custodian reit september 2015 · 2018-03-21 · income growth vs yield compression • income...

1

Custodian REIT

September 2015

Overview

2

1. As at 30th September 20152. The target distribution yield and total return target are not forecasts and should not be seen as an indication of Custodian REIT’s expected or actual results or returns.

Custodian REIT • Market Cap £205m1

• Main Market of London Stock Exchange‐ Target distribution yield of 6.25 pence per share2

‐ Fully covered from income, paid quarterly

Company investment

strategy

• Diversified UK commercial property portfolio

• Small lot sizes of £2m - £7.5m

• Institutional grade tenants on long leases

• Diverse tenant, region and sector mix

• High residual values, low obsolescence

• Target gearing – 25% loan to value

Opportunity • Access to a high quality portfolio

• Attractive dividend yield

• Differentiated property exposure, with low void rate

Highlights

3

First year’s trading to 31st March 2015

• Share price total return 13.3% on issue price since Admission

• Dividends paid totalling 3.75p per share, Q4 dividend paid post year end at 1.50p

• First year dividend on target at 5.25p per share

• Dividend cover 104%1

• £47.6m raised from equity placings at an average premium of 5% to NAV

1. Realised profit for the year, excluding exceptional items, divided by dividends paid for the year

2. Gross borrowings less unrestricted cash divided by property portfolio valuation

Update to 30th September 2015

• £235 million property portfolio

• Net gearing 20%

• £14.3m raised from tap issues at average premium of 7% to NAV

• Target annual dividend of 6.25p per share

4

• Differentiated property strategy

• Income

• Low volatility

• Growth

• Diversification

• Gearing

• Asset management

Strategy overview

Strategy

5

Differentiated property strategy

*Graphs LSH Investment Transactions data

Net initial yield advantage for small lot sizes• Portfolio diversified by tenant,

region and sector

• £2m – £7.5m lot sizes

• Low obsolescence

• High residual values

• Strategic use of alternative property

classes

• Development funding to secure

modern, well-let property

• Minimisation of cash drag

• Long term NAV growth

-

0.50

1.00

1.50

2.00

2.50

3.00

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Marg

in

Net

Init

ial Y

ield

Margin Under £10m £10m plus

6

Income

• Opportunities to out-perform • But………….

• Better rental growth prospects • Lower initial income return

• Higher gearing • Increased risk and volatility

• Trading • Costs and timing risk

• Target dividend 6.25p per share – implied yield 5.75%1

• Average long term All Property income return: over 7% pa

• Average long-term All Property capital growth: less than 2% pa

• Income provides the lower risk component of total return

• Income under-performance requires capital out-performance for equivalent total

return:

1: Based on 30th September closing price of 108.5 pence per share

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Low volatility

100102104106108110112

CREI Share Price Movement

CREI EPIC PCTN UCKM FCRE SLI SREI FCPT

Volatility of Premium 1.04 1.56 2.97 3.12 3.13 3.49 3.69 3.89

Yield (17/09/15) 5.80 4.70 4.60 4.20 5.00 5.50 4.20 4.20

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Vo

lati

lity

(Sta

nd

ard

Dev

iati

on

)Im

plie

d Y

ield

Income and Volatility (12 months To 17/9/15)

Volatility of Premium Yield (17/09/15)

Income growth vs yield compression

• Income expected to make up a larger proportion of total return in 2015/16

• CBRE All Property Yield stands at 5.41% (Q2 2015)

• Custodian REIT equivalent yields stabilised from September 2014 at 6.75%

• Portfolio has shown low volatility in equivalent yield over the last 5 years relative to the

market

• Continued hardening of initial yield and consequential valuation growth is being driven

by the prospects for rental growth

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CBRE Q2, 2015

Growth

Date All

Property

Yield

Yield

Compression

Growth Custodian

REIT NIY

Yield

Compression

Growth

2012 Q2 6.40%

99 bps 18.3%

7.40%

34 bps 10.3%2015 Q2 5.41% 7.06%

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CBRE Q2, 2015

Rental growth

Nominal Prime Rental Growth

(%)

Q/Q Y/Y

Shops 1.4 2.4

Retail Warehouses 0.1 -0.4

Offices 1.6 8.3

Industrial 2.6 7.1

All Property 1.3 4.7

• IPF consensus forecast average 2.6% pa rental growth until 2019

• Rental growth in all sectors, particularly industrial and office sectors, where there is

a supply side shortage, but watch secondary retail

• 23.67% of the portfolio is subject to fixed or indexed rent reviews

• Strength of occupational market is also driving growth at open market rent reviews

Fixed10%

RPI13%

CPI1%

Open market 76%

Rent Review Analysis

Fixed RPI CPI Open market

Diverse UK commercial property

investment portfolio

• Current portfolio circa £233 million

• 98 assets

• Nationwide portfolio

• All major property sectors

• Over 153 separate tenancies

• Average unexpired lease term 6.8 years to

first break

• Void rate 2.3%

• 7.10% (includes rent from developments)

net initial yield

Diversification

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Industrial 39Other 21Retail 30Office 8

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Diversification by income

Enact Properties Ltd - 3.58% JTF Wholesale Ltd - 2.76% Teleperformance Ltd - 2.64% Staples UK Ltd & Staples Inc - 2.38%

Restore Document Management - 2.3% Superdrug Stores PLC - 2.15% R Stratton & Co Ltd - 2.09% Portola Packaging Ltd - 2.02%

Mattioli Woods PLC - 1.98% Royal Mail Group Limited - 1.86% Revlon International Corporation - 1.83% MKM Buildings Supplies Ltd - 1.72%

Turpin Distribution Services Ltd - 1.7% Hellermann Tyton - 1.61% Yesss (B) Ltd - 1.6% Massmould Ltd - 1.59%

Co-Operative Group Food Ltd - 1.53% Edwards Geldards LLP - 1.46% BSS Group Ltd - 1.42% Sappa Profiles UK Ltd - 1.42%

Magnet Ltd - 1.41% DX Network Services Ltd - 1.37% Premier Inn Hotels Ltd - 1.36% Geocel Limited - 1.33%

Marshall Motor Group Ltd - 1.28% Multi-let - 1.26% Unilin Distribution Ltd - 1.25% URBN UK Ltd - 1.25%

Sainsburys - 1.23% Ryland Properties Ltd - 1.19% Elma Electronics Ltd - 1.17% Constantine Ltd - 1.13%

Specsavers Optical Superstores Ltd - 1.13% Travelodge Hotels Ltd - 1.13% Brenntag UK Ltd - 1.12% DHL Express (UK) Ltd - 1.1%

Emerson Network Power - 1.08% Lyons Davidson - 1.07% Pizza Hut (UK) Ltd - 1.05% Semcon - 1.02%

Waterstones Booksellers Ltd - 1.01% Ichor Systsems Ltd - 0.99% Regus - 0.92% JD Wetherspoon Plc - 0.88%

RBS - 0.88% West Midlands Ambulance Service NHS Trust - 0.86% Poundland Ltd - 0.85% WH Smith Retail Holdings Ltd - 0.85%

Allen Ford (UK) Ltd t/a Kia - 0.82% TJ Morris t/a Homebargains - 0.82% Tesco Stores Ltd - 0.8% Honda Motor Europe Ltd - 0.79%

The White Company (UK) Ltd - 0.79% Synergy Health (UK) Ltd - 0.77% Trimuph Structures Farnborough Ltd - 0.77% Powder Systems Ltd - 0.77%

Cotswold Outdoor Ltd - 0.76% Greggs PLC - 0.74% MTS Logistics - holding over - 0.73% Bunzl UK Ltd - 0.71%

Top Man Ltd - 0.71% Laura Ashley - 0.7% Prezzo PLC - 0.69% Central Manchester University Hospitals NHS Foundation Trust - 0.68%

DHL International Ltd - 0.67% Sealed Air Ltd - 0.67% Bright Horizons Family Solutions Ltd - 0.65% Nationwide Crash Repairs - 0.65%

Stonegate Pub Co Ltd - 0.65% Phase Eight (Fashions & Designs) Ltd - 0.62% PHS Group - 0.59% Poundstretcher - 0.57%

Carpetright - 0.56% Kruidvat Real Estate UK Ltd - 0.55% DHL Global Forwarding (UK) Ltd - 0.52% Wilko Retail Ltd - 0.52%

The Works Stores Ltd - 0.51% Multi tenanted - Resi - 0.49% Iceland Foods Ltd - 0.48% Andrew Page Limited - 0.47%

Multi tenanted - Phoenix Park - 0.44% Portsmouth City Council - 0.43% EE Ltd - 0.42% Sovereign Air Movement Ld - 0.41%

Kuoni Travel Ltd - 0.39% W H Smith &Co - 0.39% Chesham Insurance Limited - 0.36% Multi Tile Ltd t/a Tile Giant - 0.34%

Whistles Holdings Ltd - 0.33% F1 autocentres - 0.28% Knutsford Day Nursery Ltd (Bupa Investments Ltd Guarantor) - 0.28% Savers Health & Beauty Ltd - 0.28%

Bathstore.com - 0.25% Majestic Wine Warehouse Ltd - 0.25% Acorn Web Offset Ltd - 0.25% Done Brothers (Cash Betting) Ltd t/a Betfred - 0.23%

KFC - 0.23% U/O to Alsan Jewellery Ltd - 0.22% Halfords Ltd - 0.19% Noa Noa - 0.17%

Coral - 0.17% Plumbase Ltd (Grafton Merchanting GB Ltd) - 0.17% Framemakers Galleries Ltd - 0.16% David Frank Askew - 0.14%

The Thomas Cook Group Limited - 0.13% P.Morgans Bakery Limited - 0.13% River Island Clothing ltd - 0.12% M.H. Roberts Limited - 0.09%

Subway - 0.07% Salvation Army Trading Company - 0.04% Bradbourne Drive - VACANT - 0% Portsmouth - VACANT - 0%

Portfolio ICC

Credit Rating

weighted by

income 71.1*

* ICC score

61-100

Confidence, low

risk potential

51-60

Normal, limited

risk potential,

normal terms

Diversification by property

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As at September 30th

Regional split by income Sector split by income

Split of “Other” income

Industrial47%

Office12%

Retail18%

Retail Warehouse6%

Other17%

South-East19%

East Anglia6%

West Midlands

16%

South-West10%

Wales1%

East Midlands16%

Scotland7%

North-East12%

North-West13%

Hotel14%

Restaurant9%

Residential3%

Trade Counter23%

Nursery5%

Motor Trade37%

Leisure9%

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Asset management

Grantham – agreed a lease extension

with Laura Ashley and standardised

the service charge across the park

£50k uplift in value and improved

WAULT

Bedford – removing 2017 break in

return for 6 month rent free could

show £350k uplift in value and

improved WAULT

Milton Keynes – Surrender of existing

lease for a £154k premium. £900k

refurbishment could see a £500k uplift

in value

Redditch - Open market rent review

could see £250k rising to £300k-

£325k pa, 10% ahead of expectation

Currently in active discussions

with tenants in connection with

one or more of:

• Rent review

• Lease renewal

• New letting

• Refurbishment

• Property extension

• Lease re-gear

• Lease surrender

• Sale to tenant as special

purchaser

Managed income profile

14

Lease expiry profile

6.8 years

weighted average

unexpired lease term

(to first break)

Income at risk

0-1 years8%

2-3 years15%

3-5 years23%

5-10 years31%

10 years +23%

Income at Risk

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Sep-16Sep-17Sep-18Sep-19Sep-20Sep-21Sep-22Sep-23Sep-24Sep-25Sep-26Sep-27Sep-28Sep-29Sep-30Sep-31Sep-32Sep-33Sep-34Sep-35 2035+

12 months to

Pipeline Existing Portfolio

15

Target gearing of 25% loan-to-value (30th September 2015 - gearing 20%)

• £25m 5 year revolving credit facility:

– Lloyds Banking Group

– 245 bps over 3 month libor, expiring March 2019

– Secured over a discrete pool of assets

– Flexibility of the facility helps to minimise cash-drag

• £20m 5 year term facility drawn and invested:

– Lloyds Banking Group

– Interest only, 195 bps over 3 month libor, expiring October 2019

• £20m 10 year fixed debt facility

– Interest only, 10 year fixed rate at 393 bps expiring August 2025

• Completion of current pipeline, expect to increase gearing to 23%

• Weighted average cost of debt 310 bps1

Debt strategy

1: Based on libor at 50 bps

Outlook

16

17

Market

• Strength in the occupational market has led to:

‐ Lower vacancy rates

‐ Rental growth across all sectors

‐ High take up of lease renewals

‐ New lettings on vacant space

‐ Start of speculative development

Source: Numis

• Strong demand for property investment:

‐ UK institutional demand

‐ Retail investors

‐ Overseas money

‐ Fixed income tourists

We expect:

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• Larger funds to continue selling their smaller lots

• Smaller lots to show ‘value’ relative to larger lots in terms of income returns

• A high income return from targeting good quality secondary regional property

• Growth in regions to gather pace

• Rental growth not to be ‘priced-in’ to every deal, leaving opportunities for future growth

• Demand for property investment to continue from across the spectrum as interest rates

stay ‘lower for longer’

• Competitive investment market driving value growth

Outlook

Custodian Capital Limited

1 Penman Way, Grove Park,

Enderby, Leicester LE19 1SY

3rd Floor, 22 Park Street, Mayfair

London W1K 2JB

Tel: 0116 240 8740 | Fax: 0116 240 8749

Email: [email protected]

Web: www.custodiancapital.com

19

Richard Shepherd-Cross

Tel: 0116 240 8741 | Mob: 07801 225 992

[email protected]

Nathan Imlach

Tel: 0116 240 8700 | Mob: 07876 548 360

[email protected]

Ed Moore

Tel: 0116 240 8740 | Mob: 07947 460 182

[email protected]

Authorised and regulated by the Financial Conduct Authority.

mailto:[email protected]

http://www.custodiancapital.com/




Appendix

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Fund details

Manager • REIT management fee 0.9% per annum of NAV, reducing to

0.75% over £200m NAV

• Senior management holding of c.£4 million

Structure • Quarterly valuation by Lambert Smith Hampton

• Quarterly Property Income Distributions (PIDs)

Listing • LSE Main Market

• Full REIT status

21

Board of Directors

22

• International property consultant specialising in property funds and companies

• On the board of both listed and unlisted companies in UK and overseas

• Corporate advisory roles in the UK and France

• Over 25 years’ experience as a high performing fund manager

• MD of Aberdeen Asset Management's £6.5bn property fund business

• Former President of the British Property Federation

• Actively involved in the introduction of REITs to the UK

David Hunter

Independent Chairman

• Property expert with more than 40 years’ experience advising on property

• An adviser to the Bank of England since 2003

• Former global President of the Royal Institution of Chartered Surveyors (RICS)

• First chartered surveyor to become a partner of PwC in 1996

• Non-executive consultant to Knight Frank LLP

• Independent director of MI Developments Inc in Toronto

Barry Gilbertson

Independent

Non-executive Director

• Qualified with Price Waterhouse

• Adviser to Consensus Business Group

• Director of Bankers Investment Trust

• Former Group Finance Director of McCarthy & Stone

• Former Investment Director of Beazer

Matthew Thorne

Independent


• 30 years’ experience in the pensions and wealth management sector

• Established Mattioli Woods in 1991

• CEO of Mattioli Woods group with over £5 billion, assets under advice

• Established the Mattioli Woods property business in 2002

• Chairman of Custodian Capital

Ian Mattioli


Fund Manager

23

• Authorised and regulated by the FCA

• Alternative Investment Fund Manager

• Established market presence

• Experience in small lot sizes

• Proven record of asset management

• Acquired and disposed of over 100

properties in last 13 years

• 12 year track record of property

syndication

• Fund manager to Custodian REIT plc

• Subsidiary of the AIM listed Mattioli

Woods plc

Richard Shepherd-Cross BSc MRICS

• Managing Director, Custodian

Capital

• Fund Manager

• 21 years experience in the

commercial property market

• Formerly a director at JLL leading

the portfolio investment team

Nathan Imlach CA FCSI CF

• Finance Director to Custodian

Capital since 2011 and Mattioli

Woods since 2005

• Chartered Accountant – qualified

in 1993 with Ernst & Young

Ed Moore BSc FCA

• Finance Manager to

Custodian Capital

• Chartered Accountant –

qualified in 2003 with Grant

Thornton

Alex Nix BSc MRICS

• Assistant Fund Manager

• 11 years experience in the

commercial property market

• 8 years with Lambert Smith

Hampton

Fund Manager Structure

24

Richard Shepherd-Cross

MRICS

Fund Manager

Nathan Imlach CA FCSI

CF

Finance Director

Alex Nix MRICS

Assistant Fund Manager

Tom Donnachie MRICS

Portfolio Manager

Javed Sattar AssocRICS

Property Manager

Jas Riyait

PA

Ed Moore FCA

Finance Manager

Priya Patel ACCA

Financial Controller

Jeremy Wilson

Finance

Emma Hoy

Finance

Michelle Dewick

Finance

Ben Aspell

Business Development

Mark Smith

Compliance Officer

Investment Committee

Custodian REIT

Board

Recent acquisitions

Location: Glasgow Airport

Tenant: DHL

Type: Industrial

Rent: £93,385 pa

Expiry: 31.03.2020

Gross Price : £1,233,000

NIY : 7.15%

Location: Milton Keynes

Tenant: Massmould Holdings Ltd

Type: Industrial

Rent: £280,000 pa

Expiry: 27.02.2031


NIY : 6.96%

Location: Ashby de la Zouch

Tenant: Teleperformance Ltd

Type: Industrial

Rent: £465,000 pa

Expiry: 31.03.2018


NIY : 10.22%

Location: Leeds

Tenant: Enact Properties

Limited

Type: Office

Rent: £339,000 pa

Expiry: 25.12.2018


NIY: 8.43%

Location: Cannock

Tenant: Hellerman Tyton

Type: Industrial

Rent: £279,090 pa

Expiry: 25.03.2036


NIY : 6.25%

Location: Portishead

Tenant: JD Wetherspoons Plc,

Majestic Wine Warehouses &

Homebargins

Type: Retail/Other

Rent: £265,000 pa

Expiry: 15 year lease terms


NIY : 6.37%

26

Recent acquisitions

Location: Grantham

Tenant: Laura Ashley Limited,

Carpetright Plc

Poundstretcher Limited

Type: Retail

Rent: £324,286pa

Expiry: 30.05.21, 24.12.20, 11.4.20

Price : £4,375,000

NIY : 7.00%

Location: Torpoint, Cornwall

Tenant: Sainsburys

Supermarkets Limited

Type: Retail

Rent: £217,500pa

Expiry: 14.12.22

Price : £3,050,000

NIY : 6.75%

Location: Gillingham

Tenant: Somerfield Stores

Limited

Type: Filling station

Rent: £268,500 pa

Expiry: 15.04.2028

Price : £3,050,000

NIY : 8.32%

Location: Milton Keynes

Tenant: Dominos Pizza Group

Type: Industrial

Rent: £250,000pa

Expiry: 10.11.15

Price : £2,100,000

NIY : 11.25%

Location: Lincoln

Tenant: MKM Building

Supplies Ltd

Type: Trade Counter

Rent: £192,012 pa

Expiry: 10.06.2022

Price : £2,325,000

NIY : 6.9%

Location: Normanton

Tenant: Yesss Electrical

Type: industrial

Rent: £282,300pa

Expiry: 18.06.22

Price : £4,250,000

NIY : 6.28%

RY: 7.0% +

27

ImportantThis document (“Document”), which relates to Custodian Reit Plc (“Custodian REIT”), has been issued and approved by Custodian Capital Limited (the "Company") a company authorised

under the Financial Services and Markets Act 2000 and regulated by the Financial Conduct Authority in England and Wales. The Company is solely responsible for it and its contents.

Estimated and target figures in this Document are based on unaudited information. Those figures and any other statements that are, or may be deemed forward-looking statements, which relate,

inter alia, to Custodian REIT’S proposed strategy, plans and objectives have not been subject to formal verification. They involve known and unknown risks, uncertainties and other important

factors beyond the control of the Company or Custodian REIT that could cause the actual performance or achievements of Custodian REIT to be materially different from such forward-looking

statements. They do not represent and should not be regarded as representing forecasts of the performance of Custodian REIT. Accordingly, you should not rely on any forward-looking

statements and the Company accepts no obligation to disseminate any updates or revisions to such forward-looking statement. Custodian REIT shares are intended to be admitted to trading on

a public stock market and as a result the price at which shares will be tradable will vary according to market conditions and may not reflect their net asset value.

No undertaking, representation, warranty or other assurance is given, and none should be implied, as to, and no reliance should be placed on, the accuracy, completeness or fairness of the

information or opinions contained in this Document. The information contained in this Document is subject to completion, alteration and verification. And has not been verified by the

Company. Save in the case of fraud, no liability is or will be accepted for such information by the Company, Custodian REIT or any of their respective directors, officers, employees, agents or

advisers or any other person.

This Document is an advertisement and does not constitute a prospectus and does not constitute, or form part of, any offer of, or invitation to apply for, securities nor shall it, or the fact of its

distribution, form the basis of or be relied upon in connection with any contract or commitment to acquire any securities. Copies of the prospectus of Custodian REIT, if published, will be

available from the registered office of Custodian REIT.

Recipients of the information contained within this Document who are considering acquiring shares in the Custodian REIT are reminded that any such purchase or subscription must be made

only on the basis of the information contained in the prospectus relating to the Custodian REIT in its final form, which may be different from the information contained in this Document. No

reliance may be placed, for any purposes whatsoever, on the information contained in this Document or on its completeness and this Document should not be considered a recommendation by

the Company or Custodian REIT or any of their respective directors, officers, employees, agents or advisers in connection with any purchase of or subscription for securities of Custodian REIT.

custodian reit september 2015 · 2018-03-21 · income growth vs yield compression • income...

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