Unaudited Net Asset Value as at 31 December 2016

Custodian REIT today reports its unaudited net asset value (“NAV”) as at 31 December 2016 and highlights for the period from 1 October 2016 to 31 December 2016 (“the Period”).

Financial highlights

  • NAV total return per share* for the Period of 1.8%
  • Dividend approved for the Period of 1.5875p per share
  • NAV per share of 101.9p (30 September 2016: 101.7p)
  • Net gearing** of 17.8% loan-to-value (“LTV”) (30 September 2016: 21.1%)
  • £32.7m*** of new equity raised during the Period at an average premium of 4.0% to dividend adjusted NAV
  • Market capitalisation £353.4m (30 September 2016: £306.7m)

Portfolio highlights

  • Portfolio value of £407.9m (30 September 2016: £383.5m)
  • £1.0m valuation uplift from successful asset management initiatives
  • Occupancy**** 98.4% (30 September 2016: 97.8%)
  • £25.4m***** invested in five property acquisitions and one on-going development
  • Disposal of car dealership for £1.9m, £0.4m ahead of 30 September 2016 valuation
  • £6.8m committed pipeline of property acquisition opportunities
  • Since the Period end, £10.3m invested in the acquisition of six retail units and two restaurants

* NAV movement including dividends paid.
** Gross borrowings less unrestricted cash divided by portfolio valuation.
*** Before costs and expenses of £0.6m.
**** Portfolio passing rent divided by portfolio passing rent plus the estimated rental value (“ERV”) of vacant space.
***** Before acquisition costs of £1.5m.

Net asset value

The unaudited NAV of the Company at 31 December 2016 was £329.6 million, reflecting approximately 101.9 pence per share, an increase of 0.2% since 30 September 2016:

6 Dividends of 1.5875p per share were paid on shares in issue throughout the Period. Dividends paid on shares in issue at the end of the Period averaged 1.4p per share due to new shares being issued ex-dividend.

During the Period the initial costs (primarily stamp duty) of investing £25.4 million in property acquisitions and developments diluted NAV per share total return by circa 0.5p, partially offset by raising £32.1 million (net of costs) at an average 4% premium to dividend adjusted NAV, which added 0.3p per share*.

The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 31 December 2016 and income for the Period, but does not include any provision for the approved dividend for the Period, to be paid on 31 March 2017.

* per share through new issuance plus 0.2p per share notional dividend saving due to new shares being issued ex-dividend.

The Company completed the following acquisitions during the Period:

  • A distribution unit in Burton upon Trent let to Kings Road Tyres and Repairs Limited for £7.06 million, with a net initial yield (“NIY”) of 6.77%;
  • A distribution unit in Daventry let to Cummins Limited for £3.08 million, with a NIY of 6.75%;
  • A distribution unit in Bedford let to Heywood Williams Components Limited for £3.25 million, with a NIY of 6.78%;
  • A retail and leisure property in Liverpool consisting of a restaurant let to Ocean Park Limited (trading as Tai Pan) and a health centre let to Liverpool Community Health NHS Trust for £6.4 million with a NIY of 6.96%; and
  • A health and fitness centre in Stoke-on-Trent let to Greens Health & Fitness Limited (trading as Nuffield Health) for £4.855 million, with a NIY of 6.75%.

Since the Period end the Company has acquired a block of six retail properties and two restaurants in Shrewsbury for £10.3 million, with a combined NIY of 6.07%, which increased net gearing to 19.6% LTV.

Asset management

Our continuing focus on active asset management including rent reviews, new lettings, lease extensions and the retention of tenants beyond their contractual break clauses resulted in a £1.0 million valuation increase, with further initiatives expected to complete in the coming months.

These strategies have also had a positive impact on the portfolio’s weighted average unexpired lease term to the first lease break or expiry (“WAULT”), which only decreased to 6.0 years from 6.2 years at 30 September 2016 despite the WAULT of properties acquired during the Period being 5.5 years.

Key asset management initiatives undertaken during the Period include:

  • Letting the vacant unit at Tilbrook 44 in Milton Keynes to Saint Gobain Building Distribution Limited on a 10 year lease with a rent of £265,000 per annum;
  • Surrendering Metaswitch Networks Limited’s lease over 4,700 sq ft at Causewayside House, Edinburgh as at January 2017 and re-granting a lease expiring in January 2027 over 9,500 sq ft; and
  • Extending R Scott Bathrooms Limited’s lease at Causewayside House, Edinburgh with expiry moving from November 2017 to November 2027.

The Company sold a car dealership on Coventry Road, Solihull to a special purchaser for £1.9 million in November 2016, £0.4 million ahead of the September 2016 valuation. The Company intends to redeploy the sale proceeds on property with better short-term income growth and long-term capital growth potential.

Property market

Commenting on the commercial property market, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company’s discretionary investment manager) said:

“We were delighted to see the New Year heralding Custodian REIT hitting a market capitalisation of over £350 million.

“A widely expected busy fourth quarter of 2016 didn’t materialise until mid-November and the market was not quite as we had predicted. There was a tighter supply than we had forecast as a result of less selling from the open-ended funds which had eased their redemption demand either by selling prime central London assets to overseas buyers in July and August, or simply remaining gated.

“This was coupled with a high level of demand resulting from a number of factors. Many funds, which had done little in the run up to the EU referendum and in the immediate post referendum period of market shock, finally got busy in the fourth quarter. Private investors continued to target smaller lot size property for its stability and income credentials. There was a general acceptance that the EU referendum had not called time on the underlying fundamental benefits of UK property investment, particularly in regional markets. There was also a clear bias in the market for undoubted income and for the industrial sector. In essence many of the key planks of Custodian REIT’s investment strategy: income, regional markets, sub-£10 million lots, a preference for industrial, and a focus on occupational market dynamics had all come centre stage.

“Despite competition in the market, we were delighted to invest £25.4 million (net of acquisition costs) during the Period including five high quality acquisitions all yielding in excess of 6.75%.”

Activity and pipeline

Commenting on pipeline, Richard Shepherd-Cross said:

“By 31 December 2016 Custodian REIT had completed £92.4 million of acquisitions in the financial year to date, £72.9 million of which related to the period following the EU referendum, demonstrating our confidence in the market.

“We have access to a strong pipeline and have a track record of committing available capital promptly to the property market. We are considering a number of current opportunities, having recently completed the acquisition of a retail and leisure block located in a prime area of central Shrewsbury, and have a further committed pipeline of £6.8 million.

“We are seeing some premium prices being paid for sub-£2 million properties, with a very active private investor market. We exchanged on the sale of one small property in January 2017 and intend to take advantage of this pricing arbitrage to sell further smaller assets and to re-invest in our core £2-10 million lot size assets where we have yet to witness significant price inflation.”



The Company issued 31.4 million new ordinary shares of 1 pence each in the capital of the Company during the Period (“the Shares”) raising £32.7 million (before costs and expenses). The Shares were issued at an average premium of 4.0% to the unaudited NAV per share at 30 September 2016, adjusted to exclude the dividend paid on 31 December 2016 to shareholders on the register at the close of business on 14 October 2016.


The Company operates a £35 million revolving credit facility (“RCF”) with Lloyds Bank plc, which attracts interest of 2.45% above three month LIBOR and expires on 13 November 2020. The Company also operates a £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.

An additional £50 million term loan facility (“the New Loan”) has been agreed, repayable 15 years from drawdown at a fixed rate of interest. The loan is to be drawn down in two tranches of £35 million and £15 million respectively, with the first drawdown expected before the end of this financial year. The Company intends to use the proceeds from the New Loan to first repay any remaining amounts drawn under the RCF, with the remaining proceeds expected to be used to acquire additional UK commercial real estate that can further diversify the portfolio and enhance income yield.

Portfolio analysis

At 31 December 2016 the Company’s property portfolio comprised 132 assets and 256 contractual tenants with a NIY* of 6.94% and current passing rent of £30.1 million per annum.

* Portfolio passing rent divided by portfolio valuation plus estimated purchasers’ costs of 6.5%.

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

9 Current passing rent plus estimated rental value of vacant properties.
10 Includes car showrooms, petrol filling stations, children’s day nurseries, restaurants, health and fitness, hotels and healthcare units.

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

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

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

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

The Company operates a geographically diversified portfolio across the UK, seeking to ensure that no one area represents the majority of the portfolio. The geographic analysis of the Company’s portfolio at 31 December 2016 is as follows:

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

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


An interim dividend of 1.5875 pence per share for the quarter ended 30 September 2016 was paid on 31 December 2016. The Board has approved an interim dividend relating to the Period of 1.5875 pence per share payable on 31 March 2017 to shareholders on the register on 20 January 2017.

In the absence of unforeseen circumstances, the Board intends to pay a further quarterly dividend to achieve a target dividend* for the year ending 31 March 2017 of 6.35 pence per share (2016: 6.25 pence per share, 2015: 5.25 pence per share). The Board’s objective is to grow the dividend on a sustainable basis, at a rate which is fully covered by projected net rental income and does not inhibit the flexibility of the Company’s investment strategy.

* 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.

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