4 November 2014

Custodian REIT plc: NAV and portfolio update

Custodian REIT, the UK property investment company, announces its unaudited Net Asset Value (NAV) as at 30 September 2014. Highlights include:

• Portfolio value of £145.9m (30 June 2014: £111.4m)
• 14 acquisitions completed since 30 June 2014 for total consideration of £32.7m
• £12.6m of existing debt facilities deployed (30 June 2014: £nil)

Net Asset Value

The unaudited NAV of the Company at 30 September 2014 was £131.4m, reflecting approximately 99.6 pence per share, an increase of 0.4% since 30 June 2014 and 1.4% since Admission:

The NAV attributable to the ordinary shares is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 30 September 2014 and income for the quarter, but does not include a provision for the second quarterly interim dividend, to be paid in December 2014.

The improvement in NAV is in line with the Board’s expectations. Activity has continued to be focused on acquisitions, with the aim of deploying monies raised at IPO and increasing gearing towards the target level of 25%. This investment impacts NAV to the extent that acquisition costs have largely offset the upward movement in valuations at the reporting date.

The quarterly portfolio valuation uplift of £1.9m (1.3%) is below the IPD UK quarterly property index capital growth benchmark of 3.0%, but is in line with the Board’s expectations. IPD index growth has been predominantly driven by the Central London region and larger lot sizes in key regional centres (81% of IPD properties are in excess of £10 million lot size, with 36% of IPD properties in London). Overall growth in yields in these markets has been driven down by competition from institutional investors and open-ended funds to a level significantly below that at which the Company’s target dividends can be fully covered. While there is yet to be a broad hardening of investment yields amongst smaller regional properties, which typically lag the Central London market and larger lots, the Board believes this offers the Company a continued buying opportunity.

Dividends

The maiden interim dividend for the quarter ended 30 June 2014 was paid on 30 September 2014 at 1.25 pence per share.

In the absence of unforeseen circumstances, the Board intends to pay further quarterly dividends to achieve the forecast annual dividend of 5.25 pence per share for the financial period ending 31 March 2015 and 6.25 pence per share in subsequent years, implying annualised dividend yields of 5.25% and 6.25% calculated by reference to the Company’s issue price of 100p per share as set out in its February 2014 prospectus.

Portfolio activity

Between 30 June 2014 and 30 September 2014 the Company acquired the following properties:

• Castleford – cost £1.61m, comprising a brand new 12,940 sq ft trade counter unit on Willowbridge Lane let to MKM Building Supplies Limited on a 20 year lease, without break, expiring on 7 January 2034. The lease provides for five yearly rent reviews, with rental increases linked to the retail prices index. 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 – cost £17.4m. 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 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 £1.625m, comprising the freehold interest of a public house on Frogmore Lane 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%
• Nottingham – cost £1.71m, comprising the freehold interest of a high street retail unit on St Peter’s Gate let to The White Company (UK) Limited on a 10 year lease, expiring on 30 June 2020. The current passing rent is £140,000 per annum, reflecting a net initial yield of 7.75%
• Milton Keynes – cost £5.725m comprising the freehold interest of a retail warehouse on Grafton Gate East let to Staples UK Limited on a lease expiring on 28 September 2020. The current passing rent is £418,886 per annum, reflecting a net initial yield of 6.95%
• Doncaster – cost £4.625m, comprising an 80,000 sq ft manufacturing facility situated on White Rose Way. The property is let to Portola Packaging Limited, a division of Silgan Holdings Inc., one of the largest global manufacturers of plastic lids, closures and containers for the dairy, juice and food industries. The property comprises the European Headquarters and main UK manufacturing facility of the Group. The property is let on a 20 year lease expiring on 12 July 2021 with no breaks at a current rent of £355,000 per annum, reflecting a net initial yield of 7.25%

For more detail, please visit Custodian REIT’s property portfolio.

Pipeline

Commenting on the pipeline, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company’s external fund manager), said:

“We have a strong pipeline of opportunities under offer which will add further industrial and distribution units to the portfolio as well as bolstering the ‘other’ sector of the fund. These acquisitions will strengthen the portfolio mix and add some long-term income to the fund. While the property market remains very competitive for larger lot sizes we are continuing to identify good quality, smaller lots which we believe represent good value in current market context and fair value on a longer term basis.”

Sector and geographic analysis as at 30 September 2014

Nine of the fourteen acquisitions completed in the period from 30 June 2014 to 30 September 2014 were retail units, increasing the weighting from 19% to 28%. The Company continues to have a strong focus on industrial property, while retaining its investment objective to maintain a suitably balanced portfolio.

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

Post quarter activity

A share placing was completed on 3 October 2014, raising £25.0m (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 5.2% to the 30 September 2014 NAV.

The Board expects to release the interim financial statements of the Company for the period ended 30 September 2014 on 25 November 2014.