Custodian Property Income REIT plc (CREI)
Custodian Property Income REIT plc: Interim Results
06-Dec-2023 / 07:00 GMT/BST
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6 December 2023
Custodian Property Income REIT plc
("Custodian Property Income REIT" or "the Company")
Interim Results
Active management of diversified portfolio underpins strong performance
Custodian Property Income REIT (LSE: CREI), which seeks an enhanced income return by investing in a diversified
portfolio of smaller, regional properties with strong income characteristics across the UK, today reports its interim
results for the six months ended 30 September 2023 ("the Period").
Commenting on the results, David MacLellan, Chairman of Custodian Property Income REIT, said: "The Company's
diversified and well managed investment portfolio has shown its resilience during the Period, mitigating the risks
posed by volatility in real estate investment markets and driving a continued strong operational performance. In
addition, the Company's conservative balance sheet and its longer-term fixed rate debt profile have provided insulation
against the challenge of higher interest rates in the short to medium term.
"Our dividend remains fully covered and, in line with our objectives, I was pleased to announce 2.75p (2022: 2.75p) of
aggregate dividends for the Period. The Board expects to continue to pay quarterly dividends per share of 1.375p to
achieve a target dividend per share for the year ending 31 March 2024 of no less than 5.5p.
"Over the last five years the Custodian Property Income REIT strategy has provided shareholders with an income return
per share of 28.4p, or an annual average of 5.7p. This has always been fully covered by earnings, supported by a
diverse, regional property strategy, a conservative gearing policy as well as a hands-on and detailed approach to both
managing the assets themselves and buying and selling well.
"Negative sentiment towards real estate investment is currently weighing against capital performance. This sentiment
is driven primarily by the potential for persistent inflationary pressure to mean 'higher-for-longer' interest rates,
uncertainty around the future of offices and the impact of the UK's general economic outlook on discretionary consumer
expenditure. However, there is depth in occupational demand and latent rental growth in the portfolio which offers the
prospect of growth for existing shareholders, as sentiment improves towards the sector and gives us confidence that the
Company will continue to perform well."
Property highlights
-- Portfolio valuation remained stable with a marginal 0.6% decline to GBP609.8m (31 March 2023: GBP613.6m).
The portfolio saw a GBP15.6m valuation decrease, driven by current investor and market sentiment around the UK's
economic outlook and high interest rates, tempered by a GBP6.1m uplift from asset management initiatives.
-- GBP12.2m was invested primarily in the refurbishment and redevelopment of seven properties, which is
expected to enhance the assets' valuations and environmental credentials and, once let, increase rents to give a
yield on cost of more than 7%, ahead of the Company's marginal cost of borrowing.
-- Continued improvement in the environmental performance of the portfolio with the weighted average energy
performance certificate ("EPC") rating improving to C (56) from C (58) at 31 March 2023.
Financial highlights
-- EPRA earnings per share for the Period increased 3.5% to 2.9p (2022: 2.8p) due to rental growth and
improvement in occupancy offsetting administrative cost inflation and higher finance costs.
-- Target dividend per share for the year ended 31 March 2024 of not less than 5.5p, 107% covered in H1, in
line with the Company's policy of paying fully covered dividends.
-- Fixed rate agreed debt facilities represent 76% of total drawn debt, significantly mitigating interest
rate risk and maintaining a beneficial margin between the 4.2% aggregate cost of debt and the income returns the
property portfolio continues to generate.
-- NAV per share 95.9p (31 March 2023: 99.3p).
Further information
Further information regarding the Company can be found at the Company's website www.custodianreit.com or please
contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan/Nathan Brown Tel: +44 (0)20 7260 1000
www.numiscorp.com
FTI Consulting
Richard Sunderland / Andrew Davis / Oliver Parsons Tel: +44 (0)20 3727 1000
custodianreit@fticonsulting.com Custodian Property Income REIT plc interim results for the six months ended 30 September 2023
Property highlights
2023
GBPm Comments
31 March 2023: GBP613.6m, 30 September 2022: GBP685.4m
Portfolio value 609.8
Primarily relating to decreases in the following sectors:
Property valuation (15.6)
decreases: -- Office - (GBP8.9m)
-- Retail warehouse - (GBP5.2m)
Primarily comprising:
-- GBP4.6m refurbishing offices in Manchester and Leeds
-- GBP3.4m redeveloping an industrial unit in Redditch
Capital expenditure 12.2 -- GBP1.3m buying the long-leasehold of a unit at a 10-unit industrial asset
in Knowsley
-- GBP1.1m refurbishing an industrial unit in Ashby-de-la-Zouch
-- GBP1.0m reconfiguring retail assets in Shrewsbury and Liverpool
Disposal proceeds 1.6 High street retail units in Bury St Edmunds and Cirencester sold at auction in line
with valuation
Financial highlights and performance summary
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 Mar
2023 2022 2023
Comments
Returns
EPRA[1] earnings per 2.9p 2.8p 5.6p Rental growth and improvement in occupancy have offset
share[2] administrative cost inflation and higher finance costs
Basic and diluted (0.6p) (3.2p) (14.9p)
earnings per share[3] Current period loss reflects valuation decreases of GBP15.6m
Loss before tax (GBPm) (2.7) (14.1) (65.8)
Target dividend per share for the year ended 31 March 2024 of not
Dividends per share[4] 2.75p 2.75p 5.5p less than 5.5p,
in line with the Company's policy of paying fully covered
dividends
Dividend cover[5] 107.1% 102.0% 102.2%
NAV total return per (0.7%) (2.7%) (12.5%) 2.8% dividends paid and a 3.5% capital decrease
share[6]
Share price total return (4.4%) (2.0%) (7.0%) Share price decreased from 89.2p to 82.5p during the Period
[7]
Capital values
NAV and EPRA NTA[8] (GBPm) 422.8 501.4 437.6
NAV decreased due to GBP15.6m of valuation decreases
NAV per share and NTA 95.9p 113.7p 99.3p
per share
Borrowings
Increased due to capital expenditure during the Period
Net gearing[9] 29.6% 25.5% 27.4%
Weighted average cost of drawn debt 4.2% 3.5% 3.8% Majority fixed rate debt insulating the Company from a 1% rise
facilities in base rates during the Period
Costs
Ongoing charges ratio ("OCR")
excluding direct property expenses 1.23% 1.20% 1.23%
[10]
Environmental
Weighted average EPC rating[11] C C C EPCs updated across 39 properties demonstrating continuing
(56) (58) (58) improvements in the environmental performance of the portfolio
The Company presents alternative performance measures ("APMs")
to assist stakeholders in assessing performance alongside the
Company's results on a statutory basis.
APMs are among the key performance indicators used by the Board
to assess the Company's performance and are used by research
analysts covering the Company. The Company uses APMs based upon the
EPRA Best Practice Recommendations Reporting Framework which is
widely recognised and used by public real estate companies. Certain
other APMs may not be directly comparable with other companies'
adjusted measures, and APMs are not intended to be a substitute
for, or superior to, any IFRS measures of performance. Supporting
calculations for APMs and reconciliations between APMs and their
IFRS equivalents are set out in Note 19.
Business model and strategy
Purpose
Custodian Property Income REIT offers investors the opportunity
to access a diversified portfolio of UK commercial real estate
through a closed-ended fund. The Company seeks to provide investors
with an attractive level of income and the potential for capital
growth from a portfolio with strong environmental credentials,
becoming the REIT of choice for private and institutional investors
seeking high and stable dividends from well-diversified UK real
estate.
The Board also recognises the importance of stakeholder
interests and keeps these at the forefront of business and
strategic decisions, ensuring the Company:
-- Understands and meets the needs of its occupiers, owning fit
for purpose properties with strongenvironmental credentials in the
right locations which comply with necessary safety regulations;
-- Protects and improves its stable cash flows with long-term
planning and decision making, implementing itspolicy of paying
sustainable dividends fully covered by recurring earnings and
securing the Company's future; and
-- Adopts a responsible approach to communities and the
environment, actively seeking ways to minimise theCompany's impact
on climate change and providing the real estate fabric of the
economy, giving employers a place ofbusiness.
Investment Policy
The Company's investment policy[12] is summarised below:
-- To invest in a diverse portfolio of UK commercial real
estate, principally characterised by smaller,regional,
core/core-plus properties that provide enhanced income;
-- The property portfolio should be diversified by sector,
location, tenant and lease term, with a maximumweighting to any one
property sector or geographic region of 50%;
-- To acquire modern buildings or those considered fit for
purpose by occupiers, focusing on areas with:
-- High residual values;
-- Strong local economies; and
-- An imbalance between supply and demand;
-- No one tenant or property should account for more than 10% of
the rent roll at the time of purchase,except for:
-- Governmental bodies or departments; or
-- Single tenants rated by Dun & Bradstreet as having a
credit risk score worse than two[13], where exposuremay not exceed
5% of the rent roll;
-- The Company will not undertake speculative development,
except for the refurbishment or redevelopment ofexisting holdings,
but may invest in forward funding agreements where the Company may
acquire pre-let developmentland and construct investment properties
with the intention of owning the completed development; and
-- The Company may use gearing provided that the maximum
loan-to-value ("LTV") shall not exceed 35%, with amedium-term net
gearing target of 25% LTV.
The Board reviews the Company's investment objectives at least
annually to ensure they remain appropriate to the market in which
the Company operates and in the best interests of shareholders.
Differentiated property strategy
The Company's portfolio is focused on smaller, regional,
core/core-plus assets which helps achieve our target of high and
stable dividends from well-diversified real estate by offering:
-- An enhanced yield on acquisition - with no need to sacrifice
quality of property/location/tenant orenvironmental performance for
income and with a greater share of value in 'bricks and
mortar';
-- Greater diversification - spreading risk across more assets,
locations and tenants and offering morestable cash flows; and
-- A higher income component of total return - driving
out-performance with forecastable and predictablereturns.
Richard Shepherd-Cross, Managing Director of the Company's
discretionary investment manager, commented: "Our smaller-lot
specialism has consistently delivered significantly higher yields
without exposing shareholders to additional risk".
Weighting
30 September 2023
Weighting by income Location
30 September 2023
Sector West Midlands 20%
North-West 19%
Industrial 41% East Midlands 14%
Retail warehouse 22% South-East 13%
Office 16% Scotland 12%
Other 13% South-West 9%
High street retail 8% North-East 8%
Wales 1%
Our environmental, social and governance ("ESG") objectives
-- Improving the energy performance of our buildings - investing
in carbon reducing technology,infrastructure and onsite renewables
and ensuring redevelopments are completed to high environmental
standards.
-- Reducing energy usage and emissions - liaising closely with
our tenants to gather and analyse data on theenvironmental
performance of our properties to identify areas for
improvement.
-- Achieving positive social outcomes and supporting local
communities - engaging constructively withtenants and local
government to ensure we support the wider community through local
economic and environmentalplans and strategies and playing our part
in providing the real estate fabric of the economy, giving
employers safeplaces of business that promote tenant
well-being.
-- Understanding environmental risks and opportunities -
allowing the Board to maintain appropriategovernance structures to
ensure the Investment Manager is appropriately mitigating risks and
maximisingopportunities.
-- Complying with all requirements and reporting in line with
best practice where appropriate - exposing theCompany to public
scrutiny and communicating our targets, activities and initiatives
to stakeholders. Investment Manager
Custodian Capital Limited ("the Investment Manager") is
appointed under an investment management agreement ("IMA") to
provide property management and administrative services to the
Company. Richard Shepherd-Cross is Managing Director of the
Investment Manager. Richard has over 25 years' experience in
commercial property, qualifying as a Chartered Surveyor in 1996 and
until 2008 worked for JLL, latterly running its national portfolio
investment team.
Richard established Custodian Capital Limited as the Property
Fund Management subsidiary of Mattioli Woods plc ("Mattioli Woods")
and in 2014 was instrumental in the launch of Custodian Property
Income REIT from Mattioli Woods' syndicated property portfolio and
its 1,200 investors. Following the successful IPO of the Company,
Richard has overseen the growth of the Company to its current
property portfolio of over GBP600m.
Richard is supported by the Investment Manager's other key
personnel: Ed Moore - Finance Director, Alex Nix - Assistant
Investment Manager and Tom Donnachie - Portfolio Manager, along
with a team of five other surveyors and four accountants.
Chair's statement
Custodian Property Income REIT's strategy is to invest in a
diversified portfolio which, at 30 September 2023, comprised 159
properties geographically spread throughout the UK and across a
diverse range of sectors, with a portfolio yielding 6.4%[14]. With
an average property value of c.GBP4m and no one tenant accounting
for more than 1.75% of the Company's rent roll, property specific
risk and tenant default risk are significantly mitigated.
This diversified strategy and strong focus on income has served
to deliver relatively stable returns against a background of weak
sentiment towards commercial property investment and volatility
across the sector. Share price total return was -4.4% and NAV total
return -0.7% for the six months to 30 September 2023 with a fully
covered dividend providing a significant and defensive component of
total returns.
Despite rising interest rates increasing the Company's weighted
average cost of debt from 3.8% at 31 March 2023 to 4.2%, earnings
have been resilient with EPRA EPS of 2.9p (2022: 2.8p) for the
Period, supported by:
-- Occupancy increasing since 31 March 2023 from 90.3% to 91.5%.
Subject to the conclusion of deals agreed,we expect occupancy to be
above 93% by the end of the financial year; and
-- The rent roll growing from GBP42.1m at 31 March 2023 to
GBP43.2m. The estimated rental value ("ERV") of theportfolio has
also grown from GBP49.0m to GBP49.7m, providing a reversionary
potential of 15.0%.
In line with the Company's objective to be the REIT of choice
for institutional and private investors seeking high and stable
dividends from well diversified UK commercial real estate, I was
pleased to be able to announce that dividends per share of 2.75p
(2022: 2.75p) have been declared relating for the six months to 30
September 2023. The Board expects to continue to pay quarterly
dividends per share of 1.375p to achieve a fully covered target
dividend per share for the year ending 31 March 2024 of no less
than 5.5p.
The Board acknowledges the importance of income for shareholders
and its objective is to grow the dividend on a sustainable basis at
a rate which is fully covered by projected net rental income and
does not inhibit the flexibility of the Company's investment
strategy.
Portfolio
Since the Period end the Company has sold a children's day
nursery for GBP0.6m and has a further four properties valued at
GBP12.4m under offer to sell, which are expected to generate sales
proceeds of c.GBP14m. Further property sales are under active
consideration. Sale proceeds will be used to continue the Company's
ongoing capital expenditure programme and reduce the drawn
revolving credit facility to support net earnings. The Company's
property investment strategy, which targets smaller regional
properties, often provides strategic options to re-lease or to sell
at lease expiry. This optionality exists because there is an active
owner-occupier market for smaller regional properties, which is
much less the case for larger assets. As a result, two of the four
properties under offer are vacant buildings which are being sold
ahead of investment value to owner-occupiers or developers.
Concluding sales without foregoing rental income is strongly
positive to earnings. The remaining pipeline of sales are also
accretive to earnings with sales forecast to be concluded at prices
reflecting yields, in aggregate, below the cost of the Company's
variable rate debt.
Net asset value
The NAV of the Company at 30 September 2023 was GBP422.8m,
approximately 95.9p per share, a decrease of 3.4p (3.4%) since 31
March 2023:
Pence per share GBPm
NAV at 31 March 2023 99.3 437.6
Valuation movements relating to:
- Asset management activity 1.4 6.1
- Other valuation movements (5.0) (21.8)
Net losses on investment property (3.6) (15.7)
EPRA earnings 2.9 13.0
Dividends paid[15] during the Period (2.7) (12.1)
NAV at 30 September 2023 95.9 422.8
Borrowings
The Company's net gearing increased from 27.4% LTV at 31 March
2023 to 29.6% during the Period.
The proportion of the Company's drawn debt facilities with a
fixed rate of interest was 76% at 30 September 2023 (31 March 2023:
81%), significantly mitigating interest rate risk for the Company
and maintaining a beneficial margin between the weighted average
cost of debt of 4.2% (31 March 2023: 3.8%) and income returns from
the property portfolio. The Company's debt is summarised in Note
14.
Board
After nine years of service, David Hunter retired as
Non-Executive Chair of the Company at the annual general meeting
("AGM") on 8 August 2023, in line with its succession plan. David
chaired the board from the Company's IPO in 2014. On behalf of our
shareholders, the Board would like to thank him for his significant
contribution to the development of the Company over that
period.
Following a search process in line with the Company's policy
when hiring new board members, I joined the Board on 9 May 2023 and
assumed the Chair at the AGM in August 2023. I look forward to
working with my colleagues on the Board to continue to deliver the
strategy as summarised in the Business Model and Strategy section
of this report.
Our policy on board diversity is summarised in the Annual
Report. The Company follows the AIC Corporate Governance Code but,
at present, we do not meet the FCA's newly introduced 'comply or
explain' targets for female and minority ethnic representation.
Custodian Property Income REIT is an investment company with no
Executive Directors and a small Board compared to equivalent size
listed trading companies. The Nominations Committee considers
diversity in a broad sense, not limited to gender or ethnicity,
including socio-economic background and education. 17% of the Board
are from working class backgrounds[16] and 67% attended state-run
school. The Board also welcomes the diversity offered by the
Investment Management team working with the Company, which has a
35% minority ethnic representation and is 43% female.
ESG
As Richard Shepherd-Cross explains in the Investment Manager's
report, ESG considerations are now central to the asset management
of our portfolio and are vital to protecting future value and
income. The Company has made further pleasing progress implementing
its environmental policy during the Period, improving its weighted
average EPC score from C (58) to C (56) due to completing
refurbishments and new lettings, further detailed in the ESG
Committee report.
General meeting voting
At the Company's AGM on 8 August 2023 resolutions to re-elect
Ian Mattioli and Elizabeth McMeikan as Directors of the Company
received votes against of 41.6% and 23.7% respectively, which
comprised 9.8% and 5.8% respectively of total shareholders due to a
23% turnout rate. I have since sought feedback from shareholders,
which identified that votes against were primarily a result of
perceived 'over-boarding' due to Ian's roles as CEO of Mattioli
Woods plc and Chair of Kanabo Group plc, and Elizabeth's roles as
Chair of Nichols plc and Non-Executive Director of Dalata Hotel
Group plc and McBride plc. These institutional shareholders applied
stricter internal voting policies than Institutional Shareholder
Services which allow fewer 'mandates' and their voting policies do
not acknowledge the generally lower time commitments as Directors
of investment companies or companies of a relatively small size.
The Nominations Committee is satisfied with Ian and Elizabeth's
attendance and responsiveness to the demands of being Directors of
the Company. I believe additional roles offer Directors helpful
insight and experience which benefits the Boards on which they sit
and I do not intend to ask my colleagues to reduce their additional
roles.
The Company's Articles require that at every seventh AGM a
Continuation Resolution be proposed but at the 2020 AGM this was
not brought to the attention of the Board and, as a result, a
Continuation Resolution was not proposed. On 21 November the
Company passed a Special Resolution at a General Meeting ("GM") to
release the Company and its directors from an historical obligation
to propose a Continuation Vote at the 2020 AGM and ratify this
breach of the Company's Articles. The Continuation Resolution in
2020 was overlooked during a period of strong performance by the
Company relative to its peers and amidst the COVID-19 pandemic.
Shareholders were not pressing for such a resolution at that time
and the Board is not aware of any desire for a Continuation
Resolution to be considered at this stage either. As a result, the
Board did not propose a replacement Continuation Resolution at the
GM on 21 November 2023 and the next Continuation Resolution will be
proposed at the fourteenth AGM of the Company expected to be held
in 2027.
Outlook
Over the last five years the Custodian Property Income REIT
strategy has provided shareholders an income return per share of
28.4p, or an annual average of 5.7p, always fully covered by
earnings, supported by both a diverse, regional property strategy
and a conservative gearing policy. Negative sentiment towards real
estate investment is currently weighing against capital
performance. This sentiment is driven primarily by the potential
for persistent inflationary pressure to mean 'higher-for-longer'
interest rates, uncertainty around the future of offices and the
impact of the UK's general economic outlook on discretionary
consumer expenditure. However, as the Investment Manager sets out
below, there is depth in occupational demand and latent rental
growth in the portfolio which offers the prospect of growth for
existing shareholders, as sentiment improves towards the
sector.
David MacLellan
Chair
5 December 2023
Investment Manager's report
Property market
The disconnect between the occupational and investment markets
in UK real estate continues to persist. While the impacts of high
inflation and interest rates appear to weigh heavily on investor
sentiment, perhaps the greater influence has been the marked
re-rating of valuations in the final quarter of 2022, which still
seems to colour investors' attitude to real estate investment.
However, since the start of 2023 valuations have been reasonably
stable across the market, with some sub-sectors showing signs of
recovery while others continue to drift, albeit at a much reduced
rate. The outcome for the NAV of Custodian Property Income REIT has
been a marginal decrease of 3.9% over the past three quarters.
By contrast, occupational demand has been consistently strong
and our asset management team has been able to capitalise on this
to reduce vacancy and increase in the portfolio rent roll.
It is the strength of the occupational market driving rental
growth and low vacancy that will ultimately support fully covered
dividends and earnings growth. Income and earnings remain our
central focus, as it is income that will deliver positive total
returns for shareholders. On this basis we remain cautiously
optimistic.
Custodian Property Income REIT has a diversified portfolio
comprising 159 properties with an average value of c.GBP4m and no
one tenant in any single property accounting for more than 1.75% of
the Company's rent roll. This spread significantly mitigates
property specific risk and tenant default risk.
Strong recent leasing activity demonstrates the resilience of
Custodian Property Income REIT's well-diversified investment
portfolio. 23 new leases/lease renewals have been signed during the
Period securing GBP2.8m of annual rent. Seven rent reviews have
been settled at a weighted average of uplift 16%.
EPRA earnings per share of 2.9p showed an annualised earnings
yield[17] of 7.1% at 30 September 2023 and 6.7% at the time of
writing. As pricing for listed property companies is increasingly
out of step with NAV, we believe earnings yield is a more reliable
measure of value and comparator between different companies with
differing strategies, as income supports the greater part of total
return. On this measure the Company rates strongly against its
close peers, offering an annual dividend per share of 5.5p, fully
covered by net earnings, representing a dividend yield[18] of 6.7%
at 30 September 2023 and 6.3% at the time of writing.
76% of the Company's drawn debt facilities are at fixed rates of
interest with the balance drawn on a variable rate revolving credit
facility. The Company's weighted average term and cost of drawn
debt at 30 September 2023 were 5.2 years and 4.2% respectively.
Thanks to a strong balance sheet with significant covenant headroom
and no debt facility maturing until August 2025 the Company is
under no immediate pressure to sell and the relatively low cost of
debt should remain accretive to earnings over the medium-term.
Property portfolio performance
30 Sept 30 Sept 31 Mar
2023 2022 2023
Property portfolio value GBP609.8m GBP685.4m GBP613.6m
Separate tenancies 336 335 319
EPRA occupancy rate 91.5% 89.3% 90.3%
Assets 159 165 161
Weighted average unexpired lease term to first break or expiry ("WAULT") 4.8 years 4.8 years 5.0 years
EPRA topped-up net initial yield ("NIY") 6.4% 5.8% 6.2%
Weighted average EPC rating C (56) C (58) C (58)
The property portfolio is split between the main commercial
property sectors in line with the Company's objective to maintain a
suitably balanced investment portfolio. The Company has a
relatively low exposure to office and high street retail combined
with a relatively high exposure to industrial and to alternative
sectors, often referred to as 'other' in property market analysis.
The current sector weightings are:
Valuation Weighting by Valuation Weighting by
income[19] income Valuation
30 31 March movement
September 30 September 2023 31 March
2023 GBPm Weighting by value 30 Weighting by value
2023 GBPm 2023 September 2023 31 March 2023
GBPm
Sector
Industrial 303.2 41% 295.1 40% 1.4 49% 48%
Retail 127.6 22% 131.8 23% (5.2) 21% 21%
warehouse
Other 78.1 16% 78.6 13% (1.5) 13% 13%
Office 67.5 13% 71.7 16% (8.9) 11% 12%
High street 33.4 8% 36.4 8% (1.4) 6% 6%
retail
609.8 100% 613.6 100% (15.6) 100% 100%
For details of all properties in the portfolio please see
custodianreit.com/property/portfolio.
Disposals
Owning the right properties at the right time is a key element
of effective property portfolio management, which necessarily
involves periodically selling properties to balance the property
portfolio. Custodian Property Income REIT is not a trading company
but identifying opportunities to dispose of assets significantly
ahead of valuation or that no longer fit within the Company's
investment strategy is important.
The Company sold high street retail units in Bury St Edmunds and
Cirencester during the Period at auction in line with valuation for
an aggregate consideration of GBP1.6m.
Since the Period end the Company has sold a day nursery in
Chesham at valuation for GBP0.55m and has a further GBP12.4m of
property under offer which is expected to complete before the end
of the financial year, in aggregate, ahead of valuation.
ESG
The sustainability credentials of both the building and the
location have become ever more important for occupiers and
investors. As Investment Manager we are absolutely committed to
achieving the Company's ambitious goals in relation to ESG and
believe the real estate sector should be a leader in this
field.
Until recently we considered the environmental impact of real
estate and the management of the portfolio as separate issues. It
is now central to the asset management of the portfolio with the
moral imperative, legislation and importantly financial advantage
all pulling together to keep our focus on improving environmental
performance, as measured by the EPC.
Happily, our efforts in this regard are reflected in greater
tenant demand, additional rental growth and, increasingly, in
valuations.
As EPC requirements of the Minimum Energy Efficiency Standards
("MEES") tighten we expect to maintain a compliant portfolio of
properties. With energy efficiency a core tenet of the Company's
asset management strategy and with tenant requirements aligning
with our energy efficiency goals we see the advance of MEES as an
opportunity to secure greater tenant engagement and higher
rents.
We are aware of recent public concerns regarding reinforced
autoclaved aerated concrete ("RAAC"). We have undertaken an
internal portfolio review, identifying assets constructed between
the 1950's and mid 1990's (when RAAC use was prevalent) and where
concrete beams have been used in their construction. This review
identified a low number of assets, primarily small retail units,
potentially using RAAC for which we undertook a detailed review of
pre-acquisition building surveys, base build diagrams, sectional
floor plans, structural surveys, licences to alter, photographs as
well as queries direct with building surveyors. In all
circumstances this review indicated that RAAC was not evident in
the construction of the buildings.
Outlook
Rental growth from real assets, diversified by tenant, location
and sector and supported by a strong balance sheet provides a
robust model to face down current market volatility. Accordingly,
we remain optimistic for returns from Custodian Property Income
REIT and confident that the smaller regional property portfolio
will continue to support fully covered dividends while offering a
defensive strategy to investors.
Richard Shepherd-Cross
for and on behalf of Custodian Capital Limited
Investment Manager
5 December 2023
ESG Committee report
Composition and designation
The ESG Committee ("the Committee") comprises Hazel Adam as
Chair, Malcolm Cooper and Elizabeth McMeikan, all of whom are
independent non-executive directors.
Reporting
The Committee was delighted to publish its inaugural ESG Report
earlier this year which is available at:
custodianreit.com/wp-content/uploads/2023/03/ESG%20Report%202023.pdf
This report contains details of the Company's ESG approach,
successes and aspirations along with case studies of recent
positive steps taken to improve the environmental performance of
the portfolio.
The Board recognises that its decisions have an impact on the
environment, people and communities. The Board also believes that
the Company's property strategy and ESG aspirations create a
compelling rationale to make environmentally beneficial
improvements to its property portfolio and incorporate ESG best
practice into everything the Company does.
The primary responsibilities of the ESG Committee ("the
Committee") are to agree the Company's environmental KPIs, monitor
performance against those KPIs and ensure the Investment Manager is
managing the property portfolio in line with the ESG policy, which
commits the Company to:
-- Understanding environmental risks and opportunities;
-- Improving the energy performance of our buildings;
-- Reducing energy usage and emissions;
-- Achieving positive social outcomes and supporting local
communities; and
-- Complying with all requirements and reporting in line with
best practice where appropriate.
ESG approach
Environmental - we want our properties to minimise their impact
on the local and wider environment. The Investment Manager
carefully considers the environmental performance of our
properties, both before we acquire them and during our period of
ownership. Sites are visited on a regular basis by the Investment
Manager and any environmental issues are reported.
Social - Custodian Property Income REIT strives to manage and
develop buildings which are safe, comfortable and high-quality
spaces. As such, our aim is that the safety and well-being of
occupants of our buildings is maximised.
Governance - high standards of corporate governance and
disclosure are essential to ensuring the effective operation of the
Company and instilling confidence amongst our stakeholders. We aim
to continually improve our levels of governance and disclosure to
achieve industry best practice.
The Committee encourages the Investment Manager to act
responsibly in the areas it can influence as a landlord, for
example by working with tenants to improve the environmental
performance of the Company's properties and minimise their impact
on climate change. The Committee believes that following this
strategy will ultimately be to the benefit of shareholders through
enhanced rent and asset values.
The Company's environmental policy commits it to:
-- Improving the energy performance of our buildings - investing
in lower carbon technology, infrastructureand onsite renewables and
ensuring redevelopments are completed to high environmental
standards.
-- Reducing energy usage and emissions - liaising closely with
our tenants to gather and analyse data on theenvironmental
performance of our properties to identify areas for
improvement.
-- Achieving positive social outcomes and supporting local
communities - engaging constructively withtenants and local
government to ensure we support the wider community through local
economic and environmentalplans and strategies and playing our part
in providing the real estate fabric of the economy, giving
employers safeplaces of business that promote tenant
well-being.
-- Understanding environmental risks and opportunities -
allowing the Board to maintain appropriategovernance structures to
ensure the Investment Manager is appropriately mitigating risks and
maximisingopportunities
-- Reporting in line with best practice and complying with all
requirements - exposing the Company to publicscrutiny and
communicating our targets, activities and initiatives to
stakeholders
Environmental key performance indicators
The Company's performance against its KPIs are set out in the
ESG Report linked above.
EPC ratings
During the Period the Company has updated EPCs at 73 units
across 39 properties for properties where existing EPCs had expired
or where works had been completed, improving the weighted average
EPC rating from C (58) at 31 March 2023 to C (56). Some of the
properties showing an improvement are detailed below:
-- Redditch - a refurbishment of an industrial unit improved the
EPC rating from C (59) to A (12)
-- Winsford - a refurbishment of an industrial unit improved the
EPC rating from C (67) to A (25)
The Company's weighted average EPC rating is illustrated
below:
Number of EPCs Weighted average EPC rating[20]
EPC rating 30 Sept 23 31 Mar 23 30 Sep 23 31 Mar 23
A 15 12 4% 2%
B 93 82 26% 24%
C 154 161 44% 44%
D 54 50 15% 20%
E 31 32 9% 9%
F 7 7 2% 1%
G - - 0% 0%
354 344 100% 100%
Outlook
The Company will continue to work towards achieving its ESG
targets over the course of the remainder of the financial year,
improving our understanding of the specific impacts of climate
change on the Company, seeking to influence tenant behaviour to
improve environmental outcomes and assessing our strategy towards
creating a carbon reduction pathway.
Approval
This report was approved by the Committee and signed on its
behalf by:
Hazel Adam
Chair of the ESG Committee
5 December 2023
Financial review
A summary of the Company's financial performance for the Period
is shown below:
Period ended Period ended Year ended
Financial summary 30 Sept 2023 30 Sept 2022 31 Mar 2023
GBP000 GBP000
GBP000
Rental revenue 20,654 19,592 40,558
Other revenue 2,175 2,704 3,589
Expenses and net finance costs (9,844) (9,932) (19,359)
EPRA profits 12,985 12,364 24,788
Net loss on investment property (15,651) (26,451) (90,609)
Loss before tax (2,666) (14,087) (65,821)
EPRA EPS (p) 2.9 2.8 5.6
Dividend cover 107.1% 102.0% 102.2%
OCR excluding direct property costs 1.23% 1.20% 1.23%
Rental revenue increased by 5% compared to the period ended 30
September 2022, and on an annualised basis, by 2% from the year
ended 31 March 2023. During the Period the Company's rent roll
increased by 2.9% from GBP42.0m at 31 March 2023 to GBP43.2m at 30
September 2023 driven primarily by occupancy improving from 90.3%
to 91.5%.
During the Period we deployed GBP12.2m of variable rate debt on
property redevelopments and refurbishments, most of which will not
be income producing until the end of the financial year when the
associated properties are let. SONIA increased from 4.2% to 5.2%
during the Period and, in aggregate, these rising interest rates
and deployment of debt increased finance costs on the Company's
variable rate revolving credit facility ("RCF") facility. However,
growth in the rent roll more than offset these costs, increasing
EPRA earnings per share to 2.9p (2022: 2.8p) and fully covering
dividends. This increase in recurring earnings demonstrates the
robust nature of the Company's diverse property portfolio despite
significant economic headwinds.
Sentiment towards real estate continued to be affected by
concerns over the impact of 'higher-for-longer' interest rates on
the outlook for medium-term earnings, resulting in a GBP15.6m loss
on investment property and an associated loss before tax of GBP2.7m
(2022: GBP65.8m loss). Debt financing
The Company's debt profile at 30 September 2023 is summarised
below:
30 Sept 2023 30 Sept 2022 31 Mar 2023
Amount GBP185.0m GBP178.0m GBP173.5m
Net gearing 29.6% 25.5% 27.4%
Weighted average cost 4.2% 3.5% 3.8%
Weighted average maturity 5.2 years 6.0 years 5.9 years
Percentage of facilities at a fixed rate of interest 76% 79% 81%
Of the Company's GBP185m of drawn debt facilities 76% are at
fixed rates of interest. The Company's weighted average term and
cost of drawn debt at 30 September 2023 were 5.2 years and 4.2%
respective (fixed rate only: 6.5 years and 3.4%). This high
proportion of fixed rate debt significantly mitigates long-term
interest rate risk for the Company and provides shareholders with a
beneficial margin between the fixed cost of debt and income returns
from the property portfolio.
The Company operates with a conservative level of net gearing,
with target borrowings over the medium-term of 25% of the aggregate
market value of all properties at the time of drawdown. The
Company's net gearing increased from 27.4% LTV at 31 March 2023 to
29.6% during the Period primarily due to GBP15.6m of valuation
decreases and GBP12.2m of capital expenditure.
At the Period end the Company had the following facilities
available:
-- A GBP45m RCF with Lloyds Bank plc ("Lloyds") with interest of
between 1.5% and 1.8% above SONIA, determinedby reference to the
prevailing LTV ratio of a discrete security pool of assets, and
expiring on 17 September 2024. The facility limit could be
increased to GBP50m with Lloyds' approval. This facility was
renewed after thePeriod-end with a three-year term and maximum
GBP75m facility limit.
-- A GBP20m term loan facility with Scottish Widows Limited
("SWIP") repayable in August 2025, with fixedannual interest of
3.935%;
-- A GBP45m term loan facility with SWIP repayable in June 2028,
with fixed annual interest of 2.987%; and
-- A GBP75m term loan facility with Aviva Real Estate Investors
("Aviva") comprising:
-- A GBP35m tranche repayable on 6 April 2032, with fixed annual
interest of 3.02%;
-- A GBP15m tranche repayable on 3 November 2032 with fixed
annual interest of 3.26%; and
-- A GBP25m tranche repayable on 3 November 2032 with fixed
annual interest of 4.10%.
Each facility has a discrete security pool, comprising a number
of the Company's individual properties, over which the relevant
lender has security and the following covenants:
-- The maximum LTV of each discrete security pool is either 45%
and 50%, with an overarching covenant on theCompany's property
portfolio of a maximum 35% LTV; and
-- Historical interest cover, requiring net rental income from
each discrete security pool, over thepreceding three months, to
exceed either 200% or 250% of the facility's quarterly interest
liability.
At the Period end the Company had GBP126.2m (20.7% of the
property portfolio) of unencumbered assets which could be charged
to the security pools to enhance the LTV and interest cover on the
individual loans, of which a further GBP15.2m in the process of
being charged.
On 10 November 2023 the Company and Lloyds agreed to extend the
RCF for a term of three years, with options to extend the term by a
further year on each of the first and second anniversaries of the
renewal. The RCF includes an 'accordion' option with the facility
limit initially set at GBP50m, which can be increased up to GBP75m
subject to Lloyds' agreement. The headline rates of annual interest
now include a LIBOR transition fee previously applied separately,
increasing by 12bps to between 1.62% and 1.92% above SONIA,
determined by reference to the prevailing LTV ratio. As a result
there is no change to the aggregate margin from the renewal.
Dividends
During the Period the Company paid a fourth interim dividend per
share for the financial year ended 31 March 2023 of 1.375p, and the
first quarterly dividend per share for the financial year ending 31
March 2024 of 1.375p, relating to the quarter ended 30 June
2023.
In line with the Company's dividend policy the Board approved an
interim dividend of 1.375p per share for the quarter ended 30
September 2023 which was paid on 30 November 2023 to shareholders
on the register on 27 October 2023.
Ed Moore
for and on behalf of Custodian Capital Limited
Investment Manager
5 December 2023 Principal risks and uncertainties
The Company's Annual Report for the year ended 31 March 2023 set
out the principal risks and uncertainties facing the Company at
that time which are also summarised in Note 2.6. This disclosure
highlighted inflation as an emerging risk, which has continued
during the Period and interest rates have risen sharply as a
result. This prevailing macro-economic situation, potentially
exacerbated by the ongoing conflict in Israel, has continued to
impact the Company in terms of the cost of materials and labour in
carrying out redevelopments, refurbishments and maintenance, and an
increase in the cost of its variable rate borrowing. These factors
also present an indirect risk through their impact on the UK
economy in terms of growth and consumer spending and the
consequential impact on occupational demand for real estate. Since
the Period end inflation has decreased and as a result the
medium-term interest rate outlook has improved, but we believe
these risks will pervade into the subsequent financial year and
that significant uncertainty remains.
We do not anticipate any changes to the other risks and
uncertainties disclosed over the remainder of the financial
year.
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2023
Audited
Unaudited Unaudited
12 months
6 months 6 months
to 31 Mar
to 30 Sept 2023 to 30 Sept 2022
2023
Note GBP000 GBP000 GBP000
Revenue 4 22,829 22,296 44,147
Investment management fee (1,757) (2,086) (3,880)
Operating expenses of rental property
(3,526)
-- rechargeable to tenants (2,082) (2,704)
-- directly incurred (1,335) (1,119) (3,530)
Professional fees (394) (428) (911)
Directors' fees (182) (167) (318)
Administrative expenses (327) (460) (822)
Depreciation (41) (8) (112)
Expenses (6,118) (6,972) (13,099)
Operating profit before net losses on investment property
16,711 15,324 31,048
Unrealised losses on revaluation of investment property:
- relating to gross property revaluations
9 (15,632) (27,742) (91,551)
-- relating to acquisition costs 9 - (3,404) (3,426)
Net valuation decrease (15,632) (31,146) (94,977)
(Loss)/profit on disposal of investment property (19) 4,695 4,368
Net losses on investment property (15,651) (26,451) (90,609)
Operating profit/(loss) 1,060 (11,127) (59,561)
Finance income 5 30 - 22
Finance costs 6 (3,756) (2,960) (6,282)
Net finance costs (3,726) (2,960) (6,260)
Loss before tax (2,666) (14,087) (65,821)
Income tax 7 - - -
Loss and total comprehensive expense for the Period, net of tax
(2,666) (14,087) (65,821)
Attributable to:
Owners of the Company (2,666) (14,087) (65,821)
Earnings per ordinary share:
Basic and diluted (p) 3 (0.6) (3.2) (14.9)
EPRA (p) 3 2.9 2.8 5.6
The loss for the Period arises from the Company's continuing
operations. Condensed consolidated statement of financial
position
At 30 September 2023
Registered number: 08863271
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2023 2022 2023
Note GBP000 GBP000 GBP000
Non-current assets
Investment property 9 609,757 685,423 613,587
Property, plant and equipment 10 1,677 747 1,113
Total non-current assets 611,434 686,170 614,700
Current assets
Trade and other receivables 11 4,819 6,019 3,748
Cash and cash equivalents 13 6,697 4,765 6,880
Total current assets 11,516 10,784 10,628
Total assets 622,950 696,954 625,328
Equity
Issued capital 15 4,409 4,409 4,409
Share premium 250,970 250,970 250,970
Merger reserve 18,931 18,931 18,931
Retained earnings 148,470 227,116 163,259
Total equity attributable to equity holders of the Company
422,780 501,426 437,569
Non-current liabilities
Borrowings 14 138,748 176,596 172,102
Other payables 570 570 570
Total non-current liabilities 139,318 177,166 172,672
Current liabilities
Borrowings 14 44,941 - -
Trade and other payables 12 8,067 10,702 7,666
Deferred income 7,844 7,660 7,421
Total current liabilities 60,852 18,362 15,087
Total liabilities 200,170 195,528 187,759
Total equity and liabilities 622,950 696,954 625,328
These interim financial statements of Custodian Property Income
REIT plc were approved and authorised for issue by the Board of
Directors on 5 December 2023 and are signed on its behalf by:
David MacLellan
Director
Condensed consolidated statement of cash flows
For the six months ended 30 September 2023
Audited
Unaudited Unaudited
12
6 months 6 months months
to 30 Sept to 30 Sept to 31
2023 2022 Mar
2023
Note GBP000 GBP000 GBP000
Operating activities
Loss for the Period (2,666) (14,087) (65,821)
Net finance costs 5,6 3,726 2,960 6,260
Net revaluation loss 9 15,632 31,146 94,977
Loss/(profit) on disposal of investment property 19 (4,695) (4,368)
Impact of lease incentives and costs 9 (1,201) (832) (1,677)
Amortisation 9 3 4 8
Depreciation 10 41 8 112
Cash flows from operating activities before changes in working capital and
provisions
15,554 14,504 29,491
(Increase)/decrease in trade and other receivables (1,071) (818) 2,954
Increase/(decrease) in trade and other payables 824 1,169 (2,104)
Cash generated from operations 15,307 14,855 30,341
Interest and other finance charges 6 (3,630) (2,777) (6,072)
11,677 12,078
Net cash flows from operating activities 24,269
Investing activities
Purchase of investment property - (52,818) (52,603)
Purchase of property, plant and equipment (605) (755) (1,225)
Capital expenditure (12,179) (4,455) (11,333)
Acquisition costs - (3,404) (3,426)
Proceeds from the disposal of investment property 1,575 14,899 28,767
Costs of disposal of investment property (19) (80) (237)
Interest and finance income received 30 - 22
Net cash flows used in investing activities (11,198) (46,613) (40,035)
Financing activities
New borrowings 14 11,500 63,000 58,500
New borrowings origination costs 14 (39) (437) -
Repayment of borrowings - (22,760) (23,228)
Dividends paid 8 (12,123) (12,127) (24,250)
Net cash flows (used in)/from financing activities (662) 27,676 (11,022)
(183) (6,859)
Net decrease in cash and cash equivalents (4,744)
Cash and cash equivalents at start of the Period 6,880 11,624 11,624
Cash and cash equivalents at end of the Period 6,697 4,765 6,880
Condensed consolidated statements of changes in equity
For the six months ended 30 September 2023
Issued Merger Share Retained Total
reserve
capital premium earnings equity
GBP000
Note GBP000 GBP000 GBP000 GBP000
At 31 March 2023 (audited) 4,409 18,931 250,970 163,259 437,569
Profit and total comprehensive income for the Period -
- - (2,666) (2,666)
Transactions with owners of the Company, recognised directly in
equity
Dividends 8 - - - (12,123) (12,123)
At 30 September 2023 (unaudited) 4,409 250,970
18,931 148,470 422,780
For the six months ended 30 September 2022
Issued Merger Share Retained Total
reserve
capital premium earnings equity
GBP000
Note GBP000 GBP000 GBP000 GBP000
At 31 March 2022 (audited) 4,409 18,931 250,970 253,330 527,640
Profit and total comprehensive income for the Period -
- - (14,087) (14,087)
Transactions with owners of the Company, recognised directly in
equity
Dividends 8 - - - (12,127) (12,127)
At 30 September 2022 (unaudited) 4,409 250,970
18,931 227,116 501,426 Notes to the interim financial statements for the period ended 30 September 2023 1. Corporate information
The Company is a public limited company incorporated and
domiciled in England and Wales, whose shares are publicly traded on
the London Stock Exchange plc's main market for listed securities.
The interim financial statements have been prepared on a historical
cost basis, except for the revaluation of investment property, and
are presented in pounds sterling with all values rounded to the
nearest thousand pounds (GBP000), except when otherwise indicated.
The interim financial statements were authorised for issue in
accordance with a resolution of the Directors on 5 December 2023.
2. Basis of preparation and accounting policies 1. Basis of
preparation
The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting. The interim
financial statements do not include all the information and
disclosures required in the annual financial statements. The Annual
Report for the year ending 31 March 2024 will be prepared in
accordance with International Financial Reporting Standards adopted
by the International Accounting Standards Board ("IASB") and
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC") of the IASB (together "IFRS")
as adopted by the United Kingdom, and in accordance with the
requirements of the Companies Act applicable to companies reporting
under IFRS.
The information relating to the Period is unaudited and does not
constitute statutory financial statements within the meaning of
section 434 of the Companies Act 2006. A copy of the statutory
financial statements for the year ended 31 March 2023 has been
delivered to the Registrar of Companies. The auditor's report on
those financial statements was not qualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain
statements under section 498(2) or (3) of the Companies Act 2006.
Certain statements in this report are forward looking statements.
By their nature, forward looking statements involve a number of
risks, uncertainties or assumptions that could cause actual results
or events to differ materially from those expressed or implied by
those statements. Forward looking statements regarding past trends
or activities should not be taken as representation that such
trends or activities will continue in the future. Accordingly,
undue reliance should not be placed on forward looking statements.
2. Significant accounting policies
The principal accounting policies adopted by the Company and
applied to these interim financial statements are consistent with
those policies applied to the Company's Annual Report and financial
statements. 3. Critical judgements and key sources of estimation
uncertainty
Preparation of the interim financial statements requires the
Company to make estimates and assumptions that affect the reported
amount of revenues, expenses, assets and liabilities and the
disclosure of contingent liabilities. If in the future such
estimates and assumptions, which are based on the Directors' best
judgement at the date of preparation of the interim financial
statements, deviate from actual circumstances, the original
estimates and assumptions will be modified as appropriate in the
period in which the circumstances change.
Judgements
No significant judgements have been made in the process of
applying the Company's accounting policies, other than those
involving estimations, that have had a significant effect on the
amounts recognised within the interim financial statements.
Estimates
The accounting estimates with a significant risk of a material
change to the carrying values of assets and liabilities within the
next year are:
-- Valuation of investment property - Investment property is
valued at the reporting date at fair value. Where an investment
property is being redeveloped the property continues to be treated
as an investment property. Surpluses and deficits attributable to
the Company arising from revaluation are recognised in profit or
loss. Valuation surpluses reflected in retained earnings are not
distributable until realised on sale. In making itsjudgement over
the valuation of properties, the Company considers valuations
performed by the independent propertyvaluers in determining the
fair value of its investment properties. The property valuers make
reference to marketevidence of transaction prices for similar
properties. The valuations are based upon assumptions including
futurerental income, anticipated capital expenditure and
maintenance costs (particularly in the context of mitigating
theimpact of climate change) and appropriate discount rates (ie
property yields). The key sources of estimationuncertainty within
these inputs above are future rental income and property yields.
Reasonably possible changes tothese inputs across the portfolio
would have a material impact on its valuation. 4. Going concern
The Board assesses the Company's prospects over the long-term,
taking into account rental growth expectations, climate related
risks, longer-term debt strategy, expectations around capital
investment in the portfolio and the UK's long-term economic
outlook. At quarterly Board meetings, the Board reviews summaries
of the Company's liquidity position and compliance with loan
covenants, as well as forecast financial performance and cash
flows.
Forecast
The Investment Manager maintains a detailed forecast model
projecting the financial performance of the Company over a period
of three years, which provides a reasonable level of accuracy
regarding projected lease renewals, asset-by-asset capital
expenditure, property acquisitions and disposals, rental growth,
interest rate changes, cost inflation and refinancing of the
Company's variable rate debt which typically has a maximum tenor of
three years. The detailed forecast model allows robust sensitivity
analysis to be conducted and over the three year forecast period
included the following key assumptions:
-- A 1% annual loss of contractual revenue through CVA or tenant
default;
-- No changes to the demand for leasing the Company's assets
going forwards, maintaining the occupancy rate;
-- No portfolio valuation movements and completion of the
disposals currently under offer;
-- Rental growth, captured at lease expiry, based on consensus
forecasts;
-- The Company's capital expenditure programme to invest in its
existing assets continues as expected; and
-- No movement in interest rates.
The Directors have assessed the Company's prospects over this
three-year period in accordance with Provision 36 of the AIC Code,
and the Company's prospects as a going concern over a period of 12
months from the date of approval of the Interim Report, using the
same forecast model and assessing the risks against each of these
assumptions.
The Directors note that the Company has performed strongly
during the period despite economic headwinds and valuation
decreases, with rents and occupancy increasing over the last six
months.
Sensitivities
Sensitivity analysis involves flexing these key assumptions,
taking into account the principal risks and uncertainties and
emerging risks detailed in the Annual Report, and assessing their
impact on the following areas:
Covenant compliance
The Company operates the loan facilities summarised in Note 14.
At 30 September 2023 the Company had the following headroom on
lender covenants at a portfolio level with:
-- Net gearing of 29.6% compared to a maximum LTV covenant of
35%, with GBP126.2m (21% of the propertyportfolio) unencumbered by
the Company's borrowings; and
-- 88% minimum headroom on interest cover covenants for the
quarter ended 30 September 2023.
The Company agreed temporary reductions in interest cover
covenants on two of its facilities from 250% to 200% at 30
September 2023. These temporary waivers were put in place whilst
the process of charging GBP15.2m of unencumbered property with
annual passing rent of GBP1.3m to the associated charge pools to
increase covenant headroom was being completed.
Over the three year assessment period the Company's forecast
model projects a small increase in net gearing with a small
increase in headroom on interest cover covenants. Reverse stress
testing has been undertaken to understand what circumstances would
result in potential breaches of financial covenants over these
periods. While the assumptions applied in these scenarios are
possible, they do not represent the Board's view of the likely
outturn, but the results help inform the Directors' assessment of
the viability of the Company. The testing indicated, assuming no
unencumbered properties were charged, that:
-- The rate of loss or deferral of contractual rent on the
borrowing facility with least headroom would needto deteriorate by
11% from the levels included in the Company's prudent base case
forecasts to breach interestcover covenants; or
-- At a portfolio level property valuations would have to
decrease by 15% from the 30 September 2023position to risk
breaching the overall 35% LTV covenant for assessment period.
The Board notes that the Summer 2023 IPF Forecasts for UK
Commercial Property Investment survey suggests an average 1.3%
increase in rents during 2024 with capital value increases of 0.8%.
The Board believes that the valuation of the Company's property
portfolio will prove resilient due to its higher weighting to
industrial assets and overall diverse and high-quality asset and
tenant base comprising over 150 assets and over 300 typically
'institutional grade' tenants across all commercial sectors.
Liquidity
At 30 September 2023 the Company had:
-- GBP6.7m of cash, with gross borrowings of GBP185m resulting
in net gearing of 29.6% and a weighted averagedebt facility
maturity of six years; and
-- An annual contractual rent roll of GBP43.2m, with interest
costs on drawn loan facilities of only c. GBP7.8mper annum.
The Company's forecast model projects it will have sufficient
cash and undrawn facilities to settle its target dividends and its
expense and interest liabilities over the next 12 months.
Since the Period end the Company has increased total funds
available under the RCF from GBP50m to GBP75m for a term of three
years, with an option to extend the term by a further two years,
subject to Lloyds' consent.
Results of the assessments
Based on the prudent assumptions within the Company's forecasts
regarding the factors set out above, the Directors expect that over
the period of their assessment:
-- The Company has surplus cash to continue in operation and
meet its liabilities as they fall due;
-- Borrowing covenants are complied with; and
-- REIT tests are complied with.
Having due regard to these matters and after making appropriate
enquiries, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for a period of at least 12 months from the date of signing of
these condensed consolidated financial statements and, therefore,
the Board continues to adopt the going concern basis in their
preparation. 5. Segmental reporting
An operating segment is a distinguishable component of the
Company that engages in business activities from which it may earn
revenues and incur expenses, whose operating results are regularly
reviewed by the Company's chief operating decision maker (the
Board) to make decisions about the allocation of resources and
assessment of performance and about which discrete financial
information is available. As the chief operating decision maker
reviews financial information for, and makes decisions about the
Company's investment properties as a portfolio, the Directors have
identified a single operating segment, that of investment in
commercial properties. 6. Principal risks and uncertainties
The Company's assets consist of direct investments in UK
commercial property. Its principal risks are therefore related to
the UK commercial property market in general, the particular
circumstances of the properties in which it is invested and their
tenants. Principal risks faced by the Company are:
-- Loss of contractual revenue;
-- Decreases in property portfolio valuations;
-- Reduced availability or increased costs of debt and complying
with loan covenants;
-- Inadequate performance, controls or systems operated by the
Investment Manager;
-- Non-compliance with regulatory or legal changes;
-- Business interruption from cyber or terrorist attack or
pandemics;
-- Failure to meet ESG compliance requirements or shareholder
expectations; and
-- Inflation in property costs and capital expenditure.
These risks, and the way in which they are mitigated and
managed, are described in more detail under the heading 'Principal
risks and uncertainties' within the Company's Annual Report for the
year ended 31 March 2023. The Company's principal risks and
uncertainties have not changed materially since the date of that
report. 3. Earnings per ordinary share
Basic earnings per share ("EPS") amounts are calculated by
dividing net profit for the Period attributable to ordinary equity
holders of the Company by the weighted average number of ordinary
shares outstanding during the Period.
Diluted EPS amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the Company by the
weighted average number of ordinary shares outstanding during the
Period plus the weighted average number of ordinary shares that
would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares. There are no dilutive
instruments.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Audited
Unaudited 6 Unaudited 6 12
months months months
to 30 Sept 2023 to 30 Sept 2022 to 31
Mar
2023
Net loss and diluted net loss attributable to equity holders of the Company
(GBP000) (2,666) (14,087)
(65,821)
Net loss on investment property (GBP000) 15,651 26,451 90,609
EPRA net profit attributable to equity holders of the Company (GBP000) 12,985 12,364
24,788
Weighted average number of ordinary shares:
Issued ordinary shares at start of the Period (thousands) 440,850 440,850
440,850
- -
Effect of shares issued during the Period (thousands) -
Basic and diluted weighted average number of shares (thousands) 440,850 440,850
440,850
Basic and diluted EPS (p) (0.6) (3.2) (14.9)
2.9 2.8
EPRA EPS (p) 5.6 4. Revenue
Audited
Unaudited 6 months Unaudited
12 months
to 30 Sept 6 months
2023 to 31 Mar
to 30 Sept 2022
GBP000 2023
GBP000
GBP000
Gross rental income from investment property 20,654 19,592 40,558
Income from recharges to tenants 2,082 2,704 3,526
Other income 93 - 63
22,829 22,296 44,147 5. Finance income
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
GBP000 GBP000 2023
GBP000
Bank interest 30 - 22
30 - 22 6. Finance costs
Audited
Unaudited 6 months Unaudited 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
GBP000 GBP000 2023
GBP000
Amortisation of arrangement fees on debt facilities 126 183 220
Other finance costs 28 172 375
Bank interest 3,602 2,605 5,687
3,756 2,960 6,282 7. Income tax
The effective tax rate for the Period is lower than the standard
rate of corporation tax in the UK during the Period of 25.0%. The
differences are explained below:
Audited
Unaudited 6 Unaudited 12
months 6 months months
to 30 Sept 2023 to 30 Sept to 31
2022 Mar
GBP000
GBP000 2023
GBP000
Loss before income tax (2,666) (14,087) (65,821)
Tax benefit on loss at a standard rate of 25.0% (30 September 2022: 19.0%, 31
March 2023: 19.0%)
(667) (2,677) (12,506)
Effects of:
REIT tax exempt rental losses 667 2,677 12,506
Income tax expense for the Period - - -
Effective income tax rate 0.0% 0.0% 0.0%
The standard rate of UK corporation tax increased to 25% on 1
April 2023.
The Company operates as a Real Estate Investment Trust and hence
profits and gains from the property investment business are
normally exempt from corporation tax. 8. Dividends
Unaudited Audited
6 months Unaudited 6 months 12 months
to 30 Sept to 30 Sept 2022 to 31 Mar
2023 GBP000 2023
GBP000 GBP000
Interim equity dividends paid on ordinary shares relating to the periods ended:
31 March 2022: 1.375p - 6,065 6,065
30 June 2022: 1.375p - 6,062 6,062
30 September 2022: 1.375p - - 6,062
31 December 2022: 1.375p - - 6,061
31 March 2023: 1.375p 6,062 - -
30 June 2023: 1.375p 6,061 - -
12,123 12,127 24,250
All dividends paid are classified as property income
distributions.
The Directors approved an interim dividend relating to the
quarter ended 30 September 2023 of 1.375p per ordinary share in
October 2023 which has not been included as a liability in these
interim financial statements. This interim dividend was paid on 30
November 2023 to shareholders on the register at the close of
business on 27 October 2023. 9. Investment property
GBP000
At 31 March 2023 613,587
Impact of lease incentives and lease costs 1,201
Additions -
Capital expenditure 12,179
Disposals (1,575)
Amortisation of right-of-use asset (3)
Valuation decrease (15,632)
At 30 September 2023 609,757
GBP000
At 31 March 2022 665,186
Impact of lease incentives 1,677
Additions 56,033
Capital expenditure 9,954
Disposals (24,278)
Amortisation of right-of-use asset (8)
Valuation increase before acquisition costs (91,551)
Acquisition costs (3,426)
Valuation increase including acquisition costs (94,977)
At 30 September 2022 613,587
GBP483.5m (2022: GBP458.0m) of investment property was charged
as security against the Company's borrowings at the Period end with
a further GBP15.2m in the process of being charged. GBP0.6m (2022:
GBP0.6m) of investment property comprises right-of-use assets.
Investment property is stated at the Directors' estimate of its
30 September 2023 fair value. Savills (UK) Limited ("Savills") and
Knight Frank LLP ("KF"), professionally qualified independent
property valuers, each valued approximately half of the property
portfolio as at 30 September 2023 in accordance with the Appraisal
and Valuation Standards published by the Royal Institution of
Chartered Surveyors ("RICS"). Savills and KF have recent experience
in the relevant locations and categories of the property being
valued.
Investment property has been valued using the investment method
which involves applying a yield to rental income streams. Inputs
include yield, current rent and ERV. For the Period end valuation,
the following inputs were used:
Weighted
Valuation Weighted
average passing rent EPRA topped-up NIY
30 September 2023 average ERV range Equivalent yield
Sector (GBP per sq ft)
GBP000 (GBP per sq ft)
Industrial 303.2 7.0 2.0 - 18.0 6.7% 5.3%
Retail warehouse 127.6 14.4 6.1 - 26.7 7.5% 7.6%
Other 78.1 19.1 2.7 - 66.7* 8.1% 6.9%
Office 67.4 19.0 4.9 - 35.8 9.6% 7.1%
High street retail 33.4 31.7 3.8 - 57.4 8.6% 9.6%
*Drive-through restaurants' ERV per sq ft are based on building
floor area rather than area inclusive of drive-through lanes.
Valuation reports are based on both information provided by the
Company eg current rents and lease terms, which are derived from
the Company's financial and property management systems and are
subject to the Company's overall control environment, and
assumptions applied by the property valuers eg ERVs, expected
capital expenditure and yields. These assumptions are based on
market observation and the property valuers' professional
judgement. In estimating the fair value of each property, the
highest and best use of the properties is their current use.
All other factors being equal, a higher equivalent yield would
lead to a decrease in the valuation of investment property, and an
increase in the current or estimated future rental stream would
have the effect of increasing capital value, and vice versa.
However, there are interrelationships between unobservable inputs
which are partially determined by market conditions, which could
impact on these changes. 10. Property, plant and equipment
Audited
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 at 31 Mar 2023
EV chargers and PV cells GBP000 GBP000 GBP000
Cost
Balance at the start of the period 1,225 - -
Additions 605 755 1,225
1,830 755 1,225
Depreciation
At the start of the period (112) - -
During the period (41) (8) (112)
(153) (8) (112)
Net book value at the end of the period 1,677 747 1,113 11. Trade and other receivables
Unaudited at 30 Sept Unaudited at 30 Sept Audited
2023 2022 at 31 Mar 2023
GBP000 GBP000 GBP000
Trade receivables before expected credit loss
provision
2,788 8,233 2,498
Expected credit loss provision (547) (2,914) (1,143)
Trade receivables 2,241 5,319 1,355
Other receivables 2,096 445 2,100
Prepayments and accrued income 482 255 293
4,819 6,019 3,748
The Company regularly monitors the effectiveness of the criteria
used to identify whether there has been a significant increase in
credit risk, for example a deterioration in a tenant's or sector's
outlook or rent payment performance, and revises them as
appropriate to ensure that the criteria are capable of identifying
significant increases in credit risk before amounts become past
due.
Tenant rent deposits of GBP1.8m (2022: GBP0.7m) are held as
collateral against certain trade receivable balances.
The Company considers the following as constituting an event of
default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
-- When there is a breach of financial covenants by the debtor;
or
-- Available information indicates the debtor is unlikely to pay
its creditors.
Such balances are provided for in full. For remaining balances
the Company has applied an expected credit loss ("ECL") matrix
based on its experience of collecting rent arrears.
Unaudited Audited
Unaudited
30 Sept 31 Mar
30 Sept 2022
2023 2023
Expected credit loss provision GBP000
GBP000 GBP000
Opening balance 1,143 2,739 2,739
(Decrease)/increase in provision relating to trade receivables that are credit-impaired (596) 175 453
Utilisation of provisions - - (2,049)
Closing balance 547 2,914 1,143
12. Trade and other payables
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 Audited
at 31 Mar 2023
GBP000 GBP000
GBP000
Falling due in less than one year:
Trade and other payables 902 4,507 972
Social security and other taxes 816 621 498
Accruals 4,430 3,948 4,693
Rental deposits and retentions 1,919 1,626 1,503
8,067 10,702 7,666
The Directors consider that the carrying amount of trade and
other payables approximates their fair value. Trade payables and
accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. For most suppliers interest is charged
if payment is not made within the required terms. Thereafter,
interest is chargeable on the outstanding balances at various
rates. The Company has financial risk management policies in place
to ensure that all payables are paid within the credit timescale.
13. Cash and cash equivalents
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 Audited
at 31 Mar 2023
GBP000 GBP000
GBP000
Cash and cash equivalents 6,697 4,765 6,880
Cash and cash equivalents at 30 September 2023 include GBP2.4m
(2022: GBP2.4m, 31 March 2023: GBP1.6m) of restricted cash
comprising: GBP1.8m (2022: GBP1.4m, 31 March 2023: GBP1.5m) rental
deposits held on behalf of tenants, GBPNil (2022: GBP0.7m, 31 March
2023: GBPNil) disposal proceeds held in charged disposal accounts
and GBP0.1m (2022: GBPNil, 31 March 2023: GBPNil) disposal deposit.
14. Borrowings
Costs incurred in the arrangement of bank borrowings
GBP000
Bank borrowings
Total
GBP000
GBP000
Falling due within one year:
At 31 March 2023 - - -
Reclassification 33,500 (89) 33,411
New borrowings 11,500 - 11,500
Amortisation of arrangement fees - 30 30
At 30 September 2023 45,000 (59) 44,941
Falling due in more than one year:
At 31 March 2023 173,500 (1,398) 172,102
Reclassification (33,500) 89 (33,411)
New borrowings - - -
Costs incurred in the arrangement of
- (39) (39)
bank borrowings
Repayment of borrowings - - -
Amortisation - 96 96
At 30 September 2023 140,000 (1,252) 138,748
Total borrowings at 30 September 2023 185,000 (1,311) 183,689
Costs incurred in the arrangement of bank borrowings
GBP000
Bank borrowings
Total
GBP000
GBP000
Falling due in more than one year:
At 31 March 2022 115,000 (1,117) 113,883
New borrowings 63,000 (437) 62,563
Costs incurred in the arrangement of
-
bank borrowings
Amortisation - 150 150
Total borrowings at 30 September 2022 178,000 (1,404) 176,596
The Company's borrowing facilities require minimum interest
cover of either 200% or 250% of the net rental income of the
security pool. The maximum LTV of the Company combining the value
of all property interests (including the properties secured against
the facilities) must be no more than 35%.
The Company's borrowing position at 31 March 2023 is set out in
the Annual Report for the year ended 31 March 2023.
Since the Period end the Company has increased total funds
available under the RCF from GBP50m to GBP75m for a term of three
years, with an option to extend the term by a further two years,
subject to Lloyds' consent. 15. Issued capital and reserves
Ordinary shares
Share capital of 1p GBP000
At 31 March 2023 440,850,398 4,409
Issue of share capital - -
At 30 September 2023 440,850,398 4,409
Ordinary shares
Share capital of 1p GBP000
At 31 March 2022 440,850,398 4,409
Issue of share capital - -
At 30 September 2022 440,850,398 4,409
The Company has made no further issues of new shares since the
Period end.
The following table describes the nature and purpose of each
reserve within equity:
Reserve Description and purpose
Share premium Amounts subscribed for share capital in excess of nominal value less any associated issue costs that have
been capitalised.
Retained All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
earnings
Merger A non-statutory reserve that is credited instead of a company's share premium account in circumstances
reserve where merger relief under section 612 of the Companies Act 2006 is obtained. 16. Financial instruments
The fair values of financial assets and liabilities are not
materially different from their carrying values in the financial
statements. The fair value hierarchy levels are as follows:
-- Level 1 - quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2 - inputs other than quoted prices included within
level 1 that are observable for the asset orliability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
-- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservableinputs).
There have been no transfers between Levels 1, 2 and 3 during
the year. The main methods and assumptions used in estimating the
fair values of financial instruments and investment property are
detailed below.
Investment property - level 3
Fair value is based on valuations provided by independent firms
of chartered surveyors and registered appraisers, which uses the
inputs set out in Note 10. These values were determined after
having taken into consideration recent market transactions for
similar properties in similar locations to the investment
properties held by the Company. The fair value hierarchy of
investment property is level 3. At 31 March 2023, the fair value of
the Company's investment properties was GBP609.8m (2022:
GBP665.2m).
Interest bearing loans and borrowings - level 3
At 30 September 2023 the gross value of the Company's loans with
Lloyds, SWIP and Aviva all held at amortised cost was
GBP185.0m.
Trade and other receivables/payables - level 3
The carrying amount of all receivables and payables deemed to be
due within one year are considered to reflect their fair value. 17.
Related party transactions
Save for transactions described below, the Company is not a
party to, nor had any interest in, any other related party
transaction during the period.
Transactions with directors
Each of the directors is engaged under a letter of appointment
with the Company and does not have a service contract with the
Company. Under the terms of their appointment, each Director is
required to retire by rotation and seek re-election at least every
three years. The Company's Articles require one third of Directors
to retire and seek re-election each year. However, notwithstanding
the provisions of the Articles, all the Non-Executive Directors
offer themselves for re-election at each AGM in accordance with the
provisions of the AIC Code.
Each director's appointment under their respective letter of
appointment is terminable immediately by either party (the Company
or the director) giving written notice and no compensation or
benefits are payable upon termination of office as a director of
the Company becoming effective.
Ian Mattioli is Chief Executive of Mattioli Woods, the parent
company of the Investment Manager, and is a director of the
Investment Manager. As a result, Ian Mattioli is not independent.
The Company Secretary, Ed Moore, is also a director of the
Investment Manager.
Investment Management Agreement
The Investment Manager is engaged as AIFM under an IMA with
responsibility for the management of the Company's assets, subject
to the overall supervision of the Directors. The Investment Manager
manages the Company's investments in accordance with the policies
laid down by the Board and the investment restrictions referred to
in the IMA. The Investment Manager also provides day-to-day
administration of the Company and acts as secretary to the Company,
including maintenance of accounting records and preparing the
annual and interim financial statements of the Company.
Annual management fees payable to the Investment Manager under
the IMA are:
-- 0.9% of the NAV of the Company as at the relevant quarter day
which is less than or equal to GBP200mdivided by 4;
-- 0.75% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP200m but belowGBP500m divided by
4;
-- 0.65% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP500m but belowGBP750m divided by 4;
plus
-- 0.55% of the NAV of the Company as at the relevant quarter
day which is in excess of GBP750m divided by 4.
In June 2023 the rates applicable to each NAV hurdle for
calculating the Administrative fees payable to the Investment
Manager under the IMA were amended, with effect from 1 April 2022,
to:
-- 0.125% of the NAV of the Company as at the relevant quarter
day which is less than or equal to GBP200mdivided by 4;
-- 0.115% (2022: 0.08%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP200mbut below GBP500m
divided by 4;
-- 0.02% (2022: 0.05%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP500mbut below GBP750m
divided by 4; plus
-- 0.015% (2022: 0.03%) of the NAV of the Company as at the
relevant quarter day which is in excess of GBP750mdivided by 4.
The IMA is terminable by either party by giving not less than 12
months' prior written notice to the other. The IMA may also be
terminated on the occurrence of an insolvency event in relation to
either party, if the Investment Manager is fraudulent, grossly
negligent or commits a material breach which, if capable of remedy,
is not remedied within three months, or on a force majeure event
continuing for more than 90 days.
The Investment Manager receives a marketing fee of 0.25% (2022:
0.25%) of the aggregate gross proceeds from any issue of new shares
in consideration of the marketing services it provides to the
Company.
During the period the Investment Manager charged the Company
GBP2.06m (2022: GBP2.34m) comprising GBP1.80m (2022: GBP2.09m) in
respect of annual management fees, GBP0.26m (2022: GBP0.25m) in
respect of administrative fees and GBPnil (2022: GBPnil) in respect
of marketing fees.
Mattioli Woods arranges insurance on behalf of the Company's
tenants through an insurance broker and the Investment Manager is
paid a commission by the Company's tenants via their premiums for
administering the policy. 18. Events after the reporting date
Since the Period end the Company has:
-- Sold a day nursery in Chesham at valuation for GBP0.55m;
and
-- Refinanced its RCF as described in Note 14. 19. Additional
disclosures
NAV per share total return
An alternative measure of performance taking into account both
capital returns and dividends by assuming dividends declared are
reinvested at NAV at the time the shares are quoted ex-dividend,
shown as a percentage change from the start of the period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
2023
Net assets (GBP000) 422,780 501,426 437,569
Shares in issue at the period end (thousands) 440,850 440,850 440,850
NAV per share at the start of the period (p) 99.3 119.7 119.7
Dividends per share paid during the period (p) 2.75 2.75 5.5
NAV per share at the end of the period (p) 95.9 113.7 99.3
NAV per share total return (0.7%) (2.7%) (12.5%)
Share price total return
An alternative measure of performance taking into account both
share price returns and dividends by assuming dividends declared
are reinvested at the ex-dividend share price, shown as a
percentage change from the start of the period.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
2023
Share price at the start of the period (p) 89.2 101.8 101.8
Dividends per share for the period (p) 2.75 2.75 5.5
Share price at the end of the period (p) 82.5 97.0 89.2
Share price total return (4.4%) (2.0%) (7.0%) Dividend cover
The extent to which dividends relating to the Period are
supported by recurring net income, indicating whether the level of
dividends is sustainable.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
Group 2023
Dividends paid relating to the period 6,061 6,062 18,185
Dividends approved relating to the year 6,062 6,062 6,062
12,123 12,124 24,247
(14,087)
Loss after tax (2,666) (65,821)
One-off costs - - -
Net loss on investment property 15,651 26,451 90,609
12,985 12,364 24,788
Dividend cover 107.1% 102.0% 102.2%
Net gearing
Gross borrowings less cash (excluding rent deposits), divided by
property portfolio value. This ratio indicates whether the Company
is meeting its investment objective to target 25% loan-to-value in
the medium-term to balance enhancing shareholder returns without
facing excessive financial risk.
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 Audited
at 31 Mar 2023
GBP000 GBP000
GBP000
Gross borrowings 185,000 178,000 173,500
Cash (6,697) (4,765) (6,880)
Deposits 1,919 1,626 1,503
Net borrowings 180,222 174,861 168,123
Investment property 609,757 685,423 613,587
Net gearing 29.6% 25.5% 27.4%
Weighted average cost of debt
The interest rate payable on bank borrowings at the period end
weighted by the amount of borrowings at that rate as a proportion
of total borrowings
Amount drawn
30 September 2023
GBPm Interest rate
Weighting
Lloyds RCF 45.0 6.840% 1.66%
Variable rate 45.0 6.840%
SWIP GBP20m loan 20.0 3.935% 0.43%
SWIP GBP45m loan 45.0 2.987% 0.73%
Aviva
-- GBP35m tranche 35.0 3.020% 0.57%
-- GBP15m tranche 15.0 3.260% 0.26%
-- GBP25m tranche 25.0 4.100% 0.55%
Fixed rate 140.0 3.359%
Weighted average drawn facilities 185.0 4.20%
Amount drawn
31 March 2023
GBPm Interest rate
Weighting
Lloyds RCF 33.5 5.830% 1.13%
Variable rate 33.5
SWIP GBP20m loan 20.0 3.935% 0.45%
SWIP GBP45m loan 45.0 2.987% 0.78%
Aviva
-- GBP35m tranche 35.0 3.020% 0.61%
-- GBP15m tranche 15.0 3.260% 0.28%
-- GBP25m tranche 25.0 4.100% 0.59%
Fixed rate 140.0
Weighted average rate on drawn facilities 173.5 3.84%
Amount drawn
30 September 2022
GBPm Interest rate
Weighting
Lloyds RCF 38.0 3.790% 0.81%
Variable rate 38.0
SWIP GBP20m loan 20.0 3.935% 0.44%
SWIP GBP45m loan 45.0 2.987% 0.76%
Aviva
-- GBP35m tranche 35.0 3.020% 0.59%
-- GBP15m tranche 15.0 3.260% 0.27%
-- GBP25m tranche 25.0 4.100% 0.58/%
Fixed rate 140.0
Weighted average rate on drawn facilities 178.0 3.45%
EPRA EPS
A measure of the Company's operating results excluding gains or
losses on investment property, giving an alternative indication of
performance compared to basic EPS which sets out the extent to
which dividends relating to the Period are supported by recurring
net income.
Audited
Unaudited
Unaudited 6 months 6 months 12 months
to 30 Sept 2023 to 30 Sept 2022 to 31 Mar
GBP000 GBP000 2023
GBP000
Loss for the Period after taxation (2,666) (14,087) (65,821)
Net losses on investment property 15,651 26,451 90,609
12,985
EPRA earnings 12,364 24,788
Weighted average number of shares in issue (thousands)
440,850 440,850 440,850
EPRA EPS (p) 2.9 2.8 5.6
EPRA vacancy rate
EPRA vacancy rate is the ERV of vacant space as a percentage of
the ERV of the whole property portfolio and offers insight into the
additional rent generating capacity of the portfolio.
Unaudited at 30 Sept Unaudited as 30 Sept Audited
2023 2022 at 31 Mar
2023
GBP000 GBP000
GBP000
Annualised potential rental value of vacant premises 4,243 5,236 4,743
Annualised potential rental value for the property 49,744 49,183 48,976
portfolio
EPRA vacancy rate 8.5% 10.7% 9.7%
EPRA Net Tangible Assets ("NTA")
Assumes that the Company buys and sells assets for short-term
capital gains, thereby crystallising certain deferred tax
balances.
Audited
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 at 31 Mar 2023
GBP000 GBP000 GBP000
Group and Company
IFRS NAV 422,780 501,425 437,569
Fair value of financial instruments - - -
Deferred tax - - -
EPRA NTA 422,780 501,425 437,569
Closing number of shares in issue (thousands) 440,850 440,850 440,850
EPRA NTA per share (p) 95.9 113.7 99.3
EPRA topped-up NIY
Annualised cash rents at the period-end date, adjusted for the
expiration of lease incentives (rent free periods or other lease
incentives such as discounted rent periods and stepped rents), less
estimated non-recoverable property operating expenses, divided by
property valuation plus estimated purchaser's costs.
Audited
Unaudited at 30 Sept 2023 Unaudited at 30 Sept 2022 at 31 Mar 2023
GBP000 GBP000 GBP000
Group and Company
Investment property 609,757 685,423 613,587
Allowance for estimated purchaser's costs[21] 39,634 44,552 39,883
Gross-up property portfolio valuation 649,391 729,975 653,470
Annualised net rental income 43,162 42,971 42,050
Property outgoings[22] (1,679) (947) (1,875)
Annualised net rental income 41,483 42,024 40,175
EPRA topped-up NIY 6.4% 5.8% 6.2% Directors' responsibilities for the interim financial statements
The Directors have prepared the interim financial statements of
the Company for the Period from 1 April 2023 to 30 September
2023.
We confirm that to the best of our knowledge: a. The condensed
interim financial statements have been prepared in accordance with
IAS 34 'InterimFinancial Reporting' as adopted by the United
Kingdom; b. The condensed set of financial statements, which has
been prepared in accordance with the applicable setof accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit orloss of the Company, or the
undertakings included in the consolidation as a whole as required
by DTR 4.2.4R; c. The interim financial statements include a fair
review of the information required by DTR 4.2.7R of theDisclosure
and Transparency Rules, being an indication of important events
that have occurred during the first sixmonths of the financial
year, and their impact on the Condensed Financial Statements, and a
description of theprincipal risks and uncertainties for the
remaining six months of the financial year; and d. The interim
financial statements include a fair review of the information
required by DTR 4.2.8R of theDisclosure and Transparency Rules,
being material related party transactions that have taken place in
the first sixmonths of the current financial year and any material
changes in the related party transactions described in thelast
Annual Report.
A list of the current directors of Custodian Property Income
REIT plc is maintained on the Company's website at
custodianreit.com.
By order of the Board
David MacLellan
Chair
5 December 2023
Independent review report to Custodian Property Income REIT
plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 September 2023 which comprises the Condensed
consolidated statement of comprehensive income, the Condensed
consolidated statement of financial position, the Condensed
consolidated statements of changes in equity, the Condensed
consolidated statement of cash flows and related notes 1 to 19.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
September 2023 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 2.1, the annual financial statements of the
Company are prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410; however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 December 2023
- Ends -
-----------------------------------------------------------------------------------------------------------------------
[1] The European Public Real Estate Association ("EPRA").
[2] Profit after tax, excluding net gains or losses on
investment property, divided by weighted average number of shares
in issue.
[3] Profit after tax divided by weighted average number of
shares in issue.
[4] Dividends paid and approved for the Period.
[5] Profit after tax, excluding net gains or losses on
investment property, divided by dividends paid and approved for the
Period.
[6] Net Asset Value ("NAV") movement including dividends paid
during the Period on shares in issue at 31 March 2023.
[7] Share price movement including dividends paid during the
Period.
[8] EPRA net tangible assets ("NTA") does not differ from the
Company's IFRS NAV or EPRA NAV.
[9] Gross borrowings less cash (excluding deposits) divided by
property portfolio value.
[10] Expenses (excluding operating expenses of rental property)
divided by average quarterly NAV.
[11] Weighted by floor area. For properties in Scotland, English
equivalent EPC ratings have been obtained.
[12] A full version of the Company's Investment Policy is
available at www.custodianreit.com/wp-content/uploads/2023
/09/CREIT-Investment-policy-8_8_23.pdf.
[13] A risk score of two represents "lower than average
risk".
[14] EPRA topped-up net initial yield.
[15] Dividends of 2.75p per share were paid during the Period on
shares in issue throughout the Period.
[16] As defined by the Social Mobility Commission.
[17] Annualised EPRA earnings per share divided by the
prevailing share price (82.5p.at 30 September 2023, 86.8p at 5
December 2023).
[18] Annual target dividend per share of 5.5p divided by the
prevailing share price (82.5p.at 30 September 2023, 86.8p at 5
December 2023).
[19] Current passing rent plus ERV of vacant properties.
[20] Weighted by floor area.
[21] Assumed at 6.5% of investment property valuation.
[22] Non-recoverable directly incurred operating expenses of
rental property, excluding letting and rent review fees.
-----------------------------------------------------------------------------------------------------------------------
Dissemination of a Regulatory Announcement that contains inside
information in accordance with the Market Abuse Regulation (MAR),
transmitted by EQS Group. The issuer is solely responsible for the
content of this announcement.
-----------------------------------------------------------------------------------------------------------------------
ISIN: GB00BJFLFT45
Category Code: MSCH
TIDM: CREI
LEI Code: 2138001BOD1J5XK1CX76
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited reviews
Sequence No.: 289893
EQS News ID: 1790015
End of Announcement EQS News Service
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