Custodian REIT — Positive income-driven returns continuing

Custodian Property Income REIT (LSE: CREI)

Last close As at 15/06/2024

GBP0.72

−0.30 (−0.41%)

Market capitalisation

GBP320m

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Research: Real Estate

Custodian REIT — Positive income-driven returns continuing

Custodian REIT (CREI) continued to produce positive returns through Q419 despite continuing weakness in high street retail capital values outweighing gains elsewhere, including from accretive asset management. Reflecting positive income growth, the company’s current year DPS target has been increased and, barring unforeseen circumstances, CREI intends to pay fully covered aggregate DPS of 6.65p for the year.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Custodian REIT

Positive income-driven returns continuing

Q4 NAV update

Real estate

9 May 2019

Price

114.2p

Market cap

£456m

Net debt (£m) at 31 March 2019

138.0

Net LTV at 31 March 2019

24.1%

Shares in issue

399.2

Free float

92%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.4)

0.0

(3.2)

Rel (local)

1.6

(3.1)

1.0

52-week high/low

122.6p

111p

Business description

Custodian REIT (CREI) is a London Main Market-listed REIT focused on commercial property in the UK outside London. It is income-focused, with a commitment to pay a high but sustainable and covered dividend. It targets a balanced portfolio, with a focus on lot sizes of under £10m.

Next events

Payment of Q419 DPS

31 May 2019

FY19 results

Exp. June 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Custodian REIT is a research client of Edison Investment Research Limited

Custodian REIT (CREI) continued to produce positive returns through Q419 despite continuing weakness in high street retail capital values outweighing gains elsewhere, including from accretive asset management. Reflecting positive income growth, the company’s current year DPS target has been increased and, barring unforeseen circumstances, CREI intends to pay fully covered aggregate DPS of 6.65p for the year.

Year end

Net rental
income (£m)

EPRA EPS*
(p)

EPRA
NAVPS (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

03/17

25.7

6.6

104

6.35

1.10

5.6

03/18

33.2

6.9

107

6.45

1.06

5.6

03/19e

37.5

7.27

107

6.55

1.07

5.7

03/20e

38.8

7.28

108

6.65

1.06

5.8

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

5.9% EPRA NAV total return in FY19

Positive EPRA NAV total returns continued in Q419, with a gain of 0.6% taking the annual return to 5.9%. For the quarter, and for the year, gains were entirely income driven, with end-Q419 EPRA NAV per share reducing slightly to 107.1p (Q319: 108.1p and end-FY18: 107.3p). With occupancy maintained at a good level (95.9%), income continued to grow, with EPRA EPS for the FY19 year increasing to 7.3p (FY18: 6.9p). FY19 dividend cover was 1.11x and CREI targets a 1.5% increase in FY20 aggregate DPS, again fully covered. The portfolio value was £573m at end-Q419, with an unchanged net initial yield of 6.6%. Although asset management continued to add value in the quarter, other revaluation movements, focused on high street retail assets, and reflecting weaker expected rental values offset this and gains from industrial/logistics assets. LTV ended the period at 24.1%. DPS guidance is ahead of our previous forecast, our EPS forecast is unchanged, and we have slightly trimmed capital growth and NAV per share.

Diversified income-focused strategy

CREI is highly income focused, seeking to grow dividends sustainably, supported by a diversified portfolio. Fully covered dividends represent 77% of the NAV total return, a compound 6.8% pa generated since the IPO in 2014. Portfolio diversification, by sector, location, tenant and lease term, is an important element of the strategy for delivering on this goal. Robust occupational demand continues to support high levels of occupancy and rental growth across most of the portfolio, which has low exposure to offices and a relatively high exposure to industrial, retail warehouse and alternative sectors. Retail stress and Brexit uncertainty have the potential to further affect near-term capital values, but may equally throw up investment opportunities.

Valuation: Yield premium supports P/NAV

CREI shares combine an attractive yield, a good level of dividend cover and conservative gearing. Investor demand for the shares, trading at a premium to NAV (unlike peers), provides funding support for accretive acquisitions which, combined with rental growth and asset management, is a positive indicator for future returns.

Positive income-driven returns continuing

The quarterly NAV update for the three months ended 31 March 2019 (Q419) shows a growing level of portfolio income, partly offset by negative net revaluation movements, driven by high street retail exposure. Returns were positive overall, with a 0.6% EPRA NAV total return, comprising dividends paid and a reduction in EPRA NAV per share to 107.1p compared with 108.1p in December (Q319) and 107.3p at 31 March 2018 (end-FY18). For the year as a whole (FY19), NAV total return was 5.9%, with dividends paid contributing 6.1%, and a small 0.2% capital decrease. We expect the detailed full year (FY19) results to be published in early June.

Exhibit 1: NAV total return

Q119

Q219

Q319

Q419

FY19 total

Opening NAV per share (p)

107.3

107.8

108.6

108.1

107.3

Closing NAV per share (p)

107.8

108.6

108.1

107.1

107.1

DPS paid (p)

1.6

1.6

1.6

1.6

6.5

NAV total return

2.0%

2.3%

1.0%

0.6%

5.9%

Source: Custodian REIT

Other key points from the release include:

A fourth quarterly dividend in respect of FY19, of 1.6375p per share, has been approved by the board for payment on 31 May 2019 to shareholders on the register on 26 April 2019. The dividend policy set by the board is to grow DPS on a sustainable basis, and at a rate which is fully covered by projected net rental income and does not inhibit the flexibility of the investment strategy. For the current year ending 31 March 2020 (FY20), in the absence of unforeseen circumstances, the board intends to pay aggregate quarterly DPS equivalent to an annualised 6.65p, a 1.5% increase on FY19.

FY19 EPRA EPS was 7.3p, up from 6.9p in FY18, providing 1.11x cover of the aggregate 6.55p DPS declared during the year (FY18: 6.45p).

During Q419, 3.6m new shares were issued under the company’s block listing facility, raising £4.1m in new equity at an average price of 115.0p, an 8% premium to the unaudited 31 December NAV per share, adjusted to exclude the DPS paid on 28 February 2019. For the year as a whole, c 11.4m shares were issued at an average price of 118.2p, raising £13.4m of equity.

Gearing has remained at relatively modest levels, with a net loan to value ratio (LTV) of 24.1% at end-Q419 (end-Q319: 24.7%).

The portfolio value was £572.7m at end-Q419 (Q319: £576.2m), with no completed acquisitions during the period and a net valuation decrease of £5.0m, or c 0.9%, driven by high street retail properties, primarily due to a reduction in estimated rental values (ERV) at a number of properties (see below). The portfolio net initial yield (NIY) remained unchanged at 6.6%.

Occupancy, calculated on an EPRA basis, remained at a good level of 95.9% at end-Q419, although slightly down in the period (Q319: 96.5%).

Although not active in Q419, CREI is considering a pipeline of investment opportunities and believes that there may be potential to make contra-cyclical acquisitions where short-term market weakness may unlock long-term value.

Exhibit 2: Summary of NAV movement

Q419

FY19 total

Pence per share

£m

£m

Opening NAV

108.1

426.6

415.2

Issue of equity

0.1

4.1

13.3

Movement in property values

(1.3)

(5.0)

(4.5)

o/w profit on disposal

0.0

0.0

4.3

o/w asset management

0.3

1.4

6.4

o/w other valuation movement

(1.6)

(6.4)

(11.8)

o/w acquisition costs

0.0

0.0

(3.4)

Income in period

2.5

10.3

39.9

Expenses in period

(0.7)

(2.9)

(11.9)

Dividends paid

(1.6)

(6.5)

(25.4)

Closing NAV

107.1

426.6

426.6

Source: Custodian REIT

Portfolio update

CREI’s diversified portfolio comprises 155 assets, split between the main commercial property sectors, with a weighted average unexpired lease term to first break (WAULT) of 5.6 years. There were no transactions during Q419 as the company maintained a strict approach to investment.

Exhibit 3: Sector split by value

Exhibit 4: Geographic split by value

Source: Custodian REIT. As at 8 April 2019

Source: Custodian REIT. As at 8 April 2019

Exhibit 3: Sector split by value

Source: Custodian REIT. As at 8 April 2019

Exhibit 4: Geographic split by value

Source: Custodian REIT. As at 8 April 2019

With investment policy based on maintaining a suitably balanced portfolio rather than targeting specific sector weights, the movements in Q419 sector weightings (Exhibit 5) reflect variations in market pricing, including the effects of asset management.

Exhibit 5: Summary of portfolio value movements

Valuation (£m)

Weighting by income

Valuation movement (£m)

31-Mar-19

31-Dec-18

31-Mar-18

31-Mar-19

31-Dec-18

31-Mar-18

Quarterly

Annual

Q419

Q319

Q418

Q419

Q319

Q418

Q419

FY19

Industrial

224.3

221.9

209.8

38%

37%

39%

1.9

11.5

Retail warehouse

123.4

124.5

107.5

22%

22%

20%

(1.4)

(7.8)

Other

95.7

95.9

80.4

17%

17%

15%

(0.3)

(1.2)

High street retail

68.6

73.5

75.3

12%

13%

14%

(5.2)

(7.9)

Office

60.7

60.4

55.9

11%

11%

12%

0.0

(0.0)

Total

572.7

576.2

528.9

100%

100%

100%

(5.0)

(5.4)

Source: Custodian REIT

Within the quarterly net negative revaluation movement of £5.0m, asset management initiatives added £1.4m to the portfolio value and other quarterly valuation movements were a negative £6.4m, driven by high street assets, where 17 of the 33 properties saw a reduction in ERV in the period. CREI’s high street retail exposure is targeted, with no shopping centre exposure. It expects prime and good secondary locations to remain in demand by both retailers and investors, although with potential further downwards pressure on rents, whereas alternative uses may be needed for poor secondary retail locations

Although portfolio retail warehouse asset values also reduced, by £1.4m during the quarter, CREI believes that valuations and rents are likely to prove more robust than for high street retail assets, supported by relatively low rent levels, free parking and a complementary relationship with online through continued growth in click and collect.

CREI expects the industrial/logistics subsector assets to benefit from demand for smaller urban logistics assets, to meet the challenge of on-line sales fulfilment, and where the letting market is yet to fully mature in contrast to the very large ‘big box’ logistics market. This continues to be an area of selective acquisition for CREI.

The regional office market also continues to perform well, generating rental growth against the background of continuing occupier demand and a relative shortage of availability.

The asset management contribution includes lease renewals and extensions, positively affecting rental income and capital values, partly offset by the company voluntary arrangement (CVA) of Paperchase, reducing rent on a property in Shrewsbury by 45% (£150k to £83k) and the valuation of £0.4m. Further asset management initiatives are under review and are expected to be completed in the current quarter.

Financials

The Q419 NAV update provides an unaudited indication of the end-FY19 EPRA EPS and NAV as well as the LTV ratio, and the full audited results are expected to be released in June. We have made slight adjustments to our FY19 expectations, bringing them in line with the quarterly guidance, making very small changes to EPRA EPS (up) and EPRA NAV (down). LTV is also slightly lower than we previously forecast, reflecting subsequent equity issuance under the company’s block listing facility. The changes to our FY20 forecasts are similarly very modest, although we are a little more cautious about the prospects for NAV growth in the current year.

Our main forecasting assumptions for FY20 are shown below. We will review these with the detailed FY19 results and extend our forecasting period.

Exhibit 6: Forecast revisions

Net rental income (£m)

EPRA EPS (p)

DPS (p)

EPRA NAV/share (p)

Net LTV

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

03/19e

37.3

37.5

0.5

7.2

7.3

1.4

6.55

6.55

0.0

108

107

-0.9

24.9%

24.1%

-8pp

03/20e

38.8

38.8

0.0

7.3

7.3

0.0

6.62

6.65

0.5

110

108

-1.8

24.9%

24.3%

-7pp

Source: Edison Investment Research.

We have assumed no changes in the portfolio, although CREI continues to seek opportunities that fit with its investment strategy and the company expects selective acquisition growth to continue. Similarly, we assume no equity issuance.

For achieved rental growth across the whole portfolio, we have assumed a blended rate of 0.5% pa (was 0.6%) comprising growth of 2.0% pa for industrial, a decline of 2.5% pa for high street retail, and flat rents for offices, ‘other’ and retail warehouses.

We assume a small positive net revaluation movement equivalent to 0.3% of the opening portfolio value, following the assumed rental growth but at a lower level, implying some modest yield tightening. From a sector viewpoint, this implies positive revaluation for the industrial assets and further negative revaluation for the high street retail assets. We estimate that a 0.25% increase/decrease in the net initial yield would reduce/increase FY20 EPRA NAV per share by 5.6p/6.0p or c 5%.

Valuation

As an income-oriented REIT, CREI’s focus is on generating a secure and growing income stream that can support its progressive and sustainable dividend objectives, while delivering capital value growth over the long term. As a result, the shares combine an attractive dividend yield, with a good level of dividend cover, and conservative gearing.

Since listing in March 2014, CREI has generated an EPRA NAV total return of 39.0%, or a compound annual average return of 6.8% pa. of the total return, 77% has been generated by dividend payments and the balance by growth in EPRA NAV per share.

Exhibit 7: EPRA NAV total return

Year ending 31 March

2015

2016

2017

2018

2019

2015–19 cumulative

Opening EPRA NAV per share (p)

98.2

101.3

101.5

103.8

107.3

98.2

Closing EPRA NAV per share (p)

101.3

101.5

103.8

107.3

107.1

107.1

Dividends paid per share (p)

3.750

6.350

6.350

6.425

6.525

29.4

EPRA NAV total return

7.0%

6.4%

8.5%

9.6%

5.9%

39.0%

Compound annual total return

6.8%

Source: Custodian REIT, Edison Investment Research

Exhibit 8 shows a valuation and share price performance comparison of CREI with a group of close peers with a similar income focus and diversified investment strategy.

The share price premium to EPRA NAV has reduced slightly in recent months, but has been relatively robust and the gap versus the peer group average has widened somewhat. CREI shares continue to trade at an above average trailing P/NAV of 1.05x, which is supported by an attractive, above average dividend yield, with DPS well covered by earnings.

Exhibit 8: Peer group comparison

Price
(p)

Market cap (£m)

P/NAV*
(x)

Yield*
(%)

Share price performance

One month

Three months

12 months

From 12-month high

Ediston Property

108

228

0.96

5.3

5%

5%

-2%

-6%

F&C UK Real Est Inv

95

228

0.89

5.3

4%

3%

-11%

-13%

F&C Com Prop

124

991

0.89

4.8

4%

-2%

-14%

-20%

Picton

94

504

1.01

3.7

2%

7%

4%

-2%

Regional REIT

107

399

0.93

7.5

1%

5%

7%

-1%

Schroder REIT

58

300

0.84

4.4

1%

-1%

-4%

-14%

Standard Life Inv Prop

92

373

1.01

5.2

2%

0%

-5%

-5%

UK Commercial Property Trust

89

1158

0.95

4.1

2%

2%

0%

-2%

Average

0.93

5.2

2%

2%

-3%

-8%

Custodian REIT

113

453

1.05

5.8

-1%

-1%

-4%

-8%

UK property index

1,735

4.0

1%

2%

-6%

-8%

FTSE All-Share Index

4,041

4.6

-1%

3%

-3%

-7%

Source: Company data. Prices as at 7 May 2019. Note: *Last reported EPRA NAV per share. **Trailing 12-month DPS declared.

Exhibit 9: Financial summary

Year end 31 March

£'000s

2015

2016

2017

2018

2019e

2020e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Gross rental income

11,228

18,561

26,980

34,055

38,692

40,252

Re-charge income

342

451

630

758

932

986

Total revenue

 

 

11,570

19,012

27,610

34,813

39,624

41,238

Gross property expenses

(715)

(1,023)

(1,869)

(1,610)

(2,139)

(2,395)

Net rental income

 

 

10,855

17,989

25,741

33,203

37,485

38,843

Administrative expenses

(2,327)

(2,828)

(3,643)

(4,377)

(4,757)

(4,828)

Operating Profit before revaluations

 

 

8,528

15,161

22,098

28,826

32,729

34,015

Revaluation of investment properties

6,083

3,031

9,016

11,859

(-5,503)

1,436

Costs of acquisitions

(5,844)

(5,768)

(6,103)

(6,212)

(3,475)

0

Profit on disposal

269

56

1,599

1,606

4,250

0

Operating Profit

9,036

12,480

26,610

36,079

28,001

35,452

Net Interest

(289)

(1,273)

(2,405)

(3,659)

(4,293)

(4,972)

Profit Before Tax

 

 

8,747

11,207

24,205

32,420

23,708

30,480

Taxation

(2)

0

0

0

0

0

Profit After Tax

8,745

11,207

24,205

32,420

23,708

30,480

Net revaluation of investment property/costs of acquisition

(239)

2,737

(2,913)

(5,647)

8,978

(1,436)

Gains/(losses) on disposal

(269)

(56)

(1,599)

(1,606)

(4,250)

0

EPRA earnings

8,237

13,888

19,693

25,167

28,436

29,043

Average Number of Shares Outstanding (m)

146.1

204.2

298.7

362.4

391.3

399.0

IFRS EPS (p)

 

 

5.99

5.49

8.10

8.95

6.06

7.64

EPRA EPS (p)

 

 

5.64

6.80

6.59

6.94

7.27

7.28

Dividend per share (p)

 

 

5.25

6.25

6.35

6.45

6.55

6.65

Dividend cover (x)

1.07

1.09

1.04

1.08

1.11

1.09

Ongoing charges ratio (excluding property expenses)

0.00%

1.33%

1.20%

1.15%

1.13%

1.12%

BALANCE SHEET

Fixed Assets

 

 

207,287

318,966

418,548

528,943

572,724

579,760

Investment properties

207,287

318,966

418,548

528,943

572,724

579,760

Other non-current assets

0

0

0

0

0

0

Current Assets

 

 

1,921

9,973

10,260

12,942

14,188

12,749

Debtors

1,072

4,518

4,453

7,883

4,798

6,090

Cash

849

5,455

5,807

5,059

9,390

6,659

Current Liabilities

 

 

(5,411)

(8,165)

(12,572)

(12,755)

(15,091)

(15,215)

Creditors/Deferred income

(5,411)

(8,165)

(12,572)

(12,755)

(15,091)

(15,215)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(23,811)

(65,714)

(64,359)

(113,928)

(145,185)

(145,485)

Long term borrowings

(23,811)

(65,143)

(63,788)

(113,357)

(144,614)

(144,914)

Other long term liabilities

0

(571)

(571)

(571)

(571)

(571)

Net Assets

 

 

179,986

255,060

351,877

415,202

426,636

431,809

NAV/share (p)

101

102

104

107

107

108

EPRA NAV/share (p)

101

102

104

107

107

108

CASH FLOW

Operating Cash Flow

 

 

12,780

13,945

23,066

28,388

35,541

30,247

Net Interest

(204)

(1,285)

(2,200)

(3,521)

(3,969)

(4,672)

Tax

0

0

0

0

0

0

Net additions to investment property

(129,788)

(113,621)

(92,126)

(105,884)

(45,967)

(3,000)

Ordinary dividends paid

(5,546)

(12,220)

(18,493)

(23,007)

(25,484)

(26,431)

Debt drawn/(repaid)

23,811

41,700

(1,000)

49,364

31,000

0

Proceeds from shares issued (net of costs)

99,796

76,087

91,105

53,912

13,210

1,125

Other cash flow from financing activities

0

0

0

0

0

Net Cash Flow

849

4,606

352

(748)

4,331

(2,731)

Opening cash

0

849

5,455

5,807

5,059

9,390

Closing cash

 

 

849

5,455

5,807

5,059

9,390

6,659

Debt as per balance sheet

(23,811)

(65,143)

(63,788)

(113,357)

(144,614)

(144,914)

Unamortised loan arrangement fees

(489)

(857)

(1,212)

(1,643)

(1,386)

(1,086)

Total debt

(24,300)

(66,000)

(65,000)

(115,000)

(146,000)

(146,000)

Restricted cash

(230)

(490)

(1,307)

(1,341)

(1,369)

(1,390)

Closing net debt

 

 

(23,681)

(61,035)

(60,500)

(111,282)

(137,979)

(140,731)

Net LTV

11.4%

19.1%

14.4%

21.0%

24.1%

24.3%

Source: Custodian REIT, Edison Investment Research

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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 (nor will such persons be able to purchase shares in the placing).

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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

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

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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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

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Volta Finance — Shift towards CLO equity ahead of cycle turn

Volta’s NAV TR performance in recent months was influenced by weaker market sentiment towards the end of 2018, which (despite the subsequent rebound) translated into a marginal (c 1%) negative return in H119 ending on 31 January. Returns in February and March were mildly positive, bringing the ytd performance to 4.0%. Importantly, the cash flows generated by Volta’s portfolio remain strong. Moreover, AXA IM used the recent increase in market volatility to deploy the rest of Volta’s dry powder and increase its exposure to CLO equity tranches at attractive prices ahead of any potential turn in the credit cycle.

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