Custodian REIT reports unaudited net asset value as at 30 September 2017

Custodian REIT reports unaudited net asset value as at 30 September 2017

Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its unaudited net asset value (“NAV”) as at 30 September 2017 and highlights for the period from 1 July 2017 to 30 September 2017 (“the Period”).


Financial highlights

  • NAV total return per share1 for the Period of 2.1%
  • Dividend per share approved for the Period of 1.6125p
  • NAV per share of 104.9p (30 June 2017: 104.3p)
  • NAV of £378.6m (30 June 2017: £361.3m)
  • Net gearing2 of 22.4% loan-to-value (30 June 2017: 18.9%)
  • £16.4m3 of new equity raised during the Period at an average premium of 11.5% to dividend adjusted NAV per share at 30 June 2017
  • Market capitalisation of £414.1m (30 June 2017: £405.4m)


Portfolio highlights

  • Portfolio value of £474.3m (30 June 2017: £452.4m)
  • £26.3m4 invested in five property acquisitions
  • £1.0m property valuation increase
  • £1.0m profit on disposal of investment properties
  • EPRA occupancy54% (30 June 2017: 97.9%)

1 NAV per share movement including approved dividends payable relating to the Period.

2 Gross borrowings less unrestricted cash divided by portfolio valuation.

3 Before costs and expenses of £0.2m.

4 Before acquisition costs of £1.4m.

5 Estimated rental value (“ERV”) of let property divided by total portfolio ERV.


Net asset value

The unaudited NAV of the Company at 30 September 2017 was £378.6m, reflecting approximately 104.9p per share, an increase of 0.6% per share since 30 June 2017:

Pence per share £m
NAV at 30 June 2017 104.3 361.3
Issue of equity (net of costs) 0.3 16.2
104.6 377.5
Valuation movements relating to:
 – Profit on disposal of investment properties 0.3 1.0
 – Other valuation movements 0.3 1.0
0.6 2.0
Acquisition costs (0.4) (1.4)
Net valuation movement 0.2 0.6
Income earned for the Period 2.6 9.0
Expenses and net finance costs for the Period (0.9) (2.9)
Dividends paid6 (1.6) (5.6)
NAV at 30 September 2017 104.9 378.6

6 Dividends of 1.6125p per share were paid on shares in issue throughout the Period.

During the Period the initial costs (primarily stamp duty) of investing £26.3m (before acquisition costs) in new property acquisitions diluted NAV per share total return by 0.4p, partially offset by raising new equity of £16.2m (net of costs) at an average 11.5% 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 30 September 2017 and income for the Period, but does not include any provision for the approved dividend for the Period, to be paid on 30 November 2017.

During the Period the Company acquired the following properties with an average net initial yield7 (“NIY”) of 6.77%:

  • A car dealership in Stockport occupied by Williams BMW and Mini for £8.84m, with a NIY of 6.99%;
  • A retail warehouse in Ashton-under-Lyne occupied by B&M for £6.6m, with a NIY of 6.0%;
  • A health and fitness centre in Salisbury occupied by Parkwood Health & Fitness for £2.785m, with a NIY of 6.75%;
  • Two retail warehouse units in Plymouth occupied by Magnet and B&M for £5.525m, with a NIY of 6.79%; and
  • A distribution unit in Livingston occupied by SCS for £2.59m, with a NIY of 7.50% (subject to completion of an ongoing rent review).

7 Passing rent divided by property valuation plus assumed purchasers’ costs.


Asset management

A key part of effective portfolio management is the disposal of assets which either no longer meet the long-term investment strategy of the Company or which can be disposed of significantly ahead of valuation, often to a special purchaser, such that holding the asset is no longer appropriate.  Following focused pre-sale asset management, three properties were sold during the Period realising a profit on disposal of £1m, with gross proceeds an aggregate 19.8% ahead of valuation.

The portfolio’s weighted average unexpired lease term (“WAULT”) increased to 5.8 years from 5.7 years at 30 June 2017, primarily due to completing acquisitions during the Period with a WAULT of 9.4 years.  Although we believe long leases are currently being over-valued by the market and are unwilling to over-pay for long leases simply to support the WAULT, we will continue to take advantage of situations where we can find fair value and still benefit from long leases.  Although our target WAULT for the portfolio is five years we believe that with the current strength of the occupational market and a portfolio comprising high quality properties, risk is better managed by pursuing a strategy of buying high quality properties that are likely to re-let, rather than highly priced properties with long leases simply to mitigate an artificial measure of risk.


Property market

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

“Occupational demand remains robust and we are witnessing rental growth and low vacancy rates across the portfolio, giving us comfort that there is still an opportunity to invest.  With more buyers than sellers in our target market we have to be ever vigilant to pay a fair price, which is not always the market price, and in many instances we are holding back in the face of excessive competition. However, we believe that with greater liquidity in property markets and an increased supply of investment opportunities the market will normalise before a bubble is created.   There are no signs of an oversupply of property in the occupational market and there continues to be a low level of development.  It is this, rather than excessive demand, that is driving rental growth so we believe the market should be better insulated from shocks than it was in previous rental growth cycles.”


Activity and pipeline

Commenting on pipeline, Richard Shepherd-Cross said:

“We continue to find opportunities that fit our investment strategy, investing £26.3m over the Period.  We have terms agreed on a further £1.7m of properties and are considering an active and growing pipeline of new acquisition opportunities as vendors prepare to conclude sales prior to the year end.  We have consciously targeted out of town retail (retail warehousing) over the last 18 months and this sector now accounts for 16% of portfolio income.  The sector is showing record low vacancy rates and rental growth.  We believe retail warehousing is the sector of the physical retail market that is either complementary to online retailing or not correlated to the growth of online retailing, which when combined with a restricted planning regime explains tenants’ behavior and the rental growth we are witnessing.”




The Company issued 14.3m new ordinary shares of 1p each in the capital of the Company during the Period (“the New Shares”) raising £16.4m (before costs and expenses).  The New Shares were issued at an average premium of 11.5% to the unaudited NAV per share at 30 June 2017, adjusted to exclude the dividend paid on 31 August 2017.


The Company entered into an agreement with Aviva Investors Real Estate Finance (“Aviva”) on 5 April 2017 for Aviva to provide the Company with a new 15 year £50m term loan facility comprising two tranches of £35m (“Tranche 1”) and £15m (“Tranche 2”) respectively, resulting in the Company now having the following agreed debt facilities:

  • A £35m revolving credit facility (“RCF”) with Lloyds Bank plc, which attracts interest of 2.45% above three month LIBOR and expires on 13 November 2020;
  • A £20m term loan with Scottish Widows plc, which attracts interest fixed at 3.935% and is repayable on 13 August 2025;
  • A £45m term loan facility with Scottish Widows plc which attracts interest fixed at 2.987% and is repayable on 5 June 2028; and
  • A £50m term loan facility with Aviva comprising:
    1. £35m Tranche 1 repayable on 6 April 2032, attracting fixed annual interest of 3.02%; and
    2. £15m Tranche 2 repayable 15 years from drawdown attracting fixed annual interest of 1.6% over the prevailing 2032 swap rate on the date of drawdown.

Tranche 2 is expected to be drawn down by the end of this month.

At the Period end the Company had circa £57m of available funds to deploy on property acquisition opportunities, comprising £7m uncommitted cash, £35m undrawn RCF and £15m Tranche 2.


Portfolio analysis

At 30 September 2017 the Company’s property portfolio comprised 141 assets and 255 contractual tenants with a NIY of 6.7% and current passing rent of £33.9m per annum.

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






30 Sep 2017


Period valuation movement


Weighting by income8 30 Sep 2017 Weighting by income8 30 Jun 2017
Industrial 202.1 1.9 42% 44%
Retail warehousing 80.2 0.3 16% 16%
Other9 73.3 (0.1) 15% 13%
High street retail 66.2 (0.7) 14% 14%
Office 52.5 (0.4) 13% 13%
Total 474.3 1.0 100% 100%

8 Current passing rent plus ERV of vacant properties.

9 Includes car showrooms, petrol filling stations, children’s day nurseries, restaurants, gymnasiums, hotels and healthcare units.


Industrial property remains a very good fit with the Company’s strategy although investment demand is creating price inflation and limiting our opportunity to acquire properties that meet our investment mandate.

Retail represents 30% of portfolio income comprising 14% high street and 16% out-of-town retail (retail warehousing).  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.  These factors made retail warehousing a target sector for acquisitions throughout the Period.

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 in regional markets 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, we are conscious that obsolescence and lease incentives can be a real cost of office ownership, which can hit cash flow and be at odds with the Company’s relatively high target dividend.

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 2017 was as follows:






30 Sep 2017


Period valuation movement


by income10
30 Sep
by income10
30 Jun 2017
West Midlands 91.2 (0.5) 19% 20%
South-East 83.0 0.3 18% 16%
North-West 77.9 0.6 16% 14%
South-West 60.6 0.8 13% 12%
East Midlands 46.6 (0.2) 10% 11%
Scotland 41.5 0.5 9% 9%
North-East 40.1 (0.1) 8% 9%
Eastern 28.3 (0.4) 6% 8%
Wales 5.1 1% 1%
Total 474.3 1.0 100% 100%

10 Current passing rent plus ERV of vacant properties.


For details of all properties in the portfolio please see



An interim dividend of 1.6125p per share for the quarter ended 30 June 2017 was paid on 31 August 2017.  The Board has approved an interim dividend relating to the Period of 1.6125p per share payable on 30 November 2017 to shareholders on the register on 27 October 2017.

In the absence of unforeseen circumstances, the Board intends to pay quarterly dividends to achieve a target dividend11 per share for FY18 of 6.45p (FY17: 6.35p).  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.

11 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.


Activity since the Period end


Since the Period end the Company has issued 5.0m new ordinary shares of 1p each in the capital of the Company raising £5.7m (before costs and expenses), issued at an average premium of 11.3% to the unaudited NAV per share at 30 June 2017, adjusted to exclude the dividend paid on 31 August 2017.


On 4 October 2017 the Company acquired two further properties:

  • A high street retail unit in Cardiff for £5.16m let to Card Factory and Specsavers with a NIY of 7.46%; and
  • A retail park in Burton upon Trent for £8.45m, comprising three units let to Wickes, The Range and HSS Hire with a NIY of 6.45%.