Custodian REIT — Robust EPRA earnings but decreased NAV

Custodian Property Income REIT (LSE: CREI)

Currency in GBP

Last close As at 30/01/2023

GBP0.93

0.20 (0.22%)

Market capitalisation

GBP410m

Research: Real Estate

Custodian REIT — Robust EPRA earnings but decreased NAV

Strong leasing activity is supporting EPRA earnings and Custodian REIT (CREI) is on track to meet its FY23 DPS target of not less than 5.5p, fully covered. Despite the robustness of occupational demand and continued rent growth in many areas, capital values began to reprice to increased bond yields. We expect these trends to continue, with EPRA earnings and DPS progressing further while asset values and net asset value (NAV) decrease further.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Custodian REIT

Robust EPRA earnings but decreased NAV

Q223 NAV update

Real estate

28 November 2022

Price

93p

Market cap

£410m

Gross debt (£m) at 30 September 2022

178.0

Net LTV at 30 September 2022

25.4%

Shares in issue

440.9m

Free float

91.6%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.5

(11.4)

(5.1)

Rel (local)

(1.6)

(11.6)

(3.8)

52-week high/low

110p

83p

Business description

Custodian REIT is a London Main Market-listed REIT focused on smaller lot-size (<£15m) 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

FY23 period end

31 March 2023

Analyst

Martyn King

+44 (0)20 3077 5745

Custodian REIT is a research client of Edison Investment Research Limited

Strong leasing activity is supporting EPRA earnings and Custodian REIT (CREI) is on track to meet its FY23 DPS target of not less than 5.5p, fully covered. Despite the robustness of occupational demand and continued rent growth in many areas, capital values began to reprice to increased bond yields. We expect these trends to continue, with EPRA earnings and DPS progressing further while asset values and net asset value (NAV) decrease further.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

NAV**
/share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

03/21

33.1

23.7

5.6

97.6

5.00

0.95

5.4

03/22

35.6

25.3

5.9

119.7

5.25

0.78

5.7

03/23e

37.9

25.2

5.7

98.5

5.50

0.94

5.9

03/24e

39.3

26.1

5.9

98.9

5.60

0.94

6.0

Note: *Excludes revaluation gains/losses and other exceptional items. ***Defined as EPRA net tangible assets per share (EPRA NTA).

Cautiously reduced EPRA earnings and DPS growth

CREI continues to see good levels of occupier activity, continuing into Q323, supporting like-for-like rent growth (rent roll +1.1% ERV +2.2%) and increased occupancy (Q223 EPRA occupancy of 89.3% vs 88.7% in Q122). Accretive acquisitions have also continued along with disposals ahead of valuation. Mirroring market trends, property valuations fell 5.4% like-for-like (Q123: +1.7%), driving a negative 5.8% total return, with a 1.1% dividend return only partly offsetting a 6.9% decrease in NAV per share to 113.7p (Q123: 122.2p). In an uncertain and challenging economic environment, we have cautiously reduced forecast growth in EPRA earnings (by 3% in FY24) and DPS (7%) and allow for an additional 0.5% property yield widening (Q223 NIY of 5.9%), reducing FY23e/FY24e NAV by c 20%.

Income at the core of strategy

CREI’s prime strategy for delivering returns is the generation of attractive and stable dividend returns from an actively managed, well-diversified portfolio of UK commercial real estate. Within this, it is differentiated by a principal focus on properties with smaller individual values (‘lot sizes’) of less than £15m at the point of investment. These typically provide a yield premium over larger assets, recently widened, partly the result of a broader range of potential occupiers, while attracting less competition from larger institutional investors. Combined with moderate gearing and a relatively low-cost base, this yield premium has contributed to consistent and attractive average annual total returns of 6.1% since the company listed in 2014. Dividends account for 75% of the 6.1% average annual total return, and, we forecast, effectively all of the returns in the next two years.

Valuation: Consistent, dividend-based returns

The minimum 5.50p DPS targeted by CREI for FY23 represents an attractive yield of a 5.9%, which we expect to be fully covered. The c 18% discount to Q223 NAV compares with an average 3% premium since IPO, and already appears to be factoring significant asset price weakening and a further H223 NAV decline.

Robust EPRA earnings but weaker NAV

Strong leasing activity is supporting EPRA earnings and fully covered DPS. Five new leases were signed during Q223 at an average 9% ahead of estimated rental value (ERV), adding £0.4m to annual rent, with a weighted average 6.3 years to first break (Q123: 13 new leases adding £1.8m of rent for 6.8 years). Lettings momentum has continued into H2231 with a further five new leases completing since end-Q323, adding £0.6m of annual rental income for an average 7.0 years. The two rent reviews settled during Q223 generated an aggregate 22% increase on previous rents, adding £0.1m to annual rent.

To 9 November 2022.

Q123 EPRA occupancy increased to 89.3% after a Q123 dip to 88.7% and is now close to the 89.9% at the start of the year. A significant share (54%) of remaining vacancy at end-Q323 was subject to refurbishment, with a further 25% under offer for sale or lease, both positive indicators for further void reduction. Meanwhile, ERV continued to increase during Q223, by 0.8% (industrial by 1.6%; office 2.2%; and retail -0.8%).

Exhibit 1: Vacancy breakdown

Number of assets

ERV (£m)

% of ERV

% of vacancy

Undergoing or earmarked for refurbishment/development

11

2.8

5.7

53.8

Under offer to sell or let

9

1.3

2.7

25.0

Being marketed to let

11

1.1

2.3

21.2

Void total

31

5.2

10.7

100.0

Let property

134

43.4

89.3

N/A

Total portfolio

165

48.6

100.0

N/A

Source: CREI data

Asset repricing reflecting rising bond yields

The quarterly data shown in Exhibit 2 indicate H123 EPRA EPS of c 2.8p (H122: 3.0p), fully covering DPS paid of 2.75p. Reflecting the material change in market conditions during Q2, property valuation movements and NAV were noticeably weaker than in Q123. Across all main sectors of the UK commercial property market, general economic and political challenges and uncertainties, including the war in Ukraine, are weighing on asset valuations. The 10-year UK gilt yield has increased from below 1% at the beginning of the year to c 3.1%, having recently been as high as 4.5%. Adding to asset pricing uncertainty, investment demand for commercial real estate assets has fallen sharply after a strong start to the year. The open-ended property retail funds sector is again under pressure to raise liquidity and even the pension fund sector has been forced to reappraise sector weightings.

For CREI, during Q123 property revaluation movements (excluding gains on disposal) represented 2.6p per share, followed by a loss of 8.9p in Q223. Although asset management initiatives, new lettings in particular, had a positive impact, this was dwarfed by wider market influences. The aggregate H123 loss of 6.3p compared with a gain of almost 8p in H122.

Exhibit 2: Reconciliation of (unaudited) H123 NAV movement

£m

Pence per share

Q123

Q223

H123

Q123

Q223

H123

Opening NAV

527.6

538.7

527.6

119.7

122.2

120

Valuation movements relating to asset management activity

6.9

1.4

8.3

1.6

0.3

1.9

General valuation movements

4.5

(40.6)

(36.1)

1.0

(9.2)

(8.2)

Net unrealised valuation movement

11.4

(39.2)

(27.8)

2.6

(8.9)

(6.3)

Profit on disposal

1.3

3.4

4.7

0.3

0.8

1.1

Acquisition costs

(1.6)

(1.8)

(3.4)

(0.4)

(0.4)

(0.8)

Total property valuation movement

11.1

(37.6)

(26.5)

2.5

(8.5)

(6.0)

EPRA earnings

6.1

6.4

12.5

1.4

1.4

2.8

Dividends paid

(6.1)

(6.1)

(12.2)

(1.4)

(1.4)

(2.8)

Closing NAV

538.7

501.4

501.4

122.2

113.7

113.7

Source: Custodian REIT data

We expect more stable income returns to drive performance

The commercial property sector is cyclical, but income returns have historically been significantly more stable than volatile capital values and have provided a more consistent measure of value.

Exhibit 3: Trend in income return and capital return (%)

Source: CREI data, Edison Investment Research

The relative stability of income returns can be seen clearly in CREI’s NAV total return record since listing in March 2014. Despite the strains of the pandemic, particularly in early FY21, NAV total return has been positive each year since IPO in March 2014, with an average annual total return of 6.1% up to end-H123. Reflecting CREI’s strong dividend focus, income return has represented three-quarters of total return, broadly in line with the wider market split of returns across the cycle. In the current market environment, we expect income to remain the driver of return.

Exhibit 4: NAV total return since listing

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Jun-22

Sep-22

March-14 to Sep-22

2015

2016

2017

2018

2019

2020

2021

2022

Q123

Q223

Opening NAV per share (p)

98.2

101.3

101.5

103.8

107.3

107.1

101.6

97.6

119.7

122.2

98.2

Closing NAV per share (p)

101.3

101.5

103.8

107.3

107.1

101.6

97.6

119.7

122.2

113.7

113.7

DPS paid (p)

3.750

6.350

6.350

6.425

6.525

6.625

4.913

5.625

1.375

1.375

49.3

Dividend return (%)

3.8

6.3

6.3

6.2

6.1

6.2

4.8

5.8

1.1

1.1

50.2

Capital return (%)

3.2

0.2

2.2

3.4

(0.2)

(5.2)

(4.0)

22.7

2.1

(7.0)

15.8

NAV total return (%)

7.0

6.4

8.5

9.6

5.9

1.0

0.9

28.4

3.2

-5.8

66.0

Average total return pa (%)

6.1

Source: CREI data, Edison Investment Research

Like-for-like portfolio valuations reduced by 5.4% in Q223 versus a 1.7% gain in Q123. Including modest impact from capex and transactions, the portfolio net initial yield (NIY) increased from 5.5% at end-Q123 to 5.9%. With a weaker demand-supply balance, rising bond yields and limited market transactions, there is much uncertainty about future capital values, despite many sectors reporting good occupier demand and increasing rents. This is particularly the case for industrial/logistical assets, which saw the largest pull back in quarterly valuation after exceptionally strong past growth, despite continuing firm occupier demand, constrained supply and rising rents. High street retail, where CREI has focused on prime locations, was the strongest performer in Q223, despite the obvious pressures on consumer disposable incomes and continuing modest declines in rents. In such an environment, the benefits of a diversified investment approach are clear.

Exhibit 5: Q223 valuation movement by sector

End-valuation (£m)

Weighting (%)

Valuation change (£m)

Valuation movement (%)

Industrial

327.3

47.8

(22.6)

(7.1)

Retail warehouse

147.3

21.5

(7.5)

(6.0)

Office

83.4

12.2

(5.0)

(5.7)

Other*

77.2

11.3

(2.7)

(3.5)

High street retail

50.2

7.3

(1.4)

(2.8)

685.4

100.0

(39.2)

(5.4)

Source: CREI. Note: *Other comprises drive-through restaurants, car showrooms, trade counters, gymnasiums, restaurants and leisure units.

Recognising that there is more uncertainty than usual about the future course of property valuation movements, we have assumed a further 10% like-for-like reduction in property values in H223, representing a widening of the NIY by 0.6% (to 6.5% from 5.9% at end-Q223). For FY24 we have assumed no further valuation movement, positive or negative

Continuing investment to drive income and enhance portfolio quality

During Q223, CREI invested £26.5m in five acquisitions at an accretive blended NIY of 6.8% and disposed of one industrial property for £8.5m, 67% above book value, generating a gain of £3.4m. Acquisitions comprised two industrial assets, two retail warehouses and two drive-through restaurants. Net investment increased the annualised rent roll by 4.5% to £43.0m. So far in Q323, CREI has sold a shopping centre (part of the FY22 DRUM Income REIT acquisition) for £9.3m, 3.5% above its apportioned purchase value, and an industrial unit at auction for £1.4m, 12% ahead of valuation. The unit’s environmental credentials did not fit with CREI’s ESG objectives and it was not considered practical to mitigate these risks.

CREI has a strong pipeline of asset management projects, which it expects to enhance earnings and increase valuation in excess of capital expenditure. During the next 12 months it expects to complete:

A £2m refurbishment of an office property in Manchester which, when completed and fully let, CREI expects to increase rents from the current £20 per sqft towards £30 per sqft and enhance the valuation by c £3–4m.

A £6.5m redevelopment of an industrial unit in Redditch, which commenced in September 2022, to build a BREEAM2 excellent, EPC A rated unit. When completed and fully let, CREI expects annual rent of the completed asset to be c £0.5m, with an expected gross development profit of c £2.0m.

Building Research Establishment Environmental Assessment Methodology, a sustainability assessment of new build and refurbishment projects within the built environment.

A new drive-through restaurant at a retail park in Carlisle, subject to planning. A 20-year lease without break at an annual rent of £80k has already been agreed and CREI’s expected valuation increase on completion is c. £1.4m.

Mostly fixed-rate borrowing provides interest rate protection

CREI operates with moderate gearing and for most of its debt the interest rates are fixed. During Q223, the net loan to value (LTV) ratio increased to 25.4% (end-Q123: 21.5%), reflecting the £18.0m (before costs) of net deployment in the period and negative valuation movements. Adjusting for Q323 disposals, net gearing had reduced to 24.3%3 and the LTV is now 23.8% on a pro forma basis. Our forecasts assume further downwards property revaluation and indicate that as a result, LTV will rise to almost 30% versus the company’s 25% medium-term target. This would remain well within banking covenants (see below) and we do not expect this to materially impact investment or dividend policy.

  As at 9 November 2022.

Total agreed debt facilities amount to £180m (Exhibit 6), with a blended yield to maturity of more than six years. This comprises £140m of fully drawn fixed-rate debt with a blended cost of c 3.6% and average term to maturity of just under eight years, and a £40m shorter-term, flexible, floating rate revolving credit facility (RCF) with Lloyds Bank. The RCF may be increased to a maximum £50m with lender approval. At end-Q223, £178m of debt had been drawn, of which fixed rate debt represented 79%, and following the Q323 disposals (and RCF pay-down) the proportion of fixed-rate debt was 84%.

Including the 3 November increase in the Bank of England (BoE) Base Rate to 3.0% (from 2.25%), and allowing for Q322 RCF paydown, the blended average cost of borrowing remains at a similar level to end-Q222 (3.5%). BoE Base Rate is closely tracked by SONIA, the reference rate for CREI’s variable rate borrowing. Money market expectations for the future development of SONIA/the base rate, reflected in the SONIA swap curve, have been volatile, indicating a peak of 4.5–6.0% by the middle of 2023 before steadily declining towards a long-term level of 3–4%. Current rates are at the lower end of this range. Our forecasts reflect a SONIA rate of 4.5% during FY23 and 4.0% through FY24. Were SONIA to be 0.5% higher than we forecast through FY24, this would reduce our FY24 EPRA earnings forecast by a little less than 1%.

Each debt facility has a discrete security pool, comprising a number of individual properties, over which the lender has security and covenants. LTV covenants for these discrete pools are in a range of 45–50%, with an overarching covenant on the property portfolio of a maximum 35% LTV. Additionally, net rental receipts from each discrete security pool, over the preceding three months, must exceed 250% of the facility’s quarterly interest liability. Including FY22 group-level interest cover, Custodian operates well within these covenants.

Exhibit 6: Summary of debt facilities at 30 September 2022

Lender

Facility (£m)

Drawn (£m)

Margin (%)

Term to maturity (years)

Maturity date

Scottish Widows

20.0

20.0

3.935

2.9

13/08/2025

Scottish Widows

45.0

45.0

2.987

5.7

05/06/2028

Aviva tranche 1

35.0

35.0

3.020

9.5

06/04/2032

Aviva tranche 2

15.0

15.0

3.260

10.1

03/11/2032

Aviva tranche 3

25.0

25.0

4.100

10.1

03/11/2032

Total fixed rate

140.0

140.0

3.359

Lloyds Bank revolving credit facility*

40.0

38.0

SONIA +1.5–1.8

2.0

17/09/2024

Total debt facilities

180.0

178.0

3.5

6.3

Source: CREI data, Edison Investment Research. Note: *The margin on the Lloyds revolving credit facility is determined by the prevailing LTV. The facility may be increased to a maximum £50m with Lloyds’ approval.

Estimate changes driven by the market-wide softening of property values

The changes to our headline EPRA earnings and DPS forecasts are modest compared with the balance sheet impact of widening property yields. Our forecast EPRA earnings are c 5% lower in FY23 and c 3% lower in FY24 compared with those last published, comprising:

Higher gross rental income resulting from continuing leasing progress, more than offset by higher non-recoverable property costs, significantly driven by inflationary pressure.

Lower administrative costs driven by lower investment management charges, more than two-thirds of the total. These are linked to NAV and the weakness of property valuations has a positive impact.

Higher net interest costs, mainly driven by the impact of higher market interest rates on the floating rate debt. Average debt is also slightly higher, reflecting net acquisition activity.

Reflecting the uncertain market environment, we have taken a slightly more cautious stance on DPS growth, deferring an increase in quarterly DPS until Q124, with a slightly smaller uplift, maintain a good level of DPS cover.

Our forecasts for FY23 and FY24 EPRA NTA per share are c 20% lower at c 99p in each year (end-FY22: 120p).

In addition, a 1% fall/increase in the end-FY23 portfolio value would reduce FY23e EPRA NTA per share by c 1.4%.

Exhibit 7: Forecast revisions

£m unless stated otherwise

Forecast

Previous forecast

Change

% change

FY23

FY24

FY23

FY24

FY23

FY24

FY23

FY24

Gross rental income

41.9

43.4

41.8

42.7

0.1

0.7

0.3%

1.7%

Non-recoverable property costs

(4.0)

(4.1)

(3.0)

(2.7)

(1.0)

(1.4)

Net rental income

37.9

39.3

38.8

40.0

(0.9)

(0.7)

-2.3%

-1.7%

Administrative expenses

(6.2)

(5.8)

(6.4)

(6.6)

0.2

0.7

-3.7%

-11.1%

Net Interest

(6.5)

(7.4)

(5.9)

(6.4)

(0.6)

(0.9)

10.0%

14.7%

EPRA earnings

25.2

26.1

26.4

27.0

(1.2)

(0.9)

-4.7%

-3.4%

Realised & unrealised property gain/(losses)

(93.8)

0.0

20.6

0.0

(114.4)

0.0

IFRS earnings

(68.6)

26.1

47.1

27.0

(115.7)

(0.9)

EPRA EPS (p)

5.7

5.9

6.0

6.1

(0.3)

(0.2)

-4.7%

-3.4%

IFRS EPS (p)

(15.6)

5.9

10.7

6.1

(26.2)

(0.2)

DPS declared (p)

5.50

5.60

5.63

6.00

(0.1)

(0.4)

-2.2%

-6.7%

Dividend cover (x)

1.04

1.06

1.07

1.02

EPRA NTA (p)

98.5

98.9

124.7

124.9

(26.2)

(26.0)

-21.0%

-20.8%

EPRA NTA total return (%)

-13.1%

6.0%

8.8%

4.9%

LTV (%)

28.9%

29.8%

23.0%

24.0%

Source: Edison Investment Research

Valuation

CREI’s target DPS for FY23 of at least 5.5p represents a prospective yield of 5.9%. Meanwhile, the shares trade at a c 18% discount to the Q223 NAV per share of 113.7p. For most of the period until the pandemic, CREI traded at a premium to NAV, reflected in an average over the whole period of 3%.

Exhibit 8: Trailing share price yield (%)

Exhibit 9: Trailing price/NAV (x)

Source: Refinitiv prices, company dividend data

Source: Refinitiv prices, company NAV data

Exhibit 8: Trailing share price yield (%)

Source: Refinitiv prices, company dividend data

Exhibit 9: Trailing price/NAV (x)

Source: Refinitiv prices, company NAV data

Compared with those companies that we consider to be its closest diversified income-oriented peers, CREI’s share price performance is above the peer group average and the broad UK property index over one year and three years. The sector has underperformed the UK equity index over the same periods. CREI’s P/NAV is above the average of the group, as it has been for most of the period since IPO, and its trailing yield is below average. Factors supporting CREI’s valuation include uninterrupted quarterly DPS 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 10: Peer performance and valuation summary

Price (p)

Market cap (£m)

P/NAV* (x)

Trailing Yield** (%)

Share price performance (%)

1 month

3 months

1-year

3-years

Ediston Property

66

140

0.70

7.5

1%

-10%

-14%

-24%

CT Property Trust

72

168

0.59

5.5

1%

-18%

-18%

-14%

Balanced Commercial Property Trust

92

648

0.66

5.0

7%

-13%

-8%

-23%

Picton

88

482

0.75

4.0

2%

-3%

-11%

-6%

Regional REIT

60

310

0.62

11.0

-11%

-15%

-34%

-45%

Schroder REIT

46

226

0.62

6.7

3%

-12%

-11%

-14%

abrdn Property Income Trust

55

209

0.52

7.3

-1%

-28%

-26%

-38%

UK Commercial Property REIT

61

787

0.60

8.5

-1%

-15%

-18%

-30%

Average

0.64

6.7

0%

-14%

-18%

-24%

Custodian REIT

93

410

0.82

5.9

5%

-12%

-5%

-19%

UK property sector index

1,373

4%

-12%

-29%

-27%

UK equity market index

4,112

7%

1%

2%

0%

Source: Company data, Refinitiv prices at 25 November 2022. Note: *Based on last reported EPRA NAV/NTA. **Based on trailing 12-month DPS declared.

Exhibit 11: Financial summary

Year end 31 March, £m

2020

2021

2022

2023e

2024e

PROFIT & LOSS

Gross rental income

40.0

38.7

39.0

41.9

43.4

Non-recoverable property costs

(1.9)

(5.6)

(3.4)

(4.0)

(4.1)

Net rental income

 

38.1

33.1

35.6

37.9

39.3

Administrative expenses

(4.8)

(4.6)

(5.5)

(6.2)

(5.8)

Operating Profit before revaluations

 

33.4

28.5

30.1

31.7

33.5

Revaluation of investment properties

(25.9)

(19.6)

94.0

(95.0)

0.0

Costs of acquisitions

(0.6)

(0.7)

(2.3)

(3.4)

0.0

Profit/(loss) on disposal

(0.1)

0.4

5.4

4.6

0.0

Operating Profit

6.8

8.6

127.2

(62.1)

33.5

Net Interest

(4.7)

(4.8)

(4.8)

(6.5)

(7.4)

Profit Before Tax

 

2.1

3.7

122.3

(68.6)

26.1

Taxation

0.0

0.0

0.0

0.0

0.0

Profit After Tax

2.1

3.7

122.3

(68.6)

26.1

Net revaluation of investment property/costs of acquisition

26.4

20.3

(91.7)

92.0

98.5

Gains/(losses) on disposal

0.1

(0.4)

(5.4)

(4.6)

0.0

EPRA earnings

28.7

23.7

25.3

25.2

26.1

Average Number of Shares Outstanding (m)

409.7

420.1

428.7

440.9

440.9

IFRS EPS (p)

 

0.5

0.9

28.5

(15.6)

5.9

EPRA EPS (p)

 

7.0

5.6

5.9

5.7

5.9

Dividend per share (p)

 

6.65

5.00

5.25

5.50

5.60

Dividend cover (x)*

1.04

1.13

1.10

1.04

1.06

Ongoing charges ratio (excluding property expenses)

1.12%

1.12%

1.20%

1.26%

1.28%

NAV total return

1.1%

0.9%

28.4%

-13.1%

6.0%

BALANCE SHEET

Fixed Assets

 

559.8

551.9

665.2

622.2

633.0

Investment properties

559.8

551.9

665.2

622.2

633.0

Other non-current assets

0.0

0.0

0.0

0.0

0.0

Current Assets

 

30.7

9.9

16.8

12.4

8.6

Debtors

5.3

6.0

5.2

7.8

7.8

Cash

25.4

3.9

11.6

4.6

0.7

Current Liabilities

 

(14.9)

(12.8)

(39.9)

(17.8)

(17.9)

Creditors/Deferred income

(14.9)

(12.8)

(17.2)

(17.8)

(17.9)

Short term borrowings

0.0

0.0

(22.7)

0.0

0.0

Long Term Liabilities

 

(148.9)

(139.2)

(114.5)

(182.6)

(188.0)

Long term borrowings

(148.3)

(138.6)

(113.9)

(182.0)

(187.4)

Other long-term liabilities

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

Net Assets

 

426.8

409.9

527.6

434.3

435.8

NAV/share (p)

101.6

97.6

119.7

98.5

98.9

EPRA NTA/share (p)

101.6

97.6

119.7

98.5

98.9

NAV total return

1.1%

0.9%

28.4%

-13.1%

6.0%

CASH FLOW

Operating Cash Flow

 

31.0

23.8

32.6

28.9

32.7

Net Interest

(4.4)

(4.5)

(4.5)

(6.1)

(7.0)

Tax

0.0

0.0

0.0

0.0

0.0

Net additions to investment property

(12.2)

(10.1)

26.6

(50.1)

(10.0)

Ordinary dividends paid

(27.0)

(20.6)

(24.2)

(24.7)

(24.6)

Debt drawn/(repaid)

10.5

(10.1)

(25.1)

45.0

5.0

Proceeds from shares issued (net of costs)

25.0

0.0

0.5

0.0

0.0

Other cash flow from financing activities

0.0

0.0

1.7

0.0

0.0

Net Cash Flow

22.9

(21.5)

7.7

(7.0)

(3.9)

Opening cash

2.5

25.4

3.9

11.6

4.6

Closing cash

 

25.4

3.9

11.6

4.6

0.7

Debt as per balance sheet

(148.3)

(138.6)

(136.6)

(182.0)

(187.4)

Unamortised loan arrangement fees

(1.7)

(1.4)

(1.2)

(0.8)

(0.4)

Total debt

(150.0)

(140.0)

(137.8)

(182.8)

(187.8)

Restricted cash

(0.9)

(1.2)

(1.1)

(1.4)

(1.4)

Closing net debt

 

(125.5)

(137.3)

(127.3)

(179.5)

(188.4)

Net LTV

22.4%

24.9%

19.1%

28.9%

29.8%

Source: Custodian REIT historical data, Edison Investment Research forecasts


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 2022 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 2022 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

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