Custodian REIT — Strong capital growth with increasing income

Custodian Property Income REIT (LSE: CREI)

Currency in GBP

Last close As at 02/02/2023

GBP0.93

2.20 (2.42%)

Market capitalisation

GBP401m

Research: Real Estate

Custodian REIT — Strong capital growth with increasing income

Custodian REIT (CREI) delivered an 8.5% Q322 NAV total return, taking the year-to-date total to more than 20%. Strong Q322 capital growth mirrored the general market trend and was supported by asset management and the acquisition of DRUM REIT at a discount to its portfolio value. As previously guided, the rate of quarterly DPS was increased by 10%.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Custodian REIT

Strong capital growth with increasing income

Quarterly update

Real estate

25 February 2022

Price

100p

Market cap

£441m

Net debt (£m) at 31 December. 2021

124.4

Net LTV at 31 December 2021

19.5%

Shares in issue

440.9m

Free float

92.0%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.9)

3.2

7.3

Rel (local)

(5.0)

6.7

1.4

52-week high/low

108p

89p

Business description

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

Next events

Q322 DPS paid

28 February 2022

Analyst

Martyn King

+44 (0)20 3077 5745

Custodian REIT is a research client of Edison Investment Research Limited

Custodian REIT (CREI) delivered an 8.5% Q322 NAV total return, taking the year-to-date total to more than 20%. Strong Q322 capital growth mirrored the general market trend and was supported by asset management and the acquisition of DRUM REIT at a discount to its portfolio value. As previously guided, the rate of quarterly DPS was increased by 10%.

Year end

Net rental
income (£m)

EPRA
earnings* (£m)

EPRA
EPS* (p)

NAV**/
share (p)

DPS
(p)

P/NAV**
(x)

Yield
(%)

03/20

38.1

28.7

7.0

101.6

6.65

0.98

6.7

03/21

33.1

23.7

5.6

97.6

5.00

1.02

5.0

03/22e

36.0

25.9

6.0

114.7

5.50

0.87

5.5

03/23e

39.4

28.5

6.5

116.7

6.00

0.86

6.0

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

Q322 returns boosted by strong capital growth

The 8.5% Q322 total return comprised a 7.3% increase in NAV per share to 113.7p plus dividends paid. A Q322 DPS of 1.375p was declared and CREI targets an aggregate DPS of at least 5.25p for FY22 and 5.50p for FY23. Our forecasts remain above these minimum targets (5.5p in FY22 and 6.0p in FY23). Q322 returns were boosted by portfolio gains of 7.7p, including 0.9p related to the November 2021 acquisition of DRUM REIT (DRUM) at a discount to its portfolio value. The investment portfolio increased by 5.2% on a like-for-like basis, with performance still driven by industrial assets and retail warehouses (together c two-thirds of the portfolio) but showing signs of broadening. We have increased our NAV per share forecasts in line with the Q322 performance (FY22 from 109.0p to 114.7p with a knock-on to FY23/24), but otherwise leave our forecast unchanged.

Organic and inorganic growth opportunities

CREI’s portfolio value increased by £73m (c 13%) to £638m in Q322, split between revaluation gains and net acquisitions, including the acquisition of DRUM and its portfolio. At IPO in 2014 the portfolio value stood at £95m. A full period contribution from DRUM and occupancy increases (Q322: 90.9%, down from 91.6% at end-Q222, primarily reflecting the DRUM acquisition) provide organic growth opportunities. CREI also seeks further accretive acquisitions while preserving its differentiating focus on smaller lot size assets to drive income returns, taking advantage of opportunities that have arisen due to the pandemic, and driving additional scale efficiencies. With low gearing (LTV of c 19.5%) CREI is well placed for further growth and we assume c £30m of acquisitions in our forecasts, taking LTV closer to CREI’s medium-term 25% target.

Valuation: Consistent, income-focused returns

The minimum 5.25p DPS targeted by CREI for FY22 represents an attractive yield of 5.25%, a significant premium to risk-free rates (10-year UK government debt remains below 1.5%). Our forecasts for DPS growth exceed CREI’s minimum targets for both FY22 and FY23. The c 12% discount to H122 EPRA NTA per share compares with an average 5% premium since IPO.

Strong capital growth with increasing income

Strong Q322 NAV total returns boosted by strong capital growth

The early stages of the pandemic and the first lockdown had a negative impact on the UK commercial property market but the recovery that started during the second half of calendar 2021 (reflected in CREI’s Q221 performance to end-September 2021) has continued to gather pace. Reflecting this market backdrop, CREI’s Q322 NAV total return of 8.5% was the strongest quarter in the year to date and takes the NAV total return in the first nine months of the year to 20.9%. NAV total return has been positive in each year since IPO in March 2014, despite the impact of the pandemic, with an average annual return of 6.4% pa up to 31 December 2021. Reflecting CREI’s strong income focus, dividends have represented the majority of the total. Until end-FY21, dividends had represented all of the total return since IPO but the strong growth in property values and NAV in FY22 year to date (including the acquisition of the DRUM assets at a discount to valuation) has reduced this to 75%.

Exhibit 1: NAV total return has accelerated

Period ending

Mar-20

Jun-20

Sep-20

Dec-20

Mar-21

Mar-21

Jun-21

Sep-21

Dec-21

Dec-21

Financial year period

Q420

Q121

Q221

Q321

Q421

FY21

Q122

Q222

Q322

9M22

Opening NAV per share (p)

104.4

101.6

95.7

95.2

96.4

101.6

97.6

101.7

106.0

97.6

Closing NAV per share (p)

101.6

95.7

95.2

96.4

97.6

97.6

101.7

106.0

113.7

113.7

DPS paid (p)

1.7

1.7

1.0

1.1

1.3

4.9

1.8

1.3

1.3

4.3

NAV total return

-1.1%

-4.2%

0.5%

2.4%

2.5%

0.9%

6.0%

5.5%

8.5%

20.9%

Source: CREI data, Edison Investment Research

Exhibit 2 shows a reconciliation of the Q322 movement in NAV. The 7.7p (7.3%) increase in NAV was driven by net revaluation gains of 6.8p (£30.0m, of which £1.1m was realised on disposal) and 0.9p of accretion resulting from the acquisition of DRUM at a discount to NAV. DPS was effectively covered by EPRA.

Exhibit 2: Reconciliation of Q322 NAV movement

£m

Pence per share

NAV at 30 September 2021

445.9

106.0

Issue of equity*

19.1

(0.5)

Valuation increase having acquired DRUM REIT at a discount to valuation

7.3

1.6

Corporate acquisition and equity issuance costs

(0.9)

(0.2)

Net increase from DRUM REIT acquisition

25.5

0.9

Valuation movements relating to:

- Asset management activity

6.2

1.4

- General valuation increases

22.7

5.2

- Profit on disposal

1.1

0.2

Net valuation movement

30.0

6.8

Asset acquisition costs

(0.2)

0.0

EPRA earnings for the period

5.7

1.3

Interim dividend paid**

(5.5)

(1.3)

NAV at 31 December 2021

501.4

113.7

Source: CREI. Notes: *20.2m new CREI shares were issued to former DRUM REIT shareholders at the 3 November 2021 market value of 94.5p. **Dividends paid in the period (in November 2021) relate to the Q222 DPS declared of 1.25p.

EPRA earnings and DPS

EPRA earnings of c £5.7m during Q322 were lower than the £7.3m generated in Q222 (H122: £13.2m) due to several factors that we do not expect to repeat. These include the timing of disposals and reinvestment and lower occupancy (90.9% at end-Q322 vs 91.6% at end-Q222, primarily due to the acquisition of DRUM with its lower occupancy rate). The DRUM acquisition (financed by equity issuance) contributed for less than two months, while the cash proceeds of profitable disposal remain available for reinvestment. Net gearing of 19.5% at end-Q322 compares with CREI’s 25% target and our forecasts anticipate future capital deployment of £30m, adding c £1.8m to annualised rents, as discussed below. The Q222 DPS paid of 1.25p was nonetheless fully covered by EPRA earnings and year to date DPS declared of 3.875p is 109% covered by EPRA earnings in the period (H122: 1.2%). As previously indicated by CREI, the Q322 DPS declared increased by 10% to 1.375p and the board targets aggregate DPS declared for FY22 of at least 5.25p and for FY23 at least 5.50p. We forecast aggregate FY22 DPS of 5.50p (implying a further increase in Q422 to 1.625p1) and aggregate FY23 DPS of 6.0p.

  In FY21 CREI declared five interim dividends amounting to 5.0p including a fifth (‘top up’) interim DPS of 0.5p.

Valuation gains still driven by industrials but with increasing signs of broadening

During Q322, the value of CREI’s investment portfolio increased c 13% to £637.9m. In addition to net investment activity (including the acquisition of DRUM), the like-for-like unrealised gain was £28.9m or 5.2% This excludes the £1.1m net gain on disposals and £7.3m uplift from acquiring the DRUM assets at a discount to NAV.

Exhibit 3: Q322 valuation movements

Sector

Valuation (£m)

Weighting

Valuation movement (£m)*

Industrials

302.4

47%

21.8

8.3%

Retail warehouse

120.9

19%

4.8

4.5%

Office

88.4

14%

(0.3)

-0.5%

Other**

75.0

12%

2.2

2.6%

High street retail

51.2

8%

0.4

1.1%

Total

637.9

100%

28.9

5.2%

Source: CREI. Note: *Excludes the £7.3m increase from acquiring the DRUM REIT portfolio at a discount to NAV. **Other comprises drive-through restaurants, car showrooms, trade counters, gymnasiums, restaurants and leisure units.

Positive momentum in the UK commercial property market continued through the final quarter of 2021. The industrial sector, with limited supply and strong demand, and an accelerated shift to online purchasing and supply chain concerns, continues to lead performance, driven by strong rent growth and valuation increases. The office sector has shown signs of benefiting from the gradual ‘return to the office’ with rents increasing for high-quality, flexible office space, with strong environmental credentials in prime regional city centres. Having been hard hit during the pandemic, there are clear signs of improvement in the retail and leisure sector, although it is highly variable across subsectors and retail warehousing continues to drive performance with good growth in capital values. The retail warehouse subsector is benefiting from restricted supply, generally free parking and the convenience that is complementary to growth in online sales, both for click-and-collect and customer returns.

CREI’s portfolio valuation movements reflect these market trends, with its strong weighting of industrials and retail warehouses being particularly beneficial. Asset management initiatives (such as lettings, lease renewals and regears) added £6.2m.

Acquisitions and disposals

CREI’s agreed acquisition of DRUM became effective on 3 November 2021 and is covered in detail in our December update note. Consideration for the acquisition was settled by the issue of c 20.2m new CREI shares, calculated on an ‘adjusted NAV-for-NAV basis’ with each company’s 30 June 2021 net asset value (NAV) being adjusted for respective acquisition costs and adjusting DRUM’s portfolio valuation to the agreed purchase price of £43.5m (end-Q322 valuation: £49.0m). CREI and DRUM are a good fit, with both companies focusing on smaller lot size regional commercial property assets, and both aiming to provide shareholders with an attractive level of dividend, fully covered by earnings.

Additionally, during Q322, CREI invested £7.5m in the following assets:

An industrial unit in York for £3.0m occupied by Menzies Distribution reflecting a net initial yield (NIY) of 5.9%.

A retail warehouse in Cromer for £4.5m occupied by Homebase reflecting a NIY of 6.3%.

Three assets were sold for an aggregate consideration of £14.8m, generating £1.1m of disposal gains (before costs) on the end-Q222 valuation, comprising:

A car showroom in Stockport for £9.0m, £1.14m (18%) ahead of the 30 June valuation.

A car showroom in Stafford for £4.9m, £1.2m (31%) ahead of the 30 June valuation.

High street retail units in King’s Lynn and Cheltenham at valuation for an aggregate £0.9m.

Since end-Q322, CREI has sold a high street retail unit in Norwich for £1.3m, in line with valuation.

Focused on premium yield smaller lot size assets

CREI’s focus on properties with smaller individual values (lot sizes of less than £10m at the point of investment) differentiates it from most of its peers. Properties of this size typically provide a yield premium over larger assets, in part the result of a broader range of potential occupiers, while attracting less competition from larger institutional investors. The end-Q322 portfolio, valued at £637.9m, reflected a net initial yield of 6.1% and comprised 160 different properties, at an average lot size of c £4.0m.

Exhibit 4 compares the transaction net initial yields for properties below £10m versus those above, on a two-year rolling average basis. On this basis, over a 20-year period the spread of sub-£10m transactions over those of more than £10m has averaged c 1.1%. The most recent data show a spread of c 1.9% compared with c 1.4% immediately before the pandemic. In part, this widening may reflect investor perceptions of relative risk to the extent that smaller properties may be disproportionately let to smaller tenants, perhaps more exposed to the impacts of the pandemic. However, this is not always the case and CREI’s targeting of ‘institutional-quality’ tenants, portfolio diversification, active asset management and relatively low cost base all mitigate the potential increased risks and management costs associated with smaller lot sizes. In this way, CREI has harnessed the yield premium to deliver attractive total returns since IPO, driven by dividends paid. In addition to the income premium, with capital values across the broad commercial market recently driven by strong institutional investment, primarily into larger assets, there appears to be ‘catch up’ potential in smaller assets, as has occurred historically.

Exhibit 4: Comparison of transaction yields on assets of less than £10m and those greater than £10m*

Source: CREI. Note: *Two-year rolling average basis.

Forecasts and valuation

The Q322 revaluation gains were well above the level assumed in our forecasts and we have lifted our NAV per share estimates accordingly. Otherwise, our forecasts, set out in detail in our December update note are unchanged other than our FY24 DPS assumption. Reflecting on our previous assumption of a 6.65p aggregate FY24 DPS, 101% covered, we are more prudently assuming 6.50p, 103% covered. We continue to assume acquisitions of £30m (including costs) by the end of FY22, at a yield of 6%, adding £1.8m to annual contracted rent. On a pro forma basis, this would take Q322 net loan to value (LTV) to c 23% from 19.5%, utilising existing debt and cash resources.

CREI’s target of aggregate DPS of at least 5.25p per share in FY22 represents a prospective yield of 5.25%. As noted above, we forecast higher DPS than the minimum targeted by CREI in both FY22 (5.50p versus a targeted minimum 5.25p) and FY23 (6.00p versus a targeted minimum 5.50p). Our FY22 DPS forecast represents a 5.50% prospective yield. The share price has not kept pace with the growth in NAV and the c 12% discount to Q322 NAV (113.7p) compares with an average c 5% since IPO in March 2014.

In Exhibit 5, we show a summary performance and valuation comparison of Custodian and what we consider to be its closest diversified income-oriented peers. For comparative purposes, the yield and P/NAV data are shown on a trailing basis. CREI’s share price performance is below the peer group average over 12 months, reflecting the fact that it was more stable during the pandemic sell-off in early 2020 and has therefore shown a lesser rebound. CREI trades on a higher P/NAV than the average of the group, as it has done for most of the period since IPO, and its trailing yield is slightly above average. Factors supporting CREI’s valuation include its strong income focus and 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 5: Peer performance and valuation comparison

Price
(p)

Market
cap (£m)

P/NAV*
(x)

Trailing
yield** (%)

Share price performance

One month

Three months

12 months

From 12-month high

Ediston Property

76

161

0.85

6.3

-13%

-3%

12%

-14%

BMO Real Estate Investments

85

205

0.70

4.3

-8%

-4%

10%

-11%

BMO Commercial Property Trust

106

788

0.78

4.0

-8%

3%

49%

-11%

Picton

95

519

0.84

3.6

-11%

-5%

9%

-11%

Regional REIT

86

444

0.87

7.6

-4%

-6%

14%

-10%

Schroder REIT

50

247

0.76

5.3

-10%

-5%

23%

-12%

Standard Life Investment Property

76

300

0.75

4.9

-9%

0%

23%

-14%

UK Commercial Property REIT

76

981

0.74

3.6

-7%

-3%

9%

-13%

Average

0.79

5.1

-9%

-3%

19%

-12%

Custodian

100

440

0.88

5.1

-7%

2%

7%

-8%

UK property sector index

1,795

-6%

-9%

10%

-12%

UK equity market index

4,016

-3%

-4%

6%

-7%

Source: Company data, Refinitiv price data at 24 February 2022. Note: *Based on last reported NAV. **Based on trailing 12-month dividends declared.

Exhibit 6: Financial summary

Year end 31 March, £m

2017

2018

2019

2020

2021

2022e

2023e

2024e

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Gross rental income

27.0

34.1

39.1

40.0

38.7

39.1

41.8

42.4

Non-recoverable property costs

(1.2)

(0.9)

(1.5)

(1.5)

(2.0)

(2.9)

(2.4)

(2.4)

Rent receivables provisions/write

0.0

0.0

0.0

(0.3)

(3.6)

(0.2)

0.0

0.0

Net rental income

25.7

33.2

37.6

38.1

33.1

36.0

39.4

40.0

Administrative expenses

(3.6)

(4.4)

(4.9)

(4.8)

(4.6)

(5.2)

(5.6)

(5.7)

Operating Profit before revaluations

22.1

28.8

32.7

33.4

28.5

30.8

33.9

34.3

Revaluation of investment properties

9.0

11.9

(5.5)

(25.9)

(19.6)

71.4

6.7

7.9

Costs of acquisitions

(6.1)

(6.2)

(3.4)

(0.6)

(0.7)

(3.1)

0.0

0.0

Profit/(loss) on disposal

1.6

1.6

4.3

(0.1)

0.4

5.3

0.0

0.0

Operating Profit

26.6

36.1

28.0

6.8

8.6

104.4

40.5

42.3

Net Interest

(2.4)

(3.7)

(4.4)

(4.7)

(4.8)

(4.9)

(5.3)

(5.3)

Profit Before Tax

24.2

32.4

23.6

2.1

3.7

99.5

35.2

37.0

Taxation

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit After Tax

24.2

32.4

23.6

2.1

3.7

99.5

35.2

37.0

Net revaluation of investment property/costs of acquisition

(2.9)

(5.6)

8.9

26.4

20.3

(68.3)

(6.7)

(7.9)

Gains/(losses) on disposal

(1.6)

(1.6)

(4.3)

0.1

(0.4)

(5.3)

0.0

0.0

EPRA earnings

19.7

25.2

28.5

28.7

23.7

25.9

28.5

29.6

Average Number of Shares Outstanding (m)

298.7

362.4

391.9

409.7

420.1

428.8

440.9

440.9

IFRS EPS (p)

8.10

8.9

6.0

0.5

0.9

23.2

8.0

8.4

EPRA EPS (p)

6.59

6.9

7.3

7.0

5.6

6.0

6.5

6.7

Dividend per share (p)

6.35

6.45

6.55

6.65

5.00

5.50

6.00

6.50

Dividend cover (x)*

1.01

1.06

1.10

1.04

1.13

1.09

1.08

1.03

Ongoing charges ratio (excluding property expenses)

0.32%

0.33%

0.34%

1.11%

1.12%

1.17%

1.15%

1.16%

BALANCE SHEET

Fixed Assets

418.5

528.9

572.7

559.8

551.9

669.1

680.3

692.9

Investment properties

418.5

528.9

572.7

559.8

551.9

669.1

680.3

692.9

Other non-current assets

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

10.3

12.9

6.1

30.7

9.9

21.1

20.3

17.1

Debtors

4.5

7.9

3.7

5.3

6.0

6.0

7.6

7.7

Cash

5.8

5.1

2.5

25.4

3.9

15.1

12.8

9.4

Current Liabilities

(12.6)

(12.8)

(14.2)

(14.9)

(12.8)

(15.3)

(16.7)

(16.8)

Creditors/Deferred income

(12.6)

(12.8)

(14.2)

(14.9)

(12.8)

(15.3)

(16.7)

(16.8)

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

(64.4)

(113.9)

(138.1)

(148.9)

(139.2)

(169.1)

(169.5)

(169.8)

Long term borrowings

(63.8)

(113.4)

(137.5)

(148.3)

(138.6)

(168.6)

(168.9)

(169.2)

Other long-term liabilities

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

Net Assets

351.9

415.2

426.6

426.8

409.9

505.7

514.5

523.3

NAV/share (p)

103.8

107.3

107.1

101.6

97.6

114.7

116.7

118.7

EPRA NAV/share (p)

103.8

107.3

107.1

101.6

97.6

114.7

116.7

118.7

NAV total return

8.5%

9.6%

5.9%

1.1%

0.9%

23.5%

7.0%

7.2%

CASH FLOW

Operating Cash Flow

23.1

28.4

36.0

31.0

23.8

31.5

32.1

32.8

Net Interest

(2.2)

(3.5)

(4.2)

(4.4)

(4.5)

(4.6)

(5.0)

(5.0)

Tax

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net additions to investment property

(92.1)

(105.9)

(46.2)

(12.2)

(10.1)

0.3

(3.0)

(3.0)

Ordinary dividends paid

(18.5)

(23.0)

(25.5)

(27.0)

(20.6)

(24.5)

(26.5)

(28.1)

Debt drawn/(repaid)

(1.0)

49.4

24.0

10.5

(10.1)

7.0

0.0

0.0

Proceeds from shares issued (net of costs)

91.1

53.9

13.3

25.0

0.0

0.6

0.0

0.0

Other cash flow from financing activities

0.0

0.0

0.0

0.0

0.0

0.8

0.0

0.0

Net Cash Flow

0.4

(0.7)

(2.6)

22.9

(21.5)

11.2

(2.3)

(3.3)

Opening cash

5.5

5.8

5.1

2.5

25.4

3.9

15.1

12.8

Closing cash

5.8

5.1

2.5

25.4

3.9

15.1

12.8

9.4

Debt as per balance sheet

(63.8)

(113.4)

(137.5)

(148.3)

(138.6)

(168.6)

(168.9)

(169.2)

Unamortised loan arrangement fees

(1.2)

(1.6)

(1.5)

(1.7)

(1.4)

(1.1)

(0.8)

(0.4)

Total debt

(65.0)

(115.0)

(139.0)

(150.0)

(140.0)

(169.7)

(169.7)

(169.7)

Restricted cash

(1.3)

(1.3)

(1.4)

(0.9)

(1.2)

(1.1)

(1.1)

(1.1)

Closing net debt

(60.5)

(111.3)

(137.9)

(125.5)

(137.3)

(155.7)

(158.0)

(161.3)

Net LTV

14.4%

21.0%

24.1%

22.4%

24.9%

23.3%

23.2%

23.3%

Source: CREI 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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