within the Company's portfolio on a quarterly basis and compares this to the market average, as measured by the Investment Property Databank.  The Board seeks to ensure that proper priority is being given by the Investment Manager to replacing the Company's income.

·     Rent arrears - The Board assesses rent collection by reviewing the percentage of rents past due each quarter end.

·     Net asset value total return - The net asset value total return reflects both the net asset value growth of the Company and also the dividends paid to shareholders.  The Board regards this as the best overall measure of value delivered to shareholders.  The Board assesses the net asset value total return of the Company over various time periods and compares the Company's returns to those of its peer group of listed, closed-ended property investment funds.

·     Premium or discount of the share price to net asset value - The Board closely monitors the premium or discount of the share price to the net asset value and believes a key driver of the level of premium or discount is the Company's long term investment performance. However, there can be short term volatility in the premium or discount and the Board seeks limited authority at each Annual General Meeting ("AGM") to issue shares with a view to trying to limit this volatility.

The Board considers the performance measures both over various time periods and against similar funds.  A record of these measures are disclosed in the financial highlights, the Chairman's statement and the Investment Manager's report.

Finance

The Company operates with a conservative level of gearing, with expected borrowings over the medium term of up to 25% of the aggregate market value of all properties at the time of drawdown. 

Debt

On 25 February 2014, the Company agreed a revolving credit facility ("the RCF") of £25 million for a term of five years with Lloyds Bank plc.  The RCF is secured by way of a first charge over a discrete portfolio of properties, providing the lender with a maximum loan-to-value ratio of 49% on those properties specifically charged to it and a floating charge.  The Company pays annual interest of 2.45% above three-month LIBOR on such amounts as are drawn down under the agreement from time to time.

On 9 December 2014 the Company agreed a £20 million term loan with Lloyds Bank plc, secured by way of a first charge over a discrete portfolio of properties, providing the lender with a maximum loan-to-value ratio of 49% on those properties specifically charged to it and a floating charge.  The loan attracts interest of 2.00% and 1.90% above three-month LIBOR on the first and second £10 million tranches respectively drawn down, and is repayable on 10 October 2019. 

Equity

On 3 October 2014 the Company raised £25.0 million (before costs and expenses) through the issue of 23,866,349 new ordinary shares at 104.75 pence per share, which represented a premium of 5% to the NAV per share as at 30 September 2014.

On 12 February the Company raised £22.6 million (before costs and expenses) through the issue of 21,750,000 new ordinary shares at 104.00 pence per share, which represented a premium of 5% to the NAV per share at 31 December 2014 (adjusted for the proposed third quarter dividend).

Dividends

In the absence of unforeseen circumstances, the Board intends to pay a fourth quarterly dividend to achieve a total dividend of 5.25 pence per share for the period ended 31 March 2015 and an annual dividend of 6.25 pence per share in subsequent years, implying an initial annualised dividend yield of 5.25% and 6.25% thereafter, calculated by reference to the Company's issue price of 100 pence per share¹² ("the Issue Price"). 

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. 

Going concern

At 31 March 2015 the Company had net assets of £180.0 million and had undrawn debt facilities of £20.7 million.  The Investment Manager intends to deploy the Company's cash and debt facilities to achieve its dividend targets, while ensuring it has sufficient liquidity to cover its short term liabilities.  Therefore, the directors consider preparing the financial statements on a going concern basis to be appropriate.

Employees

The Company has four non-executive directors and no employees.  Non-executive directors are paid fixed salaries and participate in the performance of the Company through their shareholdings.  The Board is conscious of the increased focus on diversity in the boardroom and acknowledges the importance of diversity, while noting that changes to the composition of the Board should not be forced.  All non-executive directors are white male.  The Board believes that for any future appointment the best person for the role should be selected, while recognising the benefits of diversity when considering a particular appointment. 

 

Corporate social responsibility

The Company is committed to delivering its strategic objectives in an ethical and responsible manner.  The Company's environmental and social policies address the importance of these issues in the day-to-day running of the business, as detailed below. 

Environmental policy

There are four key areas of the environmental policy of the Company:

·     An independent environmental report is required for all potential acquisitions, which considers, amongst other matters, the historic and current usage of the site and the extent of any contamination present. 

·     An ongoing examination of the business activities of existing and new tenants is carried out to prevent pollution risks occurring.  The Company monitors all incoming tenants through its insurance programme to identify potential risk, and high-risk business activities are avoided.  As part of the active management of the portfolio, any change in tenant business practice considered to be an environmental hazard is reported and suitably dealt with. 

·     All sites are visited periodically and any obvious environmental issues are reported to the Board. 

·     All leases prepared after the adoption of the policy commit occupiers to observe any environmental regulations.  Any problems are referred to the Board. 

Portishead development

One of the agreements the Company has entered into is to fund a pre-let development in Portishead, adjacent to an existing investment.  The developer has taken due consideration for both ecological and sustainability considerations for a brownfield development site and the development has been designed to achieve a 'very good' BREEAM rating.  Solar panels have been included in the specification to reduce the development's projected carbon output by 7%, as well as the provision of high levels of insulation to the buildings thermal elements which have reduced the finished building's low U values.  This provides a much improved, stable environment and reduces heating and energy costs. 

Social policy

The activities of the Company are carried out in a responsible manner, taking into account the social impact. 

Greenhouse gas emissions

Under the Companies Act 2006 (Strategic and Directors' Reports) Regulations 2013, the Company is required to report annual greenhouse gas emissions.  The details for the period appear in the table below. As this is the first period the Company has been required to report the information, there is no comparison for the prior period.

Sources of greenhouse gas emissions		Period ended 31 March 2015
		tCO2e13
Scope 1
Gas, refrigerants and fuel		-
Scope 2
Landlord controlled electricity		66.6
Intensity measure
Emissions per £1m of rent		4.2

13.Tonnes of carbon dioxide equivalent

The operational control method has been used to reflect influence over energy consumption.  Tenant's usage or emissions are not included as the Company does not have control over those items.  Emissions from vacant space have been included.

Approval of Strategic Report

The Strategic Report, (incorporating the Chairman's statement, Investment Manager's statement, Portfolio, Principal Risks and Uncertainties and Business Model and Strategy) was approved by the Board of Directors and signed on its behalf by:

David Hunter

Director

8 June 2015

 

Consolidated and Company statement of comprehensive income 

For the period ended 31 March 2015

Group and Company			Period ended 31 March 2015	Period ended 24 March 2014
	Note		£000	£000
Revenue	4		11,570	-
Investment management fee			(1,542)	-
Operating expenses of rental property -     rechargeable to tenants			(342)
-     directly incurred			(373)	-
Professional fees			(494)	-
Directors' fees			(190)	-
Administrative expenses			(101)	-
Expenses			(3,042)	-
Operating profit before financing and revaluation of investment properties			8,528	-
Analysed as:
Operating profit before exceptional items			8,747	-
Exceptional costs of Admission	6		(219)	-
			8,528	-
Profit on disposal of investment properties			269
Unrealised gains/(losses) on revaluation of investment properties  -     relating to property revaluations	11		6,083	-
-     relating to costs of acquisition	11		(5,844)	-
			508	-
Operating profit before financing			9,036	-
Net finance costs	7, 8		(289)	-
Profit before tax			8,747	-
Income tax expense	9		(2)	-
Profit for the period and total comprehensive income for the period, net of tax			8,745	-
Attributable to:
Owners of the Company			8,745	-
Earnings per ordinary share:
Basic and diluted (pence per share)	3		6.0	-

The profit for the period arises from the Company's continuing operations.

 

Consolidated statement of financial position

As at 31 March 2015

Registered number: 8863271

			31 March 2015	24 March 2014
	Note		£000	£000
Non-current assets
Investment properties	11		207,287	-
Total non-current assets			207,287	-
Trade and other receivables	13		1,072	50
Cash and cash equivalents	15		849	-
Total current assets			1,921	50
Total assets			209,208	50
Equity
Issued capital	17		1,776	50
Share premium	17		175,009	-
Retained earnings	17		3,201	-
Total equity attributable to equity holders of the Company			179,986	50
Non-current liabilities
Borrowings	16		23,811	-
Total non-current liabilities			23,811	-
Current liabilities
Trade and other payables	14		2,292	-
Deferred income			3,119	-
Total current liabilities			5,411	-
Total liabilities			29,222	-
Total equity and liabilities			209,208	50

These consolidated financial statements of Custodian REIT plc were approved and authorised for issue by the Board of Directors on 8 June 2015 and are signed on its behalf by:

David Hunter

Director

 

Company statement of financial position

As at 31 March 2015

Registered number: 8863271

			31 Mar 2015	24 Mar 2014
	Note		£000	£000
Non-current assets
Investment properties	11		207,287	-
Investments	12		-	-
Total non-current assets			207,287	-
Trade and other receivables	13		1,072	50
Cash and cash equivalents	15		849	-
Total current assets			1,921	50
Total assets			209,208	50
Equity
Issued capital	17		1,776	50
Share premium	17		175,009	-
Retained earnings	17		3,201	-
Total equity attributable to equity holders of the Company			179,986	50
Non-current liabilities
Borrowings	16		23,811	-
Total non-current liabilities			23,811	-
Current liabilities
Trade and other payables	14		2,292	-
Deferred income			3,119	-
Total current liabilities			5,411	-
Total liabilities			29,222	-
Total equities and liabilities			209,208	50

These financial statements of Custodian REIT plc were approved and authorised for issue by the Board of Directors on 8 June 2015 and are signed on its behalf by:

David Hunter

Director

 

Consolidated and Company statement of cash flows

For the period ended 31 March 2015

Group and Company			Period ended 31 March 2015	Period ended 24 March 2014
	Note		£000	£000
Operating activities
Profit for the period			9,036	-
Adjustments for:
Increase in fair value of investment property	11		(6,083)	-
Profit on disposal of investment properties			(269)
Net non-cash finance charges	7,8		(85)	-
Income tax	9		(2)
Cash flows from operating activities before changes in working capital and provisions			2,597	-
Increase in trade and other receivables			(1,072)	-
Increase in trade and other payables			5,411	-
Cash generated from operations			6,936	-
Interest paid	8		(258)	-
Net cash flows from operating activities			6,678	-
Investing activities
Purchase of investment property			(125,728)	-
Disposal of investment property			1,784
Interest received	7		54	-
Net cash from investing activities			(123,890)	-
Financing activities
Proceeds from the issue of share capital			102,620	-
Payment of costs of share issue	17		(2,824)	-
New borrowings	16		23,811	-
Dividends paid	10		(5,546)	-
Net cash from financing activities			118,061	-
Net increase in cash and cash equivalents			849	-
Cash and cash equivalents at start of the period			-	-
Cash and cash equivalents at end of the period			849	-

 

Consolidated and company statement of changes in equity 

For the period ended 31 March 2015

	Note	Issued capital £000	Share premium £000	Retained earnings £000	Total equity £000
As at 27 January 2014		-	-	-	-
Profit for the period		-	-	-	-
Total comprehensive income for period		-	-	-	-
Transactions with owners of the Company, recognised directly in equity
Issue of share capital	17	50	-	-	50
As at 24 March 2014		50	-	-	50
Profit for the period		-	-	8,745	8,745
Total comprehensive income for period		-	-	8,745	8,745
Transactions with owners of the Company, recognised directly in equity
Dividends	10	-	-	(5,546)	(5,546)
Issue of share capital	17	1,726	175,009	-	176,735
Profit on disposal of own shares	17	-	-	2	2
As at 31 March 2015		1,776	175,009	3,201	179,986

Retained earnings includes £2.78 million of realised profits and £0.42 million of unrealised profits.

 

Notes to the financial statements for the period ended 31 March 2015

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 properties and certain financial assets, 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 8 June 2015. 

2.       Basis of preparation and accounting policies

2.1.    Basis of preparation

The consolidated financial statements have been 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, and therefore they comply with Article 4 of the EU IAS Regulation.

The prior period financial information was prepared to 24 March 2014, applying the provisions of the Companies Act 2006 allowing the financial statements to be drawn up to seven days before or after the accounting reference date of 31 March 2014.  The information for the current financial period has been prepared for the 53 week period from 25 March 2014 to 31 March 2015.

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. 

2.2.    Basis of consolidation

The consolidated financial statements consolidate those of the parent company and its subsidiary.  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.  The subsidiary has a reporting date in line with the Company.  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 period are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. 

2.3.    Application of new and revised International Financial Reporting Standards

During the period the Company has applied a number of amendments to IFRSs and a new interpretation issued by the International Accounting Standards Board (IASB) that are mandatorily effective for accounting periods beginning on or after 1 January 2014:

·     Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities

·     Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities

·     Amendments to IAS 36 Recoverable Account Disclosures for Non-financial Assets

·     Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting; and

·     IFRIC 12 Levies.

The application of the above amendments and interpretation has had no impact on the disclosures or on the amounts recognised in the Company's financial statements.  At the date of authorisation of these financial statements, the following new and revised IFRSs which have not been applied in these financial statements were in issue but not yet effective:

·     IFRS 9 'Financial Instruments';

·     IFRS 14 'Regulatory Deferral Accounts';

·     IFRS 15 'Revenue from Contracts with Customers';

·     Amendments to IFRS 11 'Accounting for Acquisitions of Interests in Joint Operations';

·     Amendments to IAS 16 and IAS 38 'Clarification of Acceptable Methods of Depreciation and Amortisation';

·     Annual improvements to IFRSs 2010-2012 Cycle; and

·     Annual improvements to IFRSs 2011-2013 Cycle. 

Other than to expand certain disclosures within the financial statements, the Directors do not anticipate that the application of these standards, amendments and interpretations will have a material impact on the Company's financial statements in future periods.   

 

2.4.    Significant accounting policies

The principal accounting policies adopted by the 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.  The Company's projections show that the Company should continue to be cash generative and be 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 financial statements. 

Income recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured.  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 amortised 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 amounts receivable on ongoing development funding contracts.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.  The tax currently payable is based on taxable profit for the period.  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 properties

Investment properties are properties held to earn rentals and/or for capital appreciation.  Investment properties are initially recognised at cost including direct transaction costs.  Investment properties are subsequently valued externally or by the Directors on an open market basis at the reporting date and recorded at valuation.  Any surplus or deficit arising on revaluing investment properties is recognised in the statement of comprehensive income in the year in which it arises.  Dilapidation 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 the statement of comprehensive income, offset against any directly corresponding movement in fair value of the investment property to which they relate. 

Group undertakings

Investments are included in the statement of financial position at cost less any provision for impairment.

Financial assets

The Company's financial assets include cash and cash equivalents and trade and other receivables.  All financial assets are initially recognised at fair value plus transaction costs, when the Company becomes party to the contractual provisions of the instrument.  Interest resulting from holding financial assets is recognised in the statement of comprehensive income 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 the statement of comprehensive income.

A financial asset is derecognised 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 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 investments

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 investments 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 period results as disclosed in the statement of comprehensive income.  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 the statement of comprehensive income 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

Payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term.

 

Exceptional items

Certain items have been disclosed as exceptional in the income statement where they relate to Admission and are therefore considered to be one off costs, as set out in Note 6 to the financial statements.

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 properties and properties held for trading as a portfolio, the Directors have identified a single operating segment, that of investment in commercial properties.

2.5.    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.   The areas where a higher degree of judgement or complexity arises, or where assumptions and estimates are significant to the financial statements, are discussed below. 

Valuation of properties

Investment properties are valued at the reporting date at fair value.  Where investment properties are 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 the statement of comprehensive income.  Valuation surpluses reflected in retained earnings are not distributable until realised on sale.

The Company considers valuations performed by independent valuers in determining the fair value of its investment properties.  The valuations are based upon assumptions including future rental income, anticipated maintenance costs and appropriate discount rates.  The valuers also make reference to market evidence of transaction prices for similar properties.

 

3.       Earnings per ordinary share

Basic earnings per share 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 earnings per share 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.

The following reflects the income and share data used in the basic and diluted earnings per share computations:

		Period  ended 31 March 2015	Period ended 24 March 2014
Net profit and diluted net profit attributable to equity holders of the Company (£000)		8,745	-
Weighted average number of ordinary shares:
Issued ordinary shares at start period		5,000,000	-
Effect of shares issued during the period		141,061,038	5,000,000
Basic and diluted weighted average number of shares		146,061,038	5,000,000
Basic and diluted earnings per share (pence)		6.0	-

4.       Revenue

	Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Gross rental income from investment properties	11,228	-
Income from recharges to tenants	342	-
	11,570	-

 

5.       Operating profit

Operating profit is stated after charging:

	Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Profit on disposal of investment property	269	-
Net gains on revaluation of investment properties	239	-
Fees payable to the Company's Auditor and their associates for the audit of the Company's annual financial statements	102	-
Fees payable to the Company's Auditor and its associates for other services	271	-

6.       Exceptional items

One-off costs incurred on Admission totalled £2.40 million of which £0.22 million was recognised in the statement of comprehensive income and £2.18 million was taken to the share premium account as being directly related to the issue of new shares. 

7.       Finance income

	Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Bank interest	54	-
Finance income	30	-
	84	-

8.       Finance costs

	Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Amortisation of arrangement fees on debt facilities	115	-
Bank interest	258	-
	373	-

 

9.       Income tax

The tax charge assessed for the period is lower than the standard rate of corporation tax in the UK during the period of 21.0%.  The differences are explained below:

	Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Profit before income tax	8,747	-
Tax charge on profit at a standard rate of 21.0%	1,837	-
Effects of:
REIT tax exempt rental profits and gains	(1,835)	-
Income tax expense for the period	2	Nil
Effective income tax rate	0.0%	0.0%

The Company operated as a Real Estate Investment Trust from 27 March 2014 and hence profits and gains from the property investment business since that date are normally exempt from corporation tax. 

The UK Government reduced the rate of corporation tax from 23% to 21% with effect from 1 April 2014, with a further reduction from 21% to 20% effective from 1 April 2015. 

10.     Dividends

		Period  ended 31 March 2015 £000	Period ended 24 March 2014 £000
Equity dividends on ordinary shares: - Interim dividend for the quarter ended 30 June 2014: 1.25p		1,650	-
- Interim dividend for the quarter ended 30 September 2014: 1.25p		1,948
- Interim dividend for the quarter ended 31 December 2014: 1.25p		1,948
		5,546	-

The Directors propose that the Company pays a fourth interim dividend relating to the quarter ended 31 March 2015 of 1.5 pence per ordinary share.  This dividend has not been included as a liability in these financial statements.  The fourth interim dividend is expected to be approved in June 2015 and paid on 30 June 2015 to shareholders on the register at the close of business on 8 May 2015.

In the absence of unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve an annual dividend of 6.25 pence per share¹⁴ for the financial year ending 31 March 2016, implying an annualised dividend yield of 6.25% calculated by reference to the Issue Price. 

14.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. 

11.     Investment properties

	£000	£000
At 27 January 2014 and at 24 March 2014		-
Acquisition of Initial Portfolio		95,190
Subsequent additions		113,373
Disposals		(1,515)
Property revaluations	6,083
Acquisition costs	(5,844)
Net revaluation gain		239
As at 31 March 2015		207,287

Included in investment properties is £1.92 million relating to an ongoing development funding.

The carrying value at 31 March 2015 comprises freehold and leasehold properties summarised as follows:

	Freehold	Leasehold	Total
Investment properties	£000	£000	£000
Cost	174,160	34,403	208,563
Valuation (deficit)/gain	(703)	942	239
Disposals	(1,515)	-	(1,515)
At 31 March 2015	171,942	35,345	207,287

The investment properties are stated at the Directors' estimate of their 31 March 2015 fair values.  Lambert Smith Hampton Group Limited ("LSH"), a professionally qualified independent valuer, valued the properties as at 31 March 2015 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 properties have been valued using the investment method which involves applying a yield to rental income streams.  Inputs include yield, current rent and estimated rental value ("ERV").  For the period end valuation, the equivalent yields used ranged from 5.0% to 9.5%.  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.  Included within the consolidated statement of comprehensive income is £0.42 million of valuation gains and profits on disposal of investment property which represent unrealised movements on investment property.

12.     Investments

Shares in subsidiaries

Company Name and company number	Country of registration and incorporation	Principal activity	Ordinary shares held	At 24 March 2014 and 31 March 2015 £
Custodian Real Estate Limited (Company number 8882372)	England and Wales	Dormant	100%	2

13.     Trade and other receivables

	31 March 2015 £000	24 March 2014 £000
Trade receivables	451	-
Other receivables	92	-
Prepayments and accrued income	529	-
	1,072	-

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.  Included within accrued income are balances totalling £0.28 million which are to be held for a period over one year.

14.     Trade and other payables

	31 March 2015 £000	24 March 2014 £000
Falling due in less than one year:
Trade and other payables	338	-
Social security and other taxes	687	-
Accruals	1,037	-
Rental deposit held	230	-
	2,292	-

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. 

15.     Cash and cash equivalents

	31 March 2015 £000	24 March 2014 £000
Cash and cash equivalents	849	-
	849	-

Cash and cash equivalents include £0.23 million of restricted cash in the form of rental deposits held on behalf of tenants.

16.     Borrowings

	31 March 2015 £000	24 March 2014 £000
Falling due in more than one year:
Bank borrowings	24,300	-
Costs incurred in the arrangement of bank borrowings	(489)
	23,811	-

The Company operates with a conservative level of gearing, with expected borrowings over the medium term of up to 25% of the aggregate market value of all properties at the time of drawdown.  On 25 February 2014, the Company and Lloyds Bank plc entered into a revolving credit facility agreement pursuant to which Lloyds Bank plc has agreed to provide the Company with a revolving credit facility ("the RCF") of £25 million for a term of five years.  The RCF is secured by way of a first charge over a discrete portfolio of properties, providing the lender with a maximum loan-to-value ratio of 49% on those properties specifically charged to it and a floating charge.  The interest cover will be at least 250% loan-to-value.  Under the terms of agreement, the Company pays interest of 2.45% above three-month LIBOR pa on the outstanding amounts utilised under the agreement from time to time.  At 31 March 2015, £4.3 million of the RCF had been drawn down to fund property acquisitions.

On 9 December 2014 the Company agreed a £20 million term loan with Lloyds Bank plc, secured by way of a first charge over a discrete portfolio of properties, providing the lender with a maximum loan-to-value ratio of 49% on those properties specifically charged to it and a floating charge.  The interest cover will be at least 250% loan-to-value.  The loan attracts interest of 2.00% and 1.90% above three-month LIBOR on the first and second £10 million tranches drawn down respectively, and is repayable on 10 October 2019. 

 

17.     Issued capital and reserves

Share capital	Redeemable ordinary shares of 1p	Ordinary shares  of 1p	£000
Issued and fully paid:
At 24 March 2014	4,999,999	1	50
At 31 March 2015	-	177,605,659	1,776

At incorporation the issued share capital of the Company consisted of one ordinary share of 1 pence and 4,999,999 redeemable ordinary shares of 1 pence each, which were issued to the subscriber to the Company's memorandum of association, Mattioli Woods plc.  On 26 March 2014 the redeemable ordinary shares were redeemed by the Company at par value and 131,989,309 ordinary shares were issued at an issue price of £1 each, including a premium of 99 pence per share. 

The Company raised £25.0 million (before costs and expenses) through a placing of 23,866,349 and £22.62 million (before costs and expenses) through a placing of 21,750,000 new ordinary shares in the Company on 8 October 2014 and 12 February 2015 respectively.

At 31 March 2015 the Board has discretion to issue up to 122,394,341 ordinary shares prior to 21 April 2016 pursuant to an authority to allot new shares for cash.  This 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.  The Company has made further issues of new shares since the period end which are detailed further in Note 21 to the financial statements. 

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.

 

Other reserves				Share premium account £000	Retained earnings £000
At 27 January 2014 and 24 March 2014				-	-
Shares issued during the period				177,833	-
Costs of share issue				(2,824)	-
Profit for the period				-	8,745
Dividends				-	(5,546)
Profit on sale of own shares taken directly to equity				-	2
At 31 March 2015				175,009	3,201

The following table describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose
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.

18.     Commitments and contingencies

Company as lessor

The Company lets all investment properties under operating leases.  The aggregated future minimum rentals receivable under all non-cancellable operating leases are:

	31 March 2015 £000	24 March 2014 £000
Not later than one year	15,257	-
Later than one year but not later than five years	48,407	-
Later than five years	46,840	-
	110,504	-

 

Company as lessee

The Company rents long-leasehold investment property.  The Company is committed to non-cancellable contractual expenditure relating to head lease agreements, summarised as follows:

	31 March 2015 £000	24 March 2014 £000
Not later than one year	36	-
Later than one year but not later than five years	145	-
Later than five years	3,392	-
	3,573	-

The Company has no other commitments or contingencies.

19.     Related party transactions

Save for transactions with directors, the Investment Management Agreement and the acquisition of the Initial Portfolio (all described below), the Company is not a party to, nor had any interest in, any other related party transaction since its incorporation on 27 January 2014. 

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. 

Investment Management Agreement

On 25 February 2014 the Company entered into a three year IMA with the Investment Manager, under which the Investment Manager has been appointed as Alternative Investment Fund Manager with 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.  

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, Nathan Imlach, is also a director of Mattioli Woods and the Investment Manager. 

The Investment Manager is paid a fund and asset management fee calculated by reference to the net asset value ("NAV") of the Company each quarter as follows:

·     0.9% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200 million divided by 4; plus

·     0.75% of the NAV of the Company as at the relevant quarter day which is in excess of £200 million divided by 4.

The Investment Manager has agreed to provide day-to-day administration of the Company and act as secretary to the Company, including maintenance of accounting records and preparing annual accounts of the Company.  The Company pays the Investment Manager an administrative fee equal to 0.125% of the NAV of the Company at the end of the quarter, subject to a minimum of £44,000 per quarter (adjusted for RPI). 

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 fee of 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 Company paid the Investment Manager £1.79 million in respect of annual management charges, administrative fees and placing fees. 

The Company had no outstanding balance owing to the Investment Manager at 31 March 2015. 

Acquisition of the Initial Portfolio

On 26 March 2014 the Company acquired the Initial Portfolio of 48 properties held in a syndicated structure by clients of Mattioli Woods including Ian Mattioli, Nathan Imlach and Richard Shepherd-Cross and the private pension schemes of Ian Mattioli, Nathan Imlach and Richard Shepherd-Cross. 

The Initial Portfolio included MW House and Gateway House at Grove Park, Enderby, which are partially let to Mattioli Woods.  Mattioli Woods paid the Company rentals of £0.35 million during the period and owed the Company £nil at 31 March 2015.

Ian Mattioli, Nathan Imlach, Richard Shepherd-Cross and the private pension schemes of Ian Mattioli, Nathan Imlach and Richard Shepherd-Cross continue to have a beneficial interest in the Company. 

 

20.     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. 

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 gearing ratio of 25% determined as the proportion of debt (net of unrestricted cash) to investment property.  The gearing ratio at the period-end was 11.4% (2014: nil%).

Externally imposed capital requirement

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 floating rate debt instruments with varying maturity profiles, at low levels of 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 rate.  The Company's low level of gearing and the flexibility afforded by its revolving credit facility allow the Company to manage the risk to changes in interest rates.  The Board periodically consider the availability and cost of hedging instruments to assess whether their use is appropriate, and also consider the maturity profile of the Company's borrowings. 

 

Interest rate sensitivity analysis

If three-month LIBOR had been 0.5% higher and all other variables were constant, the Company's profit for the period would decrease by £0.1 million due to its variable rate borrowings.  If three-month LIBOR had been 0.5% lower and all other variables were constant, the Company's profit for the period would increase by £0.1 million. 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.  The Company's credit risk is primarily attributable to its trade and 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 there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows. 

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 2015 was £2.4 million.

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 of directors, 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 not disclosed elsewhere.  The tables have 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.

 

			0-3 months £000	3 months- 1 year £000	1-5 years £000
Trade and other payables			2,292	-	-
Borrowings			-	-	23,811
At 31 March 2015			2,292	-	23,811

There were no financial liabilities at 24 March 2014.

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 liability that are not based on observable market data (unobservable inputs).

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 properties held by the Company. The fair value hierarchy of investment property is level 3. At 31 March 2015, the Company fair value of investment properties was £207.3 million.

Interest bearing loans and borrowings - level 3

As at 31 March 2015 the value of the Company's loans with Lloyds Bank plc was £24.3 million.

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. 

21.     Events after the reporting date

New equity

Since the reporting date the Company has issued 3,400,000 new ordinary shares of 1 pence each, raising £3.70 million (before costs and expenses). 

22.     Distribution of the annual report and accounts to members

The announcement above does not constitute a full financial statement of the Group's affairs for the period ended 24 March 2014 or the period ended 31 March 2015.  The Group's auditors have reported on the full accounts of each period and have accompanied them with an unqualified report.  The accounts have yet to be delivered to the Registrar of Companies. 

The annual report and accounts will be posted to shareholders in due course, and will be available on our website (www.custodianreit.com) and for inspection by the public at the Company's registered office address: 1 Penman Way, Grove Park, Enderby, Leicester LE19 1SY during normal business hours on any weekday.  Further copies will be available on request. 

The AGM of the Company will be held at Canaccord Genuity Limited, 41 Lothbury, London, EC2R 7AE on 22 July 2015 at 12:00pm. 

- Ends -

 

END

 

 

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