Leasing momentum continues to drive income returns and support fully covered dividends

Richard Shepherd-Cross, Managing Director of Custodian Capital Limited, said: “We believe strong recent leasing activity demonstrates the resilience of Custodian REIT’s well-diversified investment portfolio and the depth of the occupational market, the strength of the Company’s balance sheet, low gearing and a longer-term fixed rate debt profile will continue to support a high income return strategy.

“Despite recent valuation decreases our active asset management has enabled us to capture occupational demand, lease vacant space and deliver rental growth which support earnings and underpin the Company’s fully covered dividend.

“Custodian REIT’s prudent approach to investment and the management of its balance sheet has left the Company well insulated from the negative impact of interest rate rises continuing in the short to medium-term.  We also remain confident that our ongoing intensive asset management of the portfolio will maintain cash flow and support consistent returns.  The current market volatility, particularly in relation to valuations, further strengthens our ongoing belief that earnings yield is the more reliable and important measure of value as income supports the greater part of total return.”

Strong leasing activity supporting rents and underpinning fully covered dividends

• 1.375p dividend per share approved for the Quarter, in line with a target dividend of no less than 5.5p for the current financial year, fully covered by EPRA earnings

Valuation movements

• (“NAV”) total return per share³ of -5.8% comprising 1.1% dividends paid offset by a -6.9% capital movement, decreasing NAV per share to 113.7p (30 June 2022: 122.2p) with a NAV of £501.4m (30 June 2022: £538.7m)

£26.5m of capital deployed during the Quarter alongside a profitable disposal driving a 4.5% net increase in rent roll, supporting earnings while maintaining net gearing at its target level

• Investment activity during the Quarter:
• £26.5m⁴ invested at an average net initial yield of 6.8% with net deployment during the Quarter increasing annual rent roll by 4.5% to £43.0m (30 June 2022: £41.1m)
• Acquisitions comprised a distribution unit near Glasgow for £11.1m, two DFS retail warehouses in Droitwich and Measham for £8.9m, a £3.5m industrial unit in Chesterfield and two drive-through restaurants in York for £3.0m

• Environmental, social and governance (“ESG”) investment activity:
• Continued progress towards achieving the Company’s minimum target of removal or improvement of all ‘D’ and ‘E’ energy performance certificate (“EPC”) ratings by 2027 and 2025 respectively with the weighted average EPC score improving to 58 (C) from 60 (C) during the Quarter
• £0.7m invested in installing electric vehicle (“EV”) chargers during the six months to 30 September 2022 across the retail warehouse, industrial and office sectors, with further installations planned that will surpass the Company’s minimum target of installing chargers across its freehold retail warehouse assets by 2025
• Investment activity since 30 September 2022:

Low gearing and significant borrowing headroom

• At 30 September 2022:
• Net gearing⁵ remains in line with the Company’s 25% target, increasing to 25.4% loan-to-value during the Quarter (30 June 2022: 21.5%) as a result of valuation movements and £18.0m of net deployment
• Weighted average cost of drawn debt of 3.5%.  Of the Company’s £178m of drawn facilities 79% is at a fixed rate of interest with no expiries until September 2024 and a weighted average term of 6.3 years
• Since the Quarter end, due to the disposals outlined above:
• Net gearing has decreased to 24.3%
• Weighted average cost of drawn debt remains 3.5% despite base rate rises, demonstrating the insulation provided by the Company’s majority fixed rate debt which now represents 84% of drawn facilities

¹ Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in issue.

² Estimated rental value (“ERV”) of let property divided by total portfolio ERV.

³ NAV per share movement including dividends paid during the Quarter.

⁴ Before costs.

⁵ Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation.

Net asset value

The unaudited NAV of Custodian REIT at 30 September 2022 was £501.4m, reflecting approximately 113.7p per share, a decrease of 8.5p (7.0%) since 30 June 2022:

⁶ An interim dividend of 1.375p per share relating to the quarter ended 30 June was paid on 31 August 2022.

The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation at 30 September 2022 and net income for the Quarter.  The movement in NAV reflects the payment of an interim dividend of 1.375p per share during the Quarter, but does not include any provision for the approved dividend of 1.375p per share for the Quarter to be paid on 30 November 2022.