Interim Management Statement

RNS Number : 4497N

Custodian REIT PLC

28 July 2014

 



28 July 2014

Custodian REIT plc

("Custodian REIT" or "the Company")

Net Asset Value as at 30 June 2014, Interim Dividend

and Interim Management Statement

Custodian REIT (LSE: CREI), the UK property investment company, announces its unaudited Net Asset Value ("NAV") as at 30 June 2014, Interim Dividend and Interim Management Statement for the period from its initial placing and admission to the Official List on 26 March 2014 ("Admission") to 25 July 2014 ("the Period").  The initial issue allotted shares to acquire a portfolio of £95 million of UK commercial property ("the Initial Property Portfolio") and raised gross proceeds of £55 million through a placing and offer for subscription.  

Financial highlights

·     As at 30 June 2014:

-  Net Assets up 1% to £130.9 million (at Admission: £129.5 million)

-  NAV per share up 1% to 99.2 pence (at Admission: 98.2 pence)

-  Market capitalisation of £147.5 million, a premium of 11.2% to NAV

·     Interim dividend of 1.25 pence per share declared

Portfolio highlights

·     As at 30 June 2014:

-  Portfolio value of £111.4 million (at Admission: £95.2 million)

-  Seven acquisitions completed for total consideration of £15.7 million

-  Average net initial yield on acquisitions of over 7.9%

-  Occupancy rate remains at over 99.0%

·     Since 30 June 2014:

-  11 further acquisitions, giving total funds invested since Admission of £36.3 million

-  Strong pipeline, with over £17 million of properties under offer

The Board is not aware of any other significant events or transactions to the date of this statement which would have a material impact on the financial position of the Company. 

Investment strategy

The Company was launched to offer investors the opportunity to access a diversified portfolio of UK commercial real estate properties, including the Initial Property Portfolio, through a closed-ended fund.  By targeting smaller lot size properties, the Company intends to provide investors with a differentiated source of long-term income at a level representing an attractive dividend yield relative to that currently available from existing closed and open ended funds investing in UK commercial real estate properties.  The smaller lot size segment of the property sector has attracted increased investor demand over the preceding three months and the directors believe it continues to represent an attractive investment opportunity. 

Net Asset Value

The unaudited NAV of the Company at 30 June 2014 was £130.9 million, reflecting approximately 99.2 pence per share, an increase of 1.0% since Admission:

	Pence per share	£m
Net assets at 26 March 2014	98.2	129.5
Valuation uplift in property portfolio	0.5	0.6
Impact of acquisition costs	(0.6)	(0.8)
Overall unrealised valuation movement	(0.1)	(0.2)
Income earned for the period	1.4	2.0
Expenses for the period	(0.3)	(0.4)
Net assets at 30 June 2014	99.2	130.9

The NAV attributable to the ordinary shares of £1 each in the Company ("the Ordinary Shares") is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 30 June 2014 and income for the quarter, but does not include a provision for the interim dividend announced herein, which will be paid in September 2014. 

The improvement in NAV is in line with the board's expectations.  At Admission, the Company had net cash of £34.0 million.  Activity during the Period has been focused on acquisitions, with the aim of minimising any 'cash drag' on performance.  This investment only impacts NAV to the extent that acquisition costs are greater or less than the unrealised movement in valuations at the reporting date.  At 30 June 2014, the impact of £0.8 million of acquisition costs on NAV more than offsets a £0.6 million (0.6%) unrealised increase in property values.  

Portfolio activity

As at 30 June 2014, the Company had acquired the following properties since Admission:

·     Castleford - cost £1.575 million, comprising a 25,223 sq ft industrial/distribution unit on Willowbridge Way, Castleford let to Bunzl UK Limited with an unexpired lease term of nine years and five months.  Willowbridge Way is a modern industrial estate, ½ mile north of Junction 31 of the M62 motorway, in an established distribution location.  The property has a passing rent of £125,000 per annum, reflecting a net initial yield of 7.5%. 

·     Peterborough - cost £2.5 million, comprising a 25,724 sq ft car showroom and workshop on a 1.62 acre site let to Marshall Motor Group Limited with an unexpired lease term of five years at a passing rent of £225,500 per annum, reflecting a net initial yield of 8.5%.  

·     Biggleswade - cost £3.785 million, comprising a 49,919 sq ft distribution warehouse on a 2.87 acre site let to Turpin Distribution ServicesLimited ("Turpin").  Turpin has been a tenant since the building was constructed in 2004 and has just agreed a new five year lease expiring on 24 March 2019.  The property is let at a passing rent of £300,000 per annum, reflecting a net initial yield of 7.5%.  

·     Hamilton (Glasgow) - cost £1.815 million, comprising a 38,164 sq ft warehouse unit on a 2.41 acre site with access to an 80 space car park and loading yard.  The property is let to Ichor Systems Limitedon a ten year lease expiring on 7 May 2024 without a break, at a passing rent of £175,000 per annum, reflecting a net initial yield of 9.01%.

·     Nuneaton - cost £2.951 million, comprising a 37,000 sq ft specialist parcel depot on a site of 3.26 acres.  The property is let to DX Network Services Limited on a 15 year lease expiring on 31 August 2016, at a passing rent of £242,000 per annum, reflecting a net initial yield of 7.75%.

·     Speke (Liverpool) - cost £3.1 million, comprising two modern industrial units (Unit C and Unit E) on the 100 acre Estuary Commerce Park, reflecting a net initial yield of 7.77%:

-  Unit C is let to Powder Systems Limited ("PSL") on a 20 year lease, expiring on 16 July 2020, at a passing rent of £135,500 per annum.  The building was purpose-built for PSL with expansion space on site, providing a long-term solution as the business grows.  

-  Unit E is let to DHL International (UK) Limited ("DHL") on a 20 year lease, expiring on 9 July 2020, at a passing rent of £119,239 per annum.  DHL has been in occupation since 2000 and elected not to operate its break clause in 2010, showing a commitment to this strategic location.  

The Company has subsequently acquired the following properties between 1 July 2014 and the Period end:

·     Castleford - cost £1.61 million, comprising a brand new 12,940 sq ft trade counter unit on Willowbridge Lane (A655), which is the main arterial route into Castleford from Junction 31 of the M62 motorway, half a mile to the south.  The property is let to MKM Building Supplies Limited on a 20 year lease, without break, expiring on the 7 January 2034.  The lease provides for five yearly rent reviews, with rental increases linked to the retail prices index (RPI).  The property is let at an initial rent of £110,000 per annum, reflecting a net initial yield of 6.45%. 

·     Portfolio of eight retail units and one trade counter unit - the Company has completed the purchase of seven of the properties and exchanged on a further two, subject to securing landlords' consent to the assignment of the long-leasehold interests, for a total purchase consideration of £17.4 million.  Tenants include JD Wetherspoon, Superdrug Stores, Whistles, Urban Outfitters, Poundland, Iceland, Cotswold Outdoors, Magnet and The Works.  Net initial yields on the portfolio range from 5.75% to 8.30% with an overall net initial yield (adjusted to reflect reduced agent's fees) of 6.97%.  Unexpired lease terms across the portfolio range from 3.0 years to 21.3 years, with an average weighted unexpired lease term of over 8.2 years.

·     High Wycombe - cost £1.625 million, comprising the freehold interest of a public house on Frogmore Lane in High Wycombe.  The property is let to the Stonegate Pub Company Limited trading as Yates's Wine Lodge, on a 999 year lease subject to a tenant's only break option in November 2026, giving an unexpired term of 12.3 years.  The current passing rent is £115,000 per annum, reflecting a net initial yield of 6.69%. 

For further details of properties in the portfolio please see www.custodianreit.com/property/portfolio.php. 

Sector and geographic analysis as at 30 June 2014

Sector	Weighting	Valuation £'000	Quarter movement
Industrial	44%	47,315	1.0%
Other1	24%	29,230	0.1%
Retail	17%	20,720	0.0%
Office	15%	14,110	1.6%
Total as at 30 June 2014	100%	111,375	0.6%

Six of the seven acquisitions completed in the period from Admission to 30 June 2014 were modern industrial properties, increasing the weighting to Industrial from 38% to 44%.  While the Company has a strong focus on industrial property, the shift in weightings is partly a result of the timing of acquisitions.  If the properties currently under offer complete as expected, the weighting to Industrial will reduce to 35%, as Retail and Other sectors increase to 24% and 29% respectively. 

Location	Weighting	Valuation £'000	Quarter movement
West Midlands	22.2%	24,685	0.9%
East Midlands	16.1%	17,890	0.7%
South-East	15.4%	17,205	0.0%
North-West	13.9%	15,450	-0.1%
South-West	9.6%	10,790	0.3%
Scotland	8.1%	8,985	3.5%
East Anglia	7.7%	8,545	-0.2%
North-East	5.3%	5,930	-0.4%
Wales	1.7%	1,895	-0.3%
Total as at 30 June 2014	100.0%	111,375	0.6%

The Company operates a geographically diversified portfolio across the UK, seeking to ensure that no one area represents an overly significant proportion of the portfolio. 

¹  Includes leisure, education and motor trade. 

Financing

Gearing policy and debt

The Company intends to operate 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.  At Admission, the Company entered into a loan facility agreement for Lloyds Bank plc to provide a £25 million revolving credit facility ("the RCF"). 

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.  Following Admission, gearing was reduced to zero to minimise any 'cash drag' on investment returns and the limit on the RCF was reduced to £0.1 million to minimise non-utilisation fees while the initial placing proceeds were invested.  In July 2014 the limit on the RCF was increased to £12.5 million and the full extent of this limit was drawn down to fund further property purchases. 

Placing Programme

The Board has discretion to issue up to 168,010,690 Ordinary Shares prior to 20 February 2015 pursuant to a placing programme ("the Placing Programme") intended to satisfy market demand for the Ordinary Shares and raise further monies for investment in accordance with the Company's investment policy. 

Dividend

On 23 July 2014 the Board approved a maiden interim dividend of 1.25 pence per share, to be paid on 30 September 2014 to shareholders on the register on 8 August 2014, with the ex-dividend date 6 August 2014. 

In the absence of unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve an annual dividend of 5.25 pence for the financial year ending 31 March 2015, implying an annualised dividend yield of 5.25% calculated by reference to the Company's issue price of 100p per share². 

²  This is a target only and not a profit forecast.  There can be no assurance that the target can or will be met and it should not be taken as an indication of the Company's expected or actual future results.  Accordingly, shareholders or potential investors in the Company should not place any reliance on this target in deciding whether or not to invest in the Company or assume that the Company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable. 

- Ends -

Further information:

Further information regarding the Company can be found at the Company's website www.custodianreit.com or please contact:

Custodian Capital Limited
Richard Shepherd-Cross / Nathan Imlach / Ian Mattioli	Tel: [phone]
	www.custodiancapital.com

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

Notes to Editors

Custodian REIT plc is a UK real estate investment trust ("REIT") listed on the London Stock Exchange.  The Company launched on 26 March 2014, acquiring a portfolio of £95 million of UK commercial property.  This was sourced from an existing portfolio of 48 properties held by clients of Mattioli Woods plc in a syndicated structure.  The diverse portfolio consisted of properties let to institutional grade tenants on long leases throughout the UK. 

The Company also raised gross proceeds of £55 million through an initial public offering and will invest in a diversified portfolio of UK commercial properties to achieve its investment objective of providing shareholders with an attractive level of income together with the potential for capital growth. 

The target portfolio is characterised by small lot sizes with individual property values of less than £7.5 million at acquisition. 

Custodian Capital Limited is the discretionary investment manager of the Company.

For more information visit www.custodianreit.com and www.custodiancapital.com. 

Important notice

This interim management statement has been prepared solely to provide information to meet the requirements of the UK Listing Authority's Disclosure and Transparency Rules. 

Forward looking statements: This announcement includes "forward-looking statements".  All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's business strategy and plans are forward-looking statements. 

Forward-looking statements are subject to risks and uncertainties and accordingly the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements.  These factors include but are not limited to those that are described in the formal prospectus. 

These forward-looking statements speak only as at the date of this announcement.  The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect actual results or any change in the assumptions, conditions or circumstances on which any such statements are based unless required to do so by the Financial Services and Markets Act 2000, the Financial Services Act 2012, the Listing Rules or Prospectus Rules of the Financial Conduct Authority or other applicable laws, regulations or rules. 

Certain statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment.  Nothing in this announcement should be construed as a profit forecast.  Past share price performance cannot be relied on as a guide to future performance. 

 

END

 

 

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