Replacement Unaudited NAV as at 30 September 2016

RNS Number : 7501M

Custodian REIT PLC

17 October 2016

 

The following replaces the Unaudited Net Asset Value announcement released on 14 October 2016.  As a result of typographical errors, reference to the Company's valuation uplift in investment properties of £2.5 million should have read £1.9 million, the issue price for New Shares of 103.9 pence per share should have read 103.6 pence per share, NAV total return for the Period of 1.6% should have read 1.4% and the NAV at 30 September 2016 of £297.7 million (101.9 pence per share) should have read £297.1 million (101.7 pence per share).  The amended announcement is detailed in full below.

THE INFORMATION IN THIS ANNOUNCEMENT IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN OR INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, ANY EEA STATE (OTHER THAN THE UK) OR ANY OTHER EXCLUDED TERRITORY.

14 October 2016

Custodian REIT plc

("Custodian REIT" or "the Company")

Unaudited Net Asset Value as at 30 September 2016

Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its unaudited net asset value ("NAV") as at 30 September 2016 and highlights for the period from 1 July 2016 to 30 September 2016 ("the Period").  

Financial highlights

·     NAV total return¹ for the Period of 1.4%

·     Dividend approved for the Period of 1.5875p per share

·     NAV per share of 101.7p (30 June 2016: 101.9p)

·   Net gearing² of 21.1% loan-to-value ("LTV") (30 June 2016: 14.5%), rising to 24.0% on completion of committed pipeline of new acquisition opportunities

·     £12.6m of new equity raised during the Period at an average premium of 4.9% to adjusted³ NAV

·     Intention to raise up to £20m additional equity capital at 103.6p per share, a 3.5% premium to adjusted³ NAV

·     Heads of terms agreed for a £50m, 15 year, fixed rate loan

Portfolio highlights

·     Portfolio value of £383.5m (30 June 2016: £339.1m)

·     £1.9m portfolio valuation uplift including £1.0m from successful asset management initiatives

·     Occupancy 97.8% (30 June 2016: 97.0%)

·     £47.0m invested in 13 property acquisitions and on-going developments

·     Disposal of hotel for £4.5m, £0.3m ahead of 31 March 2016 valuation

·     £15.0m committed pipeline of property acquisition opportunities

·    Since the Period end, £13.4m invested in three property acquisitions, increasing net gearing to 23.5% LTV with £32.0m deployed from the Company's £35.0m revolving credit facility

¹ NAV movement plus dividends paid.

² Gross borrowings less unrestricted cash divided by portfolio valuation.

³ Premium adjusted to deduct dividends earned but not paid post ex-dividend date.

Net asset value

The unaudited NAV of the Company at 30 September 2016 was £297.1 million, reflecting approximately 101.7 pence per share, a 0.2% fall from 30 June 2016:

	Pence per share	£m
NAV at 30 June 2016	101.9	285.5
Issue of equity (net of costs)	0.1	12.4
	102.0	297.9
Valuation movements relating to:
- Asset management activity	0.4	1.0
- Other valuation movements	0.3	0.9
	0.7	1.9
Acquisition costs	(1.0)	(2.7)
Net valuation movement	(0.3)	(0.8)
Income earned for the Period	2.2	6.2
Expenses and net finance costs for the Period	(0.6)	(1.7)
Dividends paid	(1.6)	(4.5)
NAV at 30 September 2016	101.7	297.1

The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 30 September 2016 and income for the Period, but does not include any provision for the approved dividend for the Period, to be paid on 31 December 2016.  

The Company completed the following acquisitions during the Period:

·     A distribution unit in Winsford let to H&M for £5.55 million, with a net initial yield ("NIY") of 7.15%;

·     Two retail warehouse units in Swindon let to Go Outdoors and B&M for £7.18 million, with a NIY of 6.86%;

·     A portfolio comprising 10 light industrial units ("the Light Industrial Portfolio") for £26.75 million, with a NIY of 7.86%; and  

·     A retail warehouse unit in Leighton Buzzard let to Homebase for £7.12 million with a NIY of 6.91%.

Since the Period end the Company has acquired three further properties for £13.4m, increasing net gearing to 23.5% LTV with £32.0 million now deployed from the Company's £35.0 million revolving credit facility ("RCF").

Acquisition costs incurred during the Period were 5.7% of total consideration, below typical purchaser's costs of 6.5% as the Light Industrial Portfolio was purchased via a corporate acquisition, allowing the Company to share net cost savings with the vendor.

Asset management

Our continuing focus on active asset management including rent reviews, new lettings, lease extensions and the retention of tenants beyond their contractual break clauses resulted in £1.0 million of the £1.9 million valuation increase, with further initiatives expected to complete in the coming months.  These strategies have also had a positive impact on the portfolio's weighted average unexpired lease term to the first lease break or expiry of 6.2 years.

Key asset management initiatives undertaken during the Period include:

·     Extending Brenntag UK's lease at an industrial unit in Cambuslang with expiry moving from April 2021 to April 2031 with a 2.5% (annually compounded) minimum rental uplift from 2026;

·   Extending Tesco's lease at Causewayside House, Edinburgh with expiry moving from December 2019 to December 2029;

·    Extending Savers' lease at a retail unit in Colchester with expiry moving from December 2017 to December 2022;

·     Letting a vacant retail unit in Portsmouth to The Works on a 10 year lease with rent of £105,000 per annum; and

·    Agreeing terms for a new letting at Tilbrook 44 in Milton Keynes on a 10 year lease with a rent of £265,000 per annum.

The Company sold a 63 room hotel on Castlegate Business and Leisure Park, Dudley for £4.45 million in July 2016, representing a net initial yield of 5.08%.  The property was sold ahead of cost and valuation and the Company intends to use the proceeds from the disposal to fund acquisitions better aligned to its stated investment strategy.

Property market

Commenting on the commercial property market, Richard Shepherd-Cross said:

"While it is too early to fully understand the impact of 'Brexit', with negotiations expected to start in March 2017, the impact of the EU referendum vote is now becoming clear. 

"The property market appeared to free-wheel for four months in the run up to the referendum, with most market protagonists unprepared to make decisions either to buy or to sell, or to lease or not to lease.  The widespread expectation was for a 'remain' vote and the consequential market shock saw the share price of listed property companies move to deep discounts to NAV, open-end funds 'gate' redemptions and property valuers to offer their valuations with a 'Brexit' qualification.

"Three months later there is investment market activity, listed property stocks have recovered (in the case of property investment companies to pre-referendum levels), some of the open-ended funds have re-opened and valuers have removed their qualification.  The market has been sufficiently active for valuations to be benchmarked against arm's length transactions and there is more data to support further yield hardening than softening.

"In central London markets, the collapse in Sterling provided a fillip to both overseas investors and open-ended fund managers alike, allowing many fund managers to provide the liquidity they so badly needed by selling prime London assets to overseas buyers who were energised by currency gains. 

"At the opposite end of the market, domestic UK private investors have been spurred on by the low cost of debt and the near zero interest rates on their savings to increase their property investment activity and we have witnessed upwards pressure on pricing for higher quality, small lot sized, well-let assets.

"Through this turbulent period in the capital markets, while money has been withdrawn from property leading to liquidity issues for open-ended funds and listed property stock volatility, the regional occupational property market has remained robust.  This market is experiencing rental growth, driven by a lack of supply, limited development and a generally low rental base from which to see growth.  We believe it is this strength in the occupational market that will be the engine of performance through the next phase of the market.  The focus will be on income, occupancy levels and income growth.  Regional markets and sub-£10m lot sizes in particular (where there has been less market pressure in the last two years) are well placed to out-perform whole market forecasts, with the benefit of higher yielding assets, fundamentally under-rented properties and a lack of supply that will sustain rental growth.

"We believe Custodian REIT's performance can be further enhanced through the careful asset management of the portfolio and it has been telling that in almost all cases over the last 18 months our tenants have elected to remain in occupation at lease break or expiry.  The occupancy rate now stands at 97.8%, up from 96.8% six months ago.  The continued focus on maintaining and enhancing the cash flow from the portfolio supports our dividend strategy of full income cover and sustainable growth.  While we can never rule out some future impact on NAV as a result of falling confidence in the property market, we believe the medium-term picture for sustainable income to support dividends is secure and there remains realistic long-term potential for NAV growth."

Activity and pipeline

Commenting on pipeline, Richard Shepherd-Cross said:

"As at 30 September 2016 Custodian REIT had completed £47.0 million of acquisitions following the EU referendum, demonstrating our confidence in the market.  September valuations recorded an increase compared to purchase prices agreed in July when market volatility had hit confidence.  A further £13.4 million of acquisitions have completed post Period end.

"Due to our confidence in regional property markets' ability to out-perform in a low return environment, we intend to raise new equity through the recently announced placing, to continue with Custodian REIT's investment strategy.  We have access to a strong pipeline of opportunities and a track record of committing new equity promptly to the property market.  While we are considering a number of current opportunities our ability to progress these is subject to raising new equity.

"We are seeing some premium prices being paid for sub-£2 million properties, with a very active private investor market.  We have two small properties under offer to sell and intend to take advantage of this pricing arbitrage to sell some smaller assets and to re-invest in our core £2-10 million lot size assets where we have yet to witness price inflation."

Financing

Equity

The Company issued 11.9 million new ordinary shares of 1 pence each in the capital of the Company during the Period ("the Shares") raising £12.6 million (before costs and expenses).  The Shares were issued at an average premium of 4.9% to the unaudited NAV per share at 30 June 2016, adjusted to exclude the dividend paid on 30 September 2016 to shareholders on the register at the close of business on 5 August 2016.

On 29 September 2016 the Company announced its intention to raise up to £20 million additional equity capital through the issue of new ordinary shares ("the New Shares") by way of a placing ("the Placing").  The Board has the ability to increase the quantum of the Placing dependent on demand and pipeline opportunities.  The New Shares will be issued at 103.6 pence per share, reflecting a premium of 3.5% to the unaudited NAV per share at 30 September 2016, adjusted to exclude the dividend relating to the Period payable on 31 December 2016 to shareholders on the register on 14 October 2016.  The net proceeds of the Placing are expected to be used to repay an element of the £32 million currently drawn under the Company's RCF.  

Debt

The Company operates a £35 million RCF with Lloyds Bank plc, which attracts interest of 2.45% above three month LIBOR and expires on 13 November 2020.  The Company also operates a £20 million term loan with Scottish Widows plc, which attracts interest fixed at 3.935% and is repayable on 13 August 2025, and a £45 million term loan facility with Scottish Widows plc which attracts interest fixed at 2.987% and is repayable on 5 June 2028.

Heads of Terms have been agreed for a new £50 million term loan facility ("the New Loan"), repayable 15 years from drawdown at a fixed rate of interest.  The Company intends to use the proceeds from the New Loan to first repay any remaining amounts drawn under the RCF with any remaining proceeds expected to be used to acquire additional UK commercial real estate that can further diversify the portfolio and enhance income yield.

Portfolio analysis

At 30 September 2016 the Company's property portfolio comprised 128 assets and 251 tenants with a NIY of 6.95%.

The portfolio is split between the main commercial property sectors, in line with the Company's objective to maintain a suitably balanced investment portfolio, but with a relatively low exposure to office and a relatively high exposure to industrial and to alternative sectors, often referred to as 'other' in property market analysis, as demonstrated in the sector weightings below:

Sector			Valuation  30 Sept 2016  £m	Period valuation movement £m	Weighting by income4 30 Sept 2016	Weighting by income4 30 Jun 2016
Industrial			167.6	1.5	44%	40%
Retail			109.3	0.2	27%	27%
Other5			54.9	(0.1)	14%	16%
Office			51.7	0.3	15%	17%
Total			383.5	1.9	100%	100%

⁴ Current passing rent plus estimated rental value of vacant properties.

⁵ Includes car showrooms, petrol filling stations, children's day nurseries, restaurants and hotels.

While deemed to be outside the core sectors of office, retail and industrial the 'other' sector offers diversification of income without adding to portfolio risk, containing assets considered mainstream but which typically have not been owned by institutional investors.  The 'other' sector has proved to be an out-performer over the long-term and continues to be a target for acquisitions. 

Office rents are growing strongly and supply is constrained by a lack of development and the extensive conversion of secondary offices to residential making returns very attractive.  However, the Company's relatively low exposure to the office sector is a long-term strategic decision rather than a short-term comment on the state of the office market.  We are conscious that obsolescence can be a real cost of office ownership, which can hit cash flow and be at odds with the Company's relatively high target dividend.

Similar to the office market, occupational demand is driving rental growth in the industrial sector and returns are positive.  As industrial property is less exposed to obsolescence this sector remains a very good fit with the Company's strategy.

Retail is split between high street and out-of-town retail (retail warehousing).  Strong comparison retail pitches in dominant regional towns continue to show very low vacancy rates and offer stable long-term cash flow, with the opportunity for rental growth.  Retail warehousing is witnessing close to record low vacancy rates as a restricted planning policy and lack of development combine with retailers' requirements to offer large format stores, free parking and 'click and collect' to consumers. 

The Company operates a geographically diversified portfolio across the UK, seeking to ensure that no one area represents the majority of the portfolio.  The geographic analysis of the Company's portfolio at 30 September 2016 is as follows:

Location			Valuation  30 Sept 2016  £m	Period valuation movement £m	Weighting by income6 30 Sept 2016	Weighting by income6 30 Jun 2016
South-East			78.9	0.8	20%	19%
West Midlands			62.1	0.4	15%	18%
North-West			57.2	(0.1)	16%	13%
East Midlands			42.4	0.6	11%	13%
Eastern			31.9	0.1	10%	9%
South-West			41.2	0.0	10%	9%
Scotland			29.3	0.4	8%	9%
North-East			35.3	(0.3)	8%	8%
Wales			5.2	0.0	2%	2%
Total			383.5	1.9	100%	100%

⁶ Current passing rent plus estimated rental value of vacant properties.

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

Dividends

An interim dividend of 1.5875 pence per share for the quarter ended 30 June 2016 was paid on 30 September 2016.  The Board has approved an interim dividend relating to the Period of 1.5875 pence per share payable on 31 December 2016 to shareholders on the register on 14 October 2016.

In the absence of unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve a target dividend⁷ for the year ending 31 March 2017 of 6.35 pence per share (2016: 6.25 pence per share).  The Company's aim is to continue to increase dividends in a sustainable way, at a rate which is fully covered by net rental income and which does not inhibit the flexibility of its investment strategy. 

⁷ 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
Hugh Jonathan/Nathan Brown	Tel: [phone]
	www.numis.com/funds

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

Notes to Editors

Custodian REIT plc is a UK real estate investment trust, which listed on the main market of the London Stock Exchange on 26 March 2014.  Its portfolio comprises properties predominantly let to institutional grade tenants on long leases throughout the UK and is characterised by small lot sizes, with individual property values of less than £10 million at acquisition. 

The Company offers investors the opportunity to access a diversified portfolio of UK commercial real estate through a closed-ended fund.  By targeting smaller lot size properties, the Company intends to provide investors with an attractive level of income with the potential for capital growth. 

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

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

Important notice

This announcement does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any shares in Custodian REIT plc or securities in any other entity, in any jurisdiction, including the United States, nor shall it, or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with, any contract or investment decision whatsoever, in any jurisdiction.  This announcement does not constitute a recommendation regarding any securities.  Neither the content of the Company's website (or any other website) nor any website accessible by hyperlinks to the Company's website (or any other website) is incorporated in, or forms part of, this announcement. 

This announcement has been prepared by, and is the sole responsibility of, Custodian REIT plc.  Terms used and not defined in this announcement bear the meaning given to them in the Company's November 2015 Prospectus.

Numis is acting only for Custodian REIT plc in connection with the matters described in this announcement and is not acting for or advising any other person, or treating any other person as its client, in relation thereto and will not be responsible to anyone other than the Company for providing the regulatory protection afforded to clients of Numis or advice to any other person in relation to the matters contained herein.

The Company is not and will not be registered under the US Investment Company Act of 1940, as amended.  The New Shares have not been, nor will they be, registered under the US Securities Act of 1933, as amended or with any securities regulatory authority of any state or other jurisdiction of the United States or under the applicable securities laws of any other Excluded Territory.  Subject to certain exceptions, the New Shares may not be offered or sold in the United States or any Excluded Territory or to or for the account or benefit of any national, resident or citizen of any Excluded Territory, which includes any person located in the United States.  Placings under the Placing Programme and the distribution of this announcement in other jurisdictions may be restricted by law and the persons into whose possession this announcement comes should inform themselves about, and observe any such restrictions.

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 Company's November 2015 prospectus.  Given these uncertainties, undue reliance should not be placed on such forward-looking statements.

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, the Disclosure Rules and Transparency Rules or the 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

 

 

NAVDMMMGKNNGVZM