architecture-1048092 (1)

Strong H122 returns and further DPS growth

Custodian REIT 2 December 2021 Update
Download PDF

Custodian REIT

Strong H122 returns and further DPS growth

Interim results

Real estate

2 December 2021

Price

97p

Market cap

£428m

Net debt (£m) at 30 September 2021

110.8

Net LTV at 30 September 2021

19.6%

Shares in issue

440.9m

Free float

92.0%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.0

0.0

10.5

Rel (local)

2.7

1.0

(2.4)

52-week high/low

106p

85p

Business description

Custodian REIT is a London Main Market-listed REIT focused on smaller lot-size (<£10m) commercial properties across the UK regions outside London. It is income focused, with a commitment to pay a high but sustainable and covered dividend, with the potential for capital growth.

Next events

FY22 year end

March 2022

Analyst

Martyn King

+44 (0)20 3077 5745

Custodian REIT is a research client of Edison Investment Research Limited

NAV total return for Custodian REIT (CREI) in the six months to 30 September (H122) was 11.7%, a combination of increased dividends and property revaluation gains. With EPRA earnings robust and rent collection remaining strong, the quarterly DPS target is increased from Q322. The completed Drum acquisition builds further scale and diversification and with low gearing, CREI is well placed for further accretive growth.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

EPRA NTA/
share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

03/20

38.1

28.7

7.0

101.6

6.65

0.95

6.9

03/21

33.1

23.7

5.6

97.6

5.00

0.99

5.2

03/22e

36.0

25.9

6.0

109.0

5.50

0.89

5.7

03/23e

39.4

28.5

6.5

110.9

6.00

0.87

6.2

Note: *EPRA earnings excludes revaluation gains/losses and other exceptional items.

Income and capital growth in H122

H122 EPRA earnings of £12.7m, were well ahead of H121 and in line with H221. H122 EPRA EPS was 3.0p and DPS declared was 2.5p, fully covered by net cash receipts. With rent collection remaining strong (94% in Q222, adjusted for agreed deferrals), the target quarterly DPS has increased by 10% to 1.375p, commencing Q322, resulting in an FY22 target of no less than 5.25p. Assuming rent collection in line with its expectations, the board expects an FY23 DPS of at least 5.5p. H122 EPRA net tangible assets (NTA) per share increased 8.6% to 106p at end-Q222, and while still driven by industrials (49% of CREI’s portfolio value at end-Q222), performance is broadening, with retail warehouses (19% by value) showing strong growth. Including DPS paid, the H122 the NAV total return was 11.7%.

Targeting further accretive growth

CREI has increased its portfolio from c £95m at IPO in 2014 to c £565m at end-Q222 and, we estimate, currently c £605m on a pro forma basis including subsequent activity, primarily the completed acquisition of the Drum Income REIT portfolio. CREI seeks further accretive acquisitions while preserving its differentiating focus on smaller lot size assets to drive income returns, taking advantage of opportunities that have arisen due to the pandemic, and driving additional scale efficiencies. The £43.5m Drum acquisition, with a highly complementary portfolio, builds immediate additional scale. With continuing low gearing (we estimate an LTV of c 22% on a pro forma basis) CREI is well placed for further growth. Taking LTV closer to CREI’s 25% medium-term target, we assume c £30m of acquisitions in our forecasts, which remain largely unchanged other than a c 11% uplift in forecast EPRA NTA per share.

Valuation: Consistent, income-focused returns

The minimum 5.25p DPS targeted by CREI for FY22 represents an attractive yield of 5.4%, a significant premium to risk-free rates (10-year UK government debt remains below 1%). Our forecasts for DPS growth exceed CREI’s minimum targets for both FY22 and FY23. The c 8% discount to H122 EPRA NTA per share compares with an average 5% premium since IPO.

CREI targets further accretive growth

CREI’s investment strategy is differentiated from most of its peers by a principal focus on properties with smaller individual values (‘lot sizes’) of less than £10m at the point of investment. On average, properties of this size provide a yield premium over larger assets, in part the result of a broader range of potential occupiers while attracting less competition from larger institutional investors.

The portfolio has grown from c £95m at IPO in 2014 to c £565m at end-Q222 and, we estimate currently c £605m on a pro forma basis including subsequent activity, primarily the completed acquisition of Drum Income REIT portfolio. Growth has been achieved through selective individual property acquisitions, which remain CREI’s preferred route, but also strategic portfolio acquisitions, like Drum. CREI seeks further accretive acquisitions to take advantage of opportunities that have arisen due to the pandemic and build additional scale efficiencies. The latter arise from spreading fixed costs (under upwards pressure across the sector from regulatory and ESG requirements) over a wider income producing asset base. As Exhibit 1 demonstrates, in the three years up to the pandemic, market conditions had made it increasingly difficult for CREI to identify attractive acquisition opportunities that met its investment criteria, but this has now begun to change.

Exhibit 1: Portfolio acquisitions and disposals

Source: Custodian REIT data, Edison Investment Research. Note: *Includes acquisition costs written off.

Including Drum, year to date purchases have been substantially matched by disposals and with low gearing we expect further acquisitions (our estimates allow for c £30m). Activity has been broadly spread across sectors with disposals primarily directed at mature assets, freeing capital for recycling. CREI booked £4.2m of disposal gains in H122 and we estimate additional gains of c £2.4m have been generated in Q322.

Exhibit 2: Year to date purchases and sales

Purchases

Sales (£m)

Property

Sector

Consideration (£m)

NIY*

Property

Sector

Price (m)

NIY*

Knowsley Business Park, Liverpool

Industrial

4.3

5.6%

Nottingham

High St retail

0.7

N/A

Dundee industrial unit

Industrial

1.9

5.9%

Day nursery

Other

0.6

N/A

Fountain St Manchester

Office

6.3

6.1%

Galashiels

Retail warehouse

4.5

5.7%

Clifton Moor Industrial Estate, York

Industrial

3.0

5.9%

7-asset portfolio

Industrial

32.6

5.9%

DRUM

Portfolio

43.5

6.8%

Stockport car showroom

Other

9.0

6.7%

Total

Stafford car showroom

Other

4.9

5.8%

Cheltenham

High St retail

0.2

N/A

Total/average

58.9

6.6%

52.5

6.0%

Source: Custodian REIT data, Edison Investment Research. Note: *Net initial yield. Blended sales yield excludes vacant/partially let assets (N/A).

Drum portfolio acquisition highly complementary

CREI’s agreed acquisition of Drum Income REIT’s portfolio (Drum1) became effective on 3 November 2021. Consideration for the acquisition was settled by the issue of c 20.2m new CREI shares, calculated on an ‘adjusted NAV-for-NAV basis’ with each company’s 30 June 2021 net asset value (NAV) being adjusted for respective acquisition costs. Drum shareholders received 0.53 new CREI shares for each Drum share, representing an agreed purchase price of £43.5m (before adjustment for lease incentives) or, we estimate, £42.0m after lease incentive costs. This compares with a 30 June valuation of £47.5m (after lease incentive costs) or £47.8m including subsequent revaluation.

  The acquisition was effected by means of a court-sanctioned scheme of arrangement by which Custodian acquired the company, enabling it to avoid the payment of Stamp Duty Land Tax and maintain Drum’s existing revolving credit facility.

Exhibit 3: Drum adjusted net assets at completion

Drum NAV published

Adjustments

Adjusted Drum NAV

30 June 2021

Revaluation

Discount

Drum dividend

Drum acq. costs

Completion

Investment property

47.5

0.3

(5.8)

42.0

Trade & other receivables

2.8

2.8

Cash & equivalents

2.4

(0.3)

(0.8)

1.3

Borrowings

(22.7)

(22.7)

Trade & other payables

(2.2)

(2.2)

Deferred income

(1.0)

(1.0)

Net asset value

26.8

20.2

Source: Custodian REIT data, Edison Investment Research

As a result of the agreed acquisition discount to Drum’s portfolio value, we expect CREI to report a Q322 valuation uplift in respect of the assets acquired of c £5.8m. Net of costs we expect a c 1p per share uplift in CREI’s EPRA NAV per share.

Exhibit 4: Custodian pro forma NAV as at 30 June 2021

£m

Number of shares (m)

NAV per share (p)

Custodian NAV as at 30 June 2021

427.7

420.6

101.7

Acquisition costs

(1.0)

Drum adjusted NAV acquired

20.2

Expected revaluation gain

5.8

Pro forma NAV per share as at 30 June 2021

452.7

440.9

102.7

Source: Custodian REIT data, Edison Investment Research

Custodian REIT shareholders represent c 95% of the enlarged share count and Drum shareholders c 5%. The new CREI shares issued to Drum shareholders are entitled to the CREI DPS for the three months to 31 December 2021 (Q322), yet to be declared but targeted by CREI at 1.375p.

Complementary portfolios

CREI and Drum are a good fit, with both companies focusing on smaller lot size regional commercial property assets, and both aiming to provide shareholders with an attractive level of dividend, fully covered by earnings.

Drum had struggled to grow since it was launched in 2015 by Seven Investment Management (7IM). With a market capitalisation of c £20m in early August 2021, before the possibility of an offer by CREI was first announced, it was sub-scale while a significant discount to NAV precluded share issuance. Share dealing liquidity for shareholders was limited by c 69% of its shares being controlled by 7IM on a discretionary basis on behalf of retail investors. As a result of acquisition by CREI, former Drum shareholders benefit from improved liquidity, greater portfolio diversification and increased scale, reflected in lower ongoing charges.

With the acquisition structured as a corporate transaction no Stamp Duty Land Tax was payable, representing a saving of c £2.1m compared with an equivalent property transaction. CREI anticipates it will retain the vast majority of the Drum assets acquired given their complementarity to its existing portfolio. There are no integration risks to the transaction as CREI has effectively acquired the Drum portfolio, with no employees and the old management contract terminated.

The Drum portfolio comprises 10 regional properties. Of these, five are offices and three are retail parks, along with an industrial estate and a shopping centre, for which 40% of rents are accounted for by Sainsbury’s. Of the 78 tenants, the largest is Skills Development Scotland, accounting for c 14% of rents. EPRA occupancy at acquisition of 86.1% (CREI at end-Q222: 91.6%) demonstrates the income potential from asset management initiatives, also reflected in annual rents of £3.6m compared with an estimated rental value (ERV) of £4.4m.

Consistently positive income-driven returns

Although UK commercial property market returns have historically shown significant cyclicality, the income component has been much less volatile than capital values. CREI’s income-focused strategy has consistently generated positive annual total returns. Quarterly returns have been positive in all periods other than the first half of calendar 2020 (fiscal Q420 and Q121) when pandemic uncertainty was at its height. Even during these quarters, dividends continued to be paid (income returns were positive) albeit at a reduced rate. From listing in March 2014 to September 2021 (H222), CREI generated an EPRA NAV total return (without assuming reinvestment of dividends paid) of 52.7%, or a compound annual average return of 5.8% pa. The income return (dividends paid) was 44.7% over the period, c 85% of the total return.

Exhibit 5: EPRA NAV total return history

Year ending 31 March

2015

2016

2017

2018

2019

2020

2021

Q122

Q222

Cumulative since IPO

Opening EPRA NAV per share (p)

98.2

101.3

101.5

103.8

107.3

107.1

101.6

97.6

101.7

98.2

Closing EPRA NAV per share (p)

101.3

101.5

103.8

107.3

107.1

101.6

97.6

101.7

106.0

106.0

Dividends paid per share (p)

3.750

6.350

6.350

6.425

6.525

6.625

4.913

1.750*

1.250**

43.9

EPRA NAV total return

7.0%

6.4%

8.5%

9.6%

5.9%

1.0%

0.9%

6.0%

5.5%

52.7%

o/w income returns

3.8%

6.3%

6.3%

6.2%

6.1%

6.2%

4.8%

1.8%

1.2%

44.7%

Compound annual total return

5.8%

Source: Custodian REIT data, Edison Investment Research. Note: *Includes fifth interim dividend of 0.5p declared in respect of FY21 and paid in Q122 along with Q420 DPS of 1.25p. **This is the DPS declared in respect of Q122 and paid in Q222. The increased Q222 DPS declared of 1.375p will be paid in Q322.

Returns have been strongly positive in the first two quarters of FY22, driven by increasing property valuations and higher dividends paid. Exhibit 6 shows the development of H122 NAV, which increased by 8.3% to 106.0p. Including DPS paid the H122 NAV total return was 11.7%, an annualised rate of well over 20%. Realised and unrealised property revaluation gains (net of acquisition costs) generated the NAV increase while EPRA earnings of 3.0p covered DPS paid. DPS paid during H122 included both the fourth interim DPS for FY21 (1.25p) and the fifth ‘top up’ interim DPS declared at year-end (0.5p) as well as the Q122 DPS of 1.25p.

Exhibit 6: Development of H122 net asset value

Pence per share

£m

Opening net assets

97.6

409.9

Issue of equity

0.0

0.5

Valuation movements relating to:

Asset management activity

0.5

2.3

General valuation increases

7.2

30.0

Profit on disposal

1.0

4.2

Net realised and unrealised valuation movement

8.7

36.5

Acquisition costs

(0.3)

(1.1)

EPRA earnings

3.0

12.7

Dividends paid*

(3.0)

(12.6)

Closing net asset value

106.0

445.9

Source: Custodian REIT. Note: Note: *Includes fifth interim dividend of 0.5p declared in respect of FY21 and paid in Q122 along with Q420 DPS of 1.25p.

Continuing strong rent collection

With rental income and EPRA earnings robust, increasing DPS since the second half of calendar 2020 has been the result of improving rent collection. In H122, 95% of expected cash rental income (net of contractual rent deferrals) was collected. Within this, the collection of rent deferrals from prior periods significantly exceeded deferrals agreed in the period. Outstanding rental income remains the subject of discussion with various tenants. Although some arrears are potentially at risk of non-recovery from CVAs2 or pre-pack administrations, we would expect a partial recovery of outstanding rents over time.

Company Voluntary Arrangements (CVAs) are an arrangement between a corporate borrower and its creditors about the extent and timing of repayments. Administration involves an ‘administrator’ taking control of the company to effect a recovery, sale, or closure.

Exhibit 7: H122 rent collection statistics

£m

Net of contractual deferrals

Before contractual rent deferrals

Rental income from investment property (IFRS)

19.3

Lease incentive

(0.7)

Cash rental income

18.6

100%

Contractual rent deferrals relating to H122

(0.1)

-1%

Contractual rent deferrals from prior periods falling due

0.7

4%

Expected cash rental income, net of contractual rent deferrals

19.2

100%

103%

Outstanding rental income

(1.0)

-5%

-5%

Rental income collected

18.2

95%

98%

Source: Custodian REIT

Balance sheet provisions for outstanding rent receivables reduced by £90k to c £2.9m. Net of write-offs, the income statement charge was £77k, well down on £2.9m in H121 and £0.7m in H221.

Property revaluation driven by industrial but broadening

Over recent months, UK commercial property market returns have continued to be driven by the industrial sector. With limited supply and strong demand, encouraged by the accelerated shift to online purchasing and supply chain concerns, capital values and rents continue to grow strongly. The office sector has shown signs of benefiting from the gradual ‘return to the office’ and has delivered modest rental growth and relatively flat capital values. The retail and leisure sector has shown a significantly slower decline in rental values, while capital values have begun to improve from the previous steep decline, but performance varies markedly across sub-sectors. Retail warehouse assets have seen good growth in capital values, benefiting from restricted supply, generally free parking and the convenience that is complementary to growth in online sales, both for click-and-collect and customer returns, while high street locations continue to suffer from excess supply.

CREI’s portfolio valuation movements reflect these market trends, with its strong weighting of industrials and retail warehouses being particularly beneficial. Asset management initiatives (such as lettings, lease renewals, and regears) added £2.3m.

Exhibit 8: Summary of year-to-date like-for-like valuation movements*

Valuation (£m)

Valuation movement (£m)

Valuation movement (%)

30-Sep-21

30-Jun-21

31-Mar-21

30-Sep-21

30-Jun-21

Half-yearly

30-Sep-21

30-Jun-21

Edison Half-yearly est.*

Q222

Q122

Q421

Q220

Q120

H122

Q222

Q122

H122

Industrial

270.2

295.1

224.3

8.0

20.2

28.3

3.0%

7.5%

10.7%

Retail warehouse

99.7

103.4

123.4

4.5

3.6

8.1

4.5%

3.6%

8.3%

Other*

84.4

83.7

95.7

2.0

(0.8)

1.2

2.4%

-1.0%

1.4%

High street retail

42.8

37.8

68.6

(1.2)

(4.4)

(5.7)

-3.3%

-10.5%

-13.5%

Office

54.8

55.4

60.7

0.1

0.4

0.4

0.1%

0.7%

0.8%

Total

551.9

575.4

572.7

13.4

19.0

32.4

2.5%

3.4%

6.0%

Source: Custodian REIT data, Edison Investment Research. Note: *There are relatively small differences from reported valuation movements due to changes in portfolio composition. ** Edison half-yearly estimate derived from quarterly like for like movements provided by the company.

Robust interim results

Exhibit 9 shows the H122 results in detail. In particular we highlight:

EPRA earnings were well up on H121 and at a similar level to H221. Benefiting from property valuation gains, IFRS earnings were strongly ahead of both H121 and H221.

EPRA occupancy was 91.6% at end-H122, unchanged from H221 and down from 92.9% at end-H121. Gross rental income has been relatively stable across the period. Receivables provisioning and write-offs reduced significantly in H121 although non-rechargeable property costs have increased. We believe this is a function of increased fees associated with a high level of leasing activity in H122 (new letting, lease regears and rent reviews) and a full period effect from the increase in occupancy during H221. The expiry of the temporary rates holiday during the pandemic has further increased the costs associated with void space. Nonetheless, net rental income increased 12.5% versus H121 and was at a similar level to H221.

An increase in administrative expenses, including higher investment manager fees linked to NAV, was partly offset by lower interest costs resulting from lower average borrowings.

Exhibit 9: Summary of H122 results

£m unless stated otherwise

H122

H121

H122/H121

H221

Gross rental income

19.3

19.4

-0.6%

19.3

Non-rechargeable property costs

(1.6)

(0.9)

(1.1)

Receivables provision/write-off

(0.1)

(2.9)

(0.7)

Net rental income

17.6

15.6

12.5%

17.5

Administrative expenses

(2.6)

(2.3)

12.2%

(2.3)

Operating Profit before revaluations

15.0

13.3

12.5%

15.2

Net interest

(2.3)

(2.4)

(2.4)

EPRA earnings

12.7

10.9

16.2%

12.8

Revaluation of investment properties

32.3

(27.4)

7.8

Costs of acquisitions

(1.1)

(0.1)

(0.6)

Profit on disposal

4.2

0.5

(0.1)

IFRS earnings

48.1

(16.1)

19.8

IFRS EPS (p)

11.4

(3.8)

4.7

EPRA EPS (p)

3.0

2.6

16.1%

3.0

DPS (declared) (p)

2.63

2.00

31.3%

3.00

EPRA earnings/dividends paid in period (x)

1.00

0.99

1.07

1.3

EPRA EPS/DPS

1.15

1.30

1.01

IFRS NAV & EPRA NTA per share (p)

106.0

95.2

97.6

Investment portfolio (£000s)

565.3

532.3

6.2%

551.9

NTA total return

11.7%

-3.7%

4.9%

Net LTV

19.6%

23.4%

24.9%

Source: Custodian REIT data

Forecast update

Our last forecasts were published in our June Outlook note, and these are revised for CREI’s upwardly revised DPS guidance, continued growth in portfolio valuations and NAV, and property transaction activity, most notably the Drum acquisition.

Exhibit 10: Forecast revisions

Net rental income (£m)

EPRA EPS (p)

DPS (p)

EPRA NTA/share (p)

Net LTV

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (pp)

03/22e

35.6

36.0

1.3

6.1

6.0

-1.4

5.60

5.50

-1.8

98.4

109.0

10.8

25.5%

23.8%

1.8

03/23e

37.2

39.4

6.1

6.5

6.5

0.0

6.00

6.00

0.0

100.2

110.9

10.6

25.2%

23.7%

1.4

03/24e

N/A

40.0

N/A

N/A

6.7

N/A

N/A

6.65

N/A

N/A

112.7

N/A

N/A

23.9%

N/A

Source: Edison Investment Research

There are no material changes to our FY22 and FY23 EPRA earnings and EPS forecasts. We continue to forecast a faster increase in FY22 and FY23 DPS than the minimum guidance given by CREI (at least 5.25p in respect of FY22 and at least 5.5p in respect of FY23). Property valuations have increased at a much stronger rate in H122 than we had allowed for, and we expect further gains, including from the Drum portfolio, acquired at a discount to fair value. We have introduced tentative FY24 forecasts.

Exhibit 11: DPS targets and forecasts

CREI target minimum

Edison forecast

CREI target minimum

Edison forecast

Aggregate DPS (p)

Yield

FY22e

5.25

5.50

5.4%

5.7%

FY23e

5.50

6.00

5.7%

6.2%

FY24e

N/A

6.65

N/A

6.9%

Source: Custodian REIT targets, Edison Investment Research forecasts

Our forecasts for net rental income include the portfolio activity discussed above, including the Drum acquisition, but also assume an additional £30m of acquisitions (at a 6.5% net initial yield) as CREI re-gears its expanded equity base closer towards its 25% medium-term loan to value (LTV) target (with a maximum 35%). The assumed acquisitions add c £2.0m of annualised gross rents, with a full impact in our FY23 forecasts.

Share performance and valuation

Attractive yield and increasing DPS

The company’s minimum aggregate DPS target for FY22 of 5.25p represents a prospective yield of 5.4% while our forecast represents a yield of 5.7%. For FY23, our forecast DPS of 6.0p is ahead of the minimum set by the board of 5.5p and represents an FY23 yield of 6.2%. We forecast further DPS growth in FY24.

Recent share price performance has not kept pace with the growth in NAV and the c 8% discount to Q222 EPRA NTA is well below the average c 5% premium since IPO in March 2014. Until the pandemic, CREI shares had traded consistently above NAV, and regained this level in mid-2021, allowing the company to respond to investor demand with the issue of 550,000 shares at a 5.9% premium to the prevailing adjusted net asset value under its tap facility. More recently a discount has re-emerged that in part follows the wider sector trend. It may also reflect CREI’s inability to market its shares during the Drum offer period due to the Takeover Code and perhaps some former Drum shareholders taking advantage of the enhanced liquidity that CREI shares provide. CREI is now free to market its shares once again while we would expect most former Drum shareholders to welcome the increased diversification and lower cost ratio that CREI shares offer, in addition to enhanced liquidity.

Exhibit 12: Price/net asset value history

Source: Refinitiv prices, Custodian REIT net asset value data

In Exhibit 13, we show a summary performance and valuation comparison of CREI and what we consider to be its closest diversified income-oriented peers. CREI’s share price performance is below the peer group average over 12 months, in part reflecting the fact that it had been more stable during the pandemic sell-off. For comparative purposes, the valuation data are shown on a trailing basis so do not capture the prospective increase in CREI’s DPS. Factors supporting CREI’s valuation include its strong commitment to dividend payments (quarterly dividend payments were maintained during the pandemic, albeit at a reduced level), moderate gearing and a focus on smaller lot size properties with a yield premium that has historically supported risk-adjusted income returns.

Exhibit 13: Peer performance and valuation comparison

Price
(p)

Market cap. (£m)

P/NAV (x)

Trailing yield (%)**

Share price performance

1 month

3 months

12 months

From 12M high

Ediston Property

76

161

0.85

5.9

-2%

0%

16%

-4%

BMO Real Estate Investments

86

207

0.78

4.1

1%

15%

32%

-4%

BMO Commercial Property Trust

104

833

0.80

4.0

2%

7%

37%

-1%

Picton

100

544

0.95

3.3

4%

2%

31%

-1%

Regional REIT

90

390

0.91

7.0

3%

1%

20%

-3%

Schroder REIT

52

256

0.79

5.2

4%

1%

40%

-3%

Standard Life Investment Property

74

298

0.79

5.1

0%

5%

25%

-4%

UK Commercial Property REIT

77

1001

0.85

3.6

0%

-4%

6%

-9%

Average

0.84

4.9

2%

3%

26%

-4%

Custodian

97

428

0.92

5.2

2%

1%

10%

-9%

UK property sector index

1,955

4%

-1%

24%

-2%

UK equity market index

4,089

-1%

-1%

12%

-3%

Source: Company data, Refinitiv price data at 1 December 2021. Note: *Based on last reported NAV. **Based on trailing 12-month dividends declared.

Exhibit 14: Financial summary

Year end 31 March, £m

2017

2018

2019

2020

2021

2022e

2023e

2024e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Gross rental income

27.0

34.1

39.1

40.0

38.7

39.1

41.8

42.4

Non-recoverable property costs

(1.2)

(0.9)

(1.5)

(1.5)

(2.0)

(2.9)

(2.4)

(2.4)

Rent receivables provisions/write

0.0

0.0

0.0

(0.3)

(3.6)

(0.2)

0.0

0.0

Net rental income

25.7

33.2

37.6

38.1

33.1

36.0

39.4

40.0

Administrative expenses

(3.6)

(4.4)

(4.9)

(4.8)

(4.6)

(5.2)

(5.6)

(5.7)

Operating Profit before revaluations

22.1

28.8

32.7

33.4

28.5

30.8

33.9

34.3

Revaluation of investment properties

9.0

11.9

(5.5)

(25.9)

(19.6)

44.9

6.3

7.5

Costs of acquisitions

(6.1)

(6.2)

(3.4)

(0.6)

(0.7)

(3.1)

0.0

0.0

Profit/(loss) on disposal

1.6

1.6

4.3

(0.1)

0.4

6.6

0.0

0.0

Operating Profit

26.6

36.1

28.0

6.8

8.6

79.1

40.1

41.8

Net Interest

(2.4)

(3.7)

(4.4)

(4.7)

(4.8)

(4.9)

(5.3)

(5.3)

Profit Before Tax

24.2

32.4

23.6

2.1

3.7

74.3

34.8

36.5

Taxation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax

24.2

32.4

23.6

2.1

3.7

74.3

34.8

36.5

Net revaluation of investment property/costs of acquisition

(2.9)

(5.6)

8.9

26.4

20.3

(41.8)

(6.3)

(7.5)

Gains/(losses) on disposal

(1.6)

(1.6)

(4.3)

0.1

(0.4)

(6.6)

0.0

0.0

EPRA earnings

19.7

25.2

28.5

28.7

23.7

25.9

28.5

29.6

Average Number of Shares Outstanding (m)

298.7

362.4

391.9

409.7

420.1

428.8

440.9

440.9

IFRS EPS (p)

8.10

8.9

6.0

0.5

0.9

17.3

7.9

8.3

EPRA EPS (p)

6.59

6.9

7.3

7.0

5.6

6.0

6.5

6.7

Dividend per share (p)

6.35

6.45

6.55

6.65

5.00

5.50

6.00

6.65

Dividend cover (x)*

1.01

1.06

1.10

1.04

1.13

1.09

1.08

1.01

Ongoing charges ratio (excluding property expenses)

0.32%

0.33%

0.34%

1.11%

1.12%

1.17%

1.15%

1.16%

BALANCE SHEET

Fixed Assets

418.5

528.9

572.7

559.8

551.9

640.4

651.3

663.4

Investment properties

418.5

528.9

572.7

559.8

551.9

640.4

651.3

663.4

Other non-current assets

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

10.3

12.9

6.1

30.7

9.9

24.5

23.7

20.0

Debtors

4.5

7.9

3.7

5.3

6.0

6.0

7.6

7.7

Cash

5.8

5.1

2.5

25.4

3.9

18.5

16.1

12.3

Current Liabilities

(12.6)

(12.8)

(14.2)

(14.9)

(12.8)

(15.3)

(16.7)

(16.8)

Creditors/Deferred income

(12.6)

(12.8)

(14.2)

(14.9)

(12.8)

(15.3)

(16.7)

(16.8)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

(64.4)

(113.9)

(138.1)

(148.9)

(139.2)

(169.1)

(169.5)

(169.8)

Long term borrowings

(63.8)

(113.4)

(137.5)

(148.3)

(138.6)

(168.6)

(168.9)

(169.2)

Other long term liabilities

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

Net Assets

351.9

415.2

426.6

426.8

409.9

480.4

488.8

496.7

NAV/share (p)

103.8

107.3

107.1

101.6

97.6

109.0

110.9

112.7

EPRA NTA/share (p)

103.8

107.3

107.1

101.6

97.6

109.0

110.9

112.7

NAV total return

8.5%

9.6%

5.9%

1.1%

0.9%

17.6%

7.2%

7.5%

CASH FLOW

Operating Cash Flow

23.1

28.4

36.0

31.0

23.8

31.5

32.1

32.8

Net Interest

(2.2)

(3.5)

(4.2)

(4.4)

(4.5)

(4.6)

(5.0)

(5.0)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net additions to investment property

(92.1)

(105.9)

(46.2)

(12.2)

(10.1)

3.7

(3.0)

(3.0)

Ordinary dividends paid

(18.5)

(23.0)

(25.5)

(27.0)

(20.6)

(24.5)

(26.5)

(28.6)

Debt drawn/(repaid)

(1.0)

49.4

24.0

10.5

(10.1)

7.0

0.0

0.0

Proceeds from shares issued (net of costs)

91.1

53.9

13.3

25.0

0.0

0.6

0.0

0.0

Other cash flow from financing activities

0.0

0.0

0.0

0.0

0.0

0.8

0.0

0.0

Net Cash Flow

0.4

(0.7)

(2.6)

22.9

(21.5)

14.5

(2.3)

(3.8)

Opening cash

5.5

5.8

5.1

2.5

25.4

3.9

18.5

16.1

Closing cash

5.8

5.1

2.5

25.4

3.9

18.5

16.1

12.3

Debt as per balance sheet

(63.8)

(113.4)

(137.5)

(148.3)

(138.6)

(168.6)

(168.9)

(169.2)

Unamortised loan arrangement fees

(1.2)

(1.6)

(1.5)

(1.7)

(1.4)

(1.1)

(0.8)

(0.4)

Total debt

(65.0)

(115.0)

(139.0)

(150.0)

(140.0)

(169.7)

(169.7)

(169.7)

Restricted cash

(1.3)

(1.3)

(1.4)

(0.9)

(1.2)

(1.1)

(1.1)

(1.1)

Closing net debt

(60.5)

(111.3)

(137.9)

(125.5)

(137.3)

(152.3)

(154.7)

(158.5)

Net LTV

14.4%

21.0%

24.1%

22.4%

24.9%

23.8%

23.7%

23.9%

Source: Custodian REIT historical data, Edison Investment Research forecasts. Note: *EPRA earnings as a percentage of total dividends paid.


General disclaimer and copyright

This report has been commissioned by Custodian REIT and prepared and issued by Edison, in consideration of a fee payable by Custodian REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Custodian REIT and prepared and issued by Edison, in consideration of a fee payable by Custodian REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues