Custodian REIT — Reinstating forecasts with improved DPS outlook

Custodian Property Income REIT (LSE: CREI)

Last close As at 23/05/2024

GBP0.73

−1.50 (−2.01%)

Market capitalisation

GBP322m

More on this equity

Research: Real Estate

Custodian REIT — Reinstating forecasts with improved DPS outlook

Amidst challenging market conditions, Custodian REIT (CREI) declared a Q121 DPS 0.95p, 27% ahead of the minimum level indicated for each of the first two quarters of FY21, and fully covered by net cash receipts. With robust rent collection and the lockdown easing, we have reinstated our estimates and look for the quarterly DPS run rate to increase in H221.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Custodian REIT

Reinstating forecasts with improved DPS outlook

Q121 NAV update

Real estate

25 August 2020

Price

86p

Market cap

£361m

Net debt (£m) at 30 June 2020

125.4

Net LTV (%) at 30 June 2020

23.5

Shares in issue

420.1m

Free float

92%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.4)

1.7

(26.6)

Rel (local)

(1.6)

(1.4)

(15.9)

52-week high/low

118p

76p

Business description

Custodian REIT 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, with the potential for capital growth.

Next events

Q121 DPS payment

28 August 2020

H121 period end

30 September 2020

Analyst

Martyn King

+44 (0)20 3077 5745

Custodian REIT is a research client of Edison Investment Research Limited

Amidst challenging market conditions, Custodian REIT (CREI) declared a Q121 DPS 0.95p, 27% ahead of the minimum level indicated for each of the first two quarters of FY21, and fully covered by net cash receipts. With robust rent collection and the lockdown easing, we have reinstated our estimates and look for the quarterly DPS run rate to increase in H221.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

EPRA NAV/ share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

03/19

37.6

28.5

7.3

107.1

6.55

0.80

7.6

03/20

38.1

28.7

7.0

101.6

6.65

0.85

7.7

03/21e

35.5

24.3

5.8

94.5

4.20

0.91

4.9

03/22e

35.4

25.7

6.1

95.2

5.60

0.90

6.5

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

Q121 DPS well ahead of minimum indications

The DPS of 0.95p declared for Q121 was well ahead of the minimum 0.75p that the company had previously indicated for each of the first two quarters of FY21. It was fully covered by net cash receipts, reflecting better than expected rental collection, and was 140% covered by EPRA earnings, including accrued rents that are yet to be collected. Unrealised valuation losses weighed on NAV per share, down by 5.9p to 95.7p, and including DPS paid the Q121 NAV total return was -4.2%. Rent collection is robust and the easing of the lockdown should support a further improvement in H221. Although a good deal of economic and market uncertainty remains, we have tentatively reinstated estimates, allowing for a reduction in occupancy and rent roll through the balance of the year. Our NAV forecast allows for further market-led valuation weakness. We assume a more normal collection pattern in FY22 and some recovery in occupancy, driving a further increase in the DPS run rate.

We forecast higher quarterly DPS in H221

As at 30 July, 82% of Q121 rents had been collected with a further 11% subject to agreed deferrals. At the same date, 80% of rents expected for Q221 had been collected, net of the 5% deferred by contractual agreement, to be recovered over the next 12–18 months. With the lockdown easing we expect further improvement, supporting an increase in the quarterly DPS run rate to 1.15p in Q321 and Q421. Our forecast aggregate DPS for the year of 4.20p is 1.3x covered by forecast EPRA earnings and for this to be covered by rent receipts 82% of IFRS rental income needs to be collected. Meanwhile, Custodian is supported by a strong and liquid balance sheet with low levels of gearing.

Valuation: Attractive yield with upside

The prospective FY21e yield of 4.9% (or 4.4% based on the current quarterly DPS run rate) compares favourably with risk-free alternatives (little more than 0.2% for 10-year UK government debt). The c 10% discount to Q121 EPRA NAV of 95.7p per share compares with an average of an c 8% premium since IPO in 2014.

Improved DPS outlook

In the three months that ended 30 June 2020 (Q121) NAV per share reduced by 5.9p to 95.7p, driven by unrealised valuation losses on the investment portfolio, and including the 1.6625p DPS paid in respect of Q420, the NAV total return was -4.2%.

Exhibit 1: Quarterly trend in NAV total return*

Jun-19

Sep-19

Dec-19

Mar-20

Jun-20

(p)

Q120

Q220

Q320

Q420

Q121

Opening NAV per share

107.1

106.0

104.3

104.4

101.6

Closing NAV per share

106.0

104.3

104.4

101.6

95.7

DPS paid

1.6

1.7

1.7

1.7

1.7

NAV total return (%)

0.5%

0.0%

1.7%

-1.1%

-4.2%

Source: Custodian REIT data. Note: *Dividends added back but not reinvested.

From listing in March 2014 to March 2020 (end-FY20), CREI generated an aggregate EPRA NAV total return of 40.1% (without assuming reinvestment of dividends) or a compound annual average return of 5.8% pa. Of the total return, the vast majority (91%) has been generated by dividend payments and the balance by growth in EPRA NAV per share. With market conditions recently more uncertain, the contribution of income to returns is increasingly important.

Exhibit 2: EPRA NAV total return history (DPS added back but not reinvested)

Year ending 31 March (p)

2015*

2016

2017

2018

2019

2020

2015–20 cumulative

Opening EPRA NAV per share

98.2

101.3

101.5

103.8

107.3

107.1

98.2

Closing EPRA NAV per share

101.3

101.5

103.8

107.3

107.1

101.6

101.6

Dividends paid per share

3.750

6.350

6.350

6.425

6.525

6.625

36.0

EPRA NAV total return (%)

7.0%

6.4%

8.5%

9.6%

5.9%

1.0%

40.1%

Compound annual total return (%)

5.8%

o/w income returns (%)

91%

Source: Custodian REIT data, Edison Investment Research. Note: *Opening NAV adjusted for IPO costs.

Income remained robust during Q121 (£9.8m compared with £10.0m in Q420 and an average quarterly rate of £10.2m through FY20), but expenses, including precautionary provisioning against rents owed (we estimate c £0.9m) increased. Q120 income net of expenses of c £6.1m did not fully cover payment of the Q420 DPS during the period, however the c £4.0m cost of the Q121 DPS was c 1.4x covered by EPRA earnings in the period and was fully covered by net cash receipts (allowing for rents accrued but yet received). The 0.95p DPS declared was 27% ahead of the minimum 0.75p that the company had previously indicated, for each of the first two quarters of FY21, reflecting better than expected rental collection (see below), and was fully covered by net cash receipts. With the lockdown easing we expect quarterly dividends throughout FY21 to be at least at the same level. For details of Custodian’s tenant base, see our last note.

Exhibit 3: Quarterly NAV development

Jun-19

Sep-19

Dec-19

Mar-20

Jun-20

(£m)

Q120

Q220

Q320

Q420

Q121

Opening NAV

426.6

432.7

428.5

430.2

426.7

Issue of equity

11.6

2.9

1.5

9.0

0.0

Movement in property values

(6.0)

(7.3)

(0.9)

(12.5)

(23.7)

Income in period

10.8

9.8

10.3

10.0

9.8

Expenses in period

(3.8)

(2.8)

(2.4)

(3.1)

(3.7)

Dividends paid

(6.5)

(6.8)

(6.8)

(6.9)

(7.0)

Closing NAV

432.7

428.5

430.2

426.7

402.1

NAV per share (p)

106.0

104.3

104.4

101.6

95.7

Source: Custodian REIT data

During the quarter all sectors across Custodian’s diversified portfolio experienced unrealised valuation decreases; reflecting market-wide trends industrial assets (including logistics) remained more robust while high street retail assets were the weakest. Amidst low transactional activity in the market (investment volumes during the period to 30 June were only 20% of the previous quarter’s levels) the Royal Institute of Chartered Surveyors (RICS) continues to recommend the imposition of a ‘material uncertainty’ caveat against the valuations of all but industrial and logistics properties. Valuations meanwhile are seeking to reflect the change in market conditions resulting from the pandemic, and particularly the risks to deferred and overdue rents. Custodian’s investment manager comments that while this may be inevitable in the short term it does not necessarily represent an irrecoverable shift, expecting demand from occupiers to remain firm as infection management improves. As well as the easing of the lockdown, sentiment around rent collection should also benefit from a reinstatement by the government (after September) of the ability of landlords to formally pursue non-paying tenants.

The valuation movement during the period continued to be tempered by asset management initiatives and this has continued into the current (Q221) quarter with a positive underlying impact on valuation.

Exhibit 4: Like-for-like revaluation movements by sector

Mar-20

Jun-20

Mar-20

Jun-20

Q420

Q121

Q420

Q121

Sector

£m

Like for like %

Industrial

3.1

(5.5)

1.2

(2.2)

Retail warehouse

(5.9)

(5.9)

(5.1)

(5.1)

Other

(4.7)

(6.3)

(5.1)

(6.8)

High street retail

(4.7)

(4.3)

(8.2)

(7.5)

Office

(0.3)

(2.2)

(0.6)

(4.1)

Total

(12.5)

(24.2)

(2.2)

(4.2)

Source: Custodian REIT

Rent collection better than expected

Custodian’s investment manager invoices and collects rents directly and, in some cases, this has provided an opportunity to negotiate a positive asset management outcome where tenants have struggled to meet near-term rental payments due to the lockdown. This may typically include an extension to the lease term in return for rent concessions, providing short-term cash flow relief for occupiers and longer-term income security for the company.

The process of collecting rent arrears has continued and as of the date of the Q121 NAV announcement (30 July) 92% of rent relating to Q121, net of agreed rent deferrals (11% of rents), had been collected. Applied to the total invoiced rents this implies 82% collection, 11% deferral and 7% outstanding/due.

With collections continuing, at 30 July, 80% of rents expected for Q221 had been collected, net of amounts deferred by contractual agreement to be recovered over the next 12–18 months. The rents expected to be collected in Q221 include rents due relating to the quarter, net of agreed deferrals of 5% of Q221 rents, and collections of some part of rents deferred in Q121. This implies 82% collection of the rents expected in Q221, 5% deferral and 19% still outstanding/due.

Custodian remains in discussion with tenants in respect of the Q121 and Q221 outstanding rents due and we expect the Q221 collection to increase although a proportion of arrears are potentially at risk of non-recovery from company voluntary arrangements (CVAs) or pre-pack administrations accounting for c 3.6% of rent roll.

Estimates reinstated

As previously reported, the pandemic came too late to significantly impact FY20 recurring income, with the increased DPS target for the year met and fully covered by EPRA earnings, although year-end valuations and NAV were negatively affected. Our forecasts for FY21 were withdrawn at the start of the pandemic due to the heightened uncertainty about the extent and duration of its impact on accounting income, cash rent collection and capital values. Although a good deal of uncertainty remains, we believe it is now reasonable to make tentative forecasts, supported by published cash rental collection data, the Q120 performance and recent trends in market valuations. However, we note that our confidence in these forecasts is lower than normal and that the actual results could be materially higher or lower in several respects.

Income assumptions

The factors that will determine future rental income include:

Retention of existing tenants and success with letting vacant space. At the start of FY21, c 9% of income was subject to a lease break option or expiry during the following 12 months and occupancy was 95.6% (end-Q121: 93.8%).

Non-contractual tenant failures, particularly in the more challenged retail and leisure sectors. As noted above, the company has identified c 3.6% on rent roll as being at risk from CVAs and pre-pack administrations.

Potential weakness in estimated rental values (ERVs), particularly in the retail and leisure sector, with the impact on current rents potentially accelerated by market weakness with lower rents agreed to maintain occupancy.

For FY21 we have assumed that:

Custodian makes further provisions against accrued rent receivables, taking the total to £1.6m (including our estimate £0.9m in Q121).

That occupancy falls further during H221, primarily as a result of the identified income at risk, with the balance of other leasing activity otherwise neutral through the balance of the year.

FY21 IFRS rental income is thus assumed to be £37.8m, before the £1.6m of assumed provisioning against rent receivables (included in expenses) compared with £40.0m in FY20.

In some instances, the assumed aggregate £1.6m provisions taken against rents receivable may represent concessions with occupancy and rent income continuing, but in most cases we would expect a reduction in contracted income and a decrease in occupancy until such time as re-letting occurs. This implies an end-FY21 annualised rent roll of £36.9m compared with £40.5m at the start of the year.

Our FY22 forecast assumes an improvement in contracted passing rent to £38.4m by end-FY22 driven by a recovery in occupancy.

Capital assumptions

Taking account of recent market trends and the unusually wide range of market forecasts, Exhibit 5 shows our best guess at capital value movements across the market for FY21 and applied to the Custodian portfolio as at end-FY21. Our assumptions imply a relative stabilisation in valuation movements throughout the balance of FY21 following sharp declines in Q420 and Q121 (Exhibit 4 above) but given the level of uncertainty are best treated as an illustration. For FY22 we see the possibility for some improvement in valuations if market conditions return to a more normal situation; however, given the uncertainty that remains we have for now assumed flat capital values in FY22.

Exhibit 5: Portfolio valuation assumptions for FY21

End-FY20 (£m)

Assumed FY21 valuation movement (%)

Assumed FY21 valuation movement (£m)

Industrial

257.3

-4.0%

(10.3)

Retail warehouse

109.7

-8.0%

(8.8)

Other

87.4

-8.0%

(7.0)

High street retail

52.8

-12.0%

(6.3)

Office

52.6

-6.0%

(3.2)

Total

559.8

-6.4%

(35.6)

Source: Edison Investment Research

Based on these assumptions our forecast end-FY21 EPRA NAV per share is 94p (FY20: 102p and Q121: 95p). Alternatively, each 1% increase/decrease in the total portfolio value is equivalent to an increase/decrease in EPRA NAV per share of c 1.3p. For the end-Q121 EPRA NAV (95p) to fall to match the current share price (86p) would require a c 8% reduction in the end-Q121 portfolio value.

Dividend assumptions

Based on our income assumptions we expect Custodian to increase the level of quarterly DPS payments in the second half of the year and our 4.2p aggregate FY21 DPS forecast assumes quarterly declarations of 1.15p per share in Q321 and Q421 after 0.95p per share in both Q221 and Q221. At 4.2p the aggregate DPS is 1.3x covered by our forecast EPRA earnings; for DPS to be covered by net cash receipts requires 82% of IFRS rental income to be collected.

Our income assumptions for FY22 imply further scope for DPS to increase and we assume a return to aggregate DPS of 5.6p for the year. At this level DPS is 1.10x covered by EPRA EPS and with collection of a part of the FY21 deferred rents continuing into FY22, the cash cover of DPS should be higher.

Forecast summary

Our forecasts are shown in detail in Exhibit 8 and a summary is shown in Exhibit 6. For FY21 we show a comparison with our pre-pandemic forecasts, withdrawn in March 2020. We provide FY22 forecasts for the first time.

Exhibit 6: Estimate summary

Net rental income (£m)

EPRA EPS (p)

DPS (p)

EPRA NAV/share (p)

Net LTV

Old

New

Chge (%)

Old

New

Chge (%)

Old

New

Chge (%)

Old

New

Chge (%)

Old

New

Chge (pp)

2021e

39.0

35.5

-8.2

7.0

5.8

-16.2

6.72

4.20

-37.5

103

94

-8.5

22.6%

23.0%

1.8

2022e

N/A

35.4

N/A

N/A

6.1

N/A

N/A

5.60

N/A

N/A

95

N/A

N/A

22.9%

N/A

Source: Edison Investment Research. Note: The FY21 ‘old forecast’ was in place before the COVID-19 pandemic and was subsequently withdrawn.

Valuation

Our forecast 4.2p FY21 DPS represents a 4.9% prospective FY21 yield (or 4.4% based on the current quarterly rate of DPS of 0.95p or 3.8p annualised). If DPS further increases to 5.6p in FY22 as our forecasts indicate, the prospective FY22 yield is 6.5%. Meanwhile, the c 10% discount to the Q121 NAV compares with an average c 8% premium since IPO in March 2014.

In Exhibit 6 we show a summary performance and valuation comparison of Custodian and what we consider to be its closest diversified income-oriented peers. In terms of valuation we show the trailing yield based on aggregate declared DPS over the past 12 months, as well as the forward-looking yield based on the most recently declared DPS annualised. Neither is entirely satisfactory as the sector remains in a state of flux; most companies have reduced DPS payouts for the time being and it will take some time before the full-year prospective DPS outlook becomes clearer and a true comparison can be made. We also note that the historical data does not reflect our expectation that Custodian’s quarterly DPS will increase later in the year. We believe the slight outperformance of CREI shares versus the peer group over the past 12 months and its higher P/NAV in part reflects its focus on smaller lot size properties with a yield premium that supports income returns and dividend paying capacity without additional risk/costs, as well as low gearing, and the company’s track record of income generation.

Exhibit 7: Peer group valuation and performance comparison

Price
(p)

Market cap (£m)

P/NAV
(x)

Trailing Yield (%)**

Annualised yield (%)***

Share price performance

1 month

3 months

12 months

From 12M high

Ediston Property

53

112

0.59

10.1

7.6

-1%

19%

-41%

-43%

BMO Real Estate Investments

65

156

0.67

6.7

3.8

20%

22%

-25%

-28%

BMO Commercial Property Trust

68

540

0.56

4.4

4.4

21%

4%

-38%

-45%

Picton

71

386

0.76

4.6

3.5

5%

16%

-19%

-35%

Regional REIT

77

331

0.68

10.8

9.9

13%

2%

-26%

-37%

Schroder REIT

31

158

0.53

5.9

5.1

-12%

-7%

-44%

-47%

Standard Life Investment Property

54

220

0.67

7.9

5.3

-5%

-17%

-38%

-46%

UK Commercial Property REIT

66

863

0.79

4.2

2.8

1%

21%

-19%

-28%

Average

0.64

7.2

5.7

5%

8%

-31%

-39%

Custodian

86

362

0.90

6.9

4.4

-1%

2%

-27%

-27%

Index level

Prospective yield (%)

UK property index

1,501

8.5

3%

10%

-8%

-24%

FTSE All-Share Index

3,402

3.4

0%

3%

-13%

-20%

Source: Company data, Refinitiv prices at 15 August 2020. Note: *Based on last reported EPRA NAV; **based on DPS declared in past 12 months; ***based on last declared DPS annualised.

Exhibit 8: Financial summary

Year end 31 March

£'000s

2015

2016

2017

2018

2019

2020

2021e

2022e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Gross rental income

11,228

18,561

26,980

34,055

39,108

40,022

37,766

37,652

Re-charge income

342

451

630

758

866

881

819

906

Total revenue

 

 

11,570

19,012

27,610

34,813

39,974

40,903

38,585

38,559

Gross property expenses

(715)

(1,023)

(1,869)

(1,610)

(2,396)

(2,763)

(3,039)

(3,130)

Net rental income

 

 

10,855

17,989

25,741

33,203

37,578

38,140

35,545

35,428

Administrative expenses

(2,327)

(2,828)

(3,643)

(4,377)

(4,919)

(4,782)

(6,249)

(4,711)

Operating Profit before revaluations

 

 

8,528

15,161

22,098

28,826

32,659

33,358

29,296

30,717

Revaluation of investment properties

6,083

3,031

9,016

11,859

(5,499)

(25,850)

(23,700)

0

Costs of acquisitions

(5,844)

(5,768)

(6,103)

(6,212)

(3,391)

(599)

0

0

Profit/(loss) on disposal

269

56

1,599

1,606

4,250

(101)

496

0

Operating Profit

9,036

12,480

26,610

36,079

28,019

6,808

6,092

30,717

Net Interest

(289)

(1,273)

(2,405)

(3,659)

(4,373)

(4,685)

(4,985)

(5,030)

Profit Before Tax

 

 

8,747

11,207

24,205

32,420

23,646

2,123

1,107

25,687

Taxation

(2)

0

0

0

0

0

0

0

Profit After Tax

8,745

11,207

24,205

32,420

23,646

2,123

1,107

25,687

Net revaluation of investment property/costs of acquisition

(239)

2,737

(2,913)

(5,647)

8,890

26,449

23,700

0

Gains/(losses) on disposal

(269)

(56)

(1,599)

(1,606)

(4,250)

101

(496)

0

EPRA earnings

8,237

13,888

19,693

25,167

28,456

28,673

24,311

25,687

Average Number of Shares Outstanding (m)

146.1

204.2

298.7

362.4

391.9

409.7

420.1

420.1

IFRS EPS (p)

 

 

5.99

5.49

8.10

8.95

6.03

0.52

0.26

6.12

EPRA EPS (p)

 

 

5.64

6.80

6.59

6.94

7.26

7.00

5.79

6.12

Dividend per share (p)

 

 

5.25

6.25

6.35

6.45

6.55

6.65

4.20

5.60

Dividend cover (x)

1.00

1.01

1.01

1.06

1.10

1.04

1.28

1.09

Ongoing charges ratio (excluding property expenses)

1.41%

1.33%

1.20%

1.15%

1.12%

1.12%

1.52%

1.14%

BALANCE SHEET

Fixed Assets

 

 

207,287

318,966

418,548

528,943

572,745

559,817

525,189

528,189

Investment properties

207,287

318,966

418,548

528,943

572,745

559,817

525,189

528,189

Other non-current assets

0

0

0

0

0

0

0

0

Current Assets

 

 

1,921

9,973

10,260

12,942

6,146

30,696

35,885

35,985

Debtors

1,072

4,518

4,453

7,883

3,674

5,297

5,297

5,297

Cash

849

5,455

5,807

5,059

2,472

25,399

30,588

30,688

Current Liabilities

 

 

(5,411)

(8,165)

(12,572)

(12,755)

(14,160)

(14,862)

(15,068)

(14,673)

Creditors/Deferred income

(5,411)

(8,165)

(12,572)

(12,755)

(14,160)

(14,862)

(15,068)

(14,673)

Short term borrowings

0

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(23,811)

(65,714)

(64,359)

(113,928)

(138,108)

(148,899)

(149,179)

(149,459)

Long term borrowings

(23,811)

(65,143)

(63,788)

(113,357)

(137,532)

(148,323)

(148,603)

(148,883)

Other long term liabilities

0

(571)

(571)

(571)

(576)

(576)

(576)

(576)

Net Assets

 

 

179,986

255,060

351,877

415,202

426,623

426,752

396,827

400,041

NAV/share (p)

101

102

104

107

107

102

94

95

EPRA NAV/share (p)

101

102

104

107

107

102

94

95

CASH FLOW

Operating Cash Flow

 

 

12,780

13,945

23,066

28,388

36,035

31,042

29,502

30,323

Net Interest

(204)

(1,285)

(2,200)

(3,521)

(4,198)

(4,399)

(4,705)

(4,750)

Tax

0

0

0

0

0

0

0

0

Net additions to investment property

(129,788)

(113,621)

(92,126)

(105,884)

(46,199)

(12,227)

(428)

(3,000)

Ordinary dividends paid

(5,546)

(12,220)

(18,493)

(23,007)

(25,484)

(27,002)

(19,795)

(22,473)

Debt drawn/(repaid)

23,811

41,700

(1,000)

49,364

24,000

10,505

0

0

Proceeds from shares issued (net of costs)

99,796

76,087

91,105

53,912

13,259

25,008

0

0

Other cash flow from financing activities

0

0

0

0

0

0

0

Net Cash Flow

849

4,606

352

(748)

(2,587)

22,927

4,574

100

Opening cash

0

849

5,455

5,807

5,059

2,472

25,399

29,973

Closing cash

 

 

849

5,455

5,807

5,059

2,472

25,399

29,973

30,073

Debt as per balance sheet

(23,811)

(65,143)

(63,788)

(113,357)

(137,532)

(148,323)

(148,603)

(148,883)

Unamortised loan arrangement fees

(489)

(857)

(1,212)

(1,643)

(1,468)

(1,677)

(1,397)

(1,117)

Total debt

(24,300)

(66,000)

(65,000)

(115,000)

(139,000)

(150,000)

(150,000)

(150,000)

Restricted cash

(230)

(490)

(1,307)

(1,341)

(1,369)

(911)

(911)

(911)

Closing net debt

 

 

(23,681)

(61,035)

(60,500)

(111,282)

(137,897)

(125,512)

(120,938)

(120,838)

Net LTV

11.4%

19.1%

14.4%

21.0%

24.1%

22.4%

23.0%

22.9%

Source: Custodian REIT data, Edison Investment Research


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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 £49,500 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.

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Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

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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

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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.

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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

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

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 £49,500 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 2020 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

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

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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