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Custodian REITMarch 2018
REIT of choice for private and institutional investors seeking high and stable dividends from well diversified UK real estate
“ “
• Main market listed Property Investment Company─ Transparency─ Liquidity─ Regulation, governance and disclosure
• Income focused strategy─ Diversified income ─ Low gearing─ Long term correlation with underlying property performance
• Regional property portfolio
• Target Audience Discretionary Wealth Managers and Private HNWI
HEADLINES
FULLY COVERED DIVIDENDS
3 YEAR SHARE PRICE TOTAL RETURN 10%PA (‘14-’17)
1
KEY CHARACTERISTICS
Source: Numis
Fixed rate, 77%
Floating rate, 23%
Debt profile
LOW VOLATILITY
LOW GEARING 21.7%
FIXED RATE DEBT
2
• Target gearing 25%
• Weighted average cost of debt 3.1%
• Average unexpired term of debt 10 years
DIVIDEND GROWTH
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Mar-15 Mar-16 Mar-17 Mar-18 Mar-19
Pen
ce p
er s
har
e
Quarterly dividend growthProperty Investment Company total return
RESULTS 12 MONTHS TO DECEMBER 2017
3
NAV TOTAL RETURN 9.73%
SHARE PRICE TOTAL RETURN 13.43%
GEARING 22.3% 102.5
103
103.5
104
104.5
105
105.5
106
106.5
0
100
200
300
400
500
600
Mar-17 Jun-17 Sep-17 Dec-17
pen
ce p
er s
har
e
£ m
illio
ns
Net asset value (NAV) (£m) Portfolio value (£m) NAV per share (p)
MARKET RETURNS
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Open-ended Total Return Investment Company NAVTotal Return
Investment Company TotalReturn
An
nu
al %
Ret
urn
Fund Type
Property Total Return
1 yr
5 yr
10 yr
4
RECENT ACQUISITIONS
5
RECENT ACQUISITIONS
6
RECENT MANAGEMENT HIGHLIGHTS
Wolverhampton - 5 year reversionary lease to Assa Abloy at £512k pa, an uplift from £360k pa –42% increase. Tenant to refurbish the property.
Valuation increase: £1.6mNuneaton - 10 year lease renewalto DX Networks with five year breakoption at £267k pa an increase of10%
Valuation increase: £1.0m
West MallingLease renewal with rent increaseagreed at £639k an uplift of 14.5%
Valuation increase: £2.5m
AvonmouthDecember 2016 rent review increaseto £275k from £215k a 28% increase
Valuation increase: £0.5m
Aberdeen - DHL’s lease has been extended with expiry moving from February 2017 to February 2022 and rent increasing by 7%.
Valuation increase: £0.4m
SouthwarkJune 2017 rent review increase to £374k from £200k a 87% increase
Valuation Uplift: £2.5m
WarringtonApril 2016 rent review with DHL agreed at £308k pa, a uplift from £230k pa – 34% increase
Valuation Uplift: £0.6m
Normanton The June 2017 rent review has been agreed increasing the passing rent from £282,300 to £333,500 – 18% increase
Valuation uplift: £0.4m
RENTAL GROWTH
7
MANAGEMENT LED VALUATION INCREASES
DISPOSALS
“Excess market demand for long income and special
purchasers drove disposals strategy”
22% AHEAD OF VALUATION
8
£10.68M OF DISPOSALS • 82,081 sqft multi-let industrial estate in
Chepstow for £4.63m, £0.9m ahead of valuation
• 8,326 sqft retail unit in Colchester for £4.25m,
£0.7m ahead of valuation
• 15,330 sqft multi-tenanted industrial estate in
Hinckley for £1.2m, £0.2m ahead of valuation
• 9,332 sqft multi-tenanted retail parade in Redcar
for £0.6m, £0.1m ahead of valuation
PROPERTY MARKET - WHY NOW?
Source: CBRE
RENTAL GROWTH OUTSIDE LONDON
9
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Retail Office Central London Office Industrial
Rental Growth 2017
Q4 GROWTH IN 100% OF INDUSTRIAL LOCATIONS
Q4 GROWTH IN 61% OF OFFICE LOCATIONS
Q4 GROWTH IN 44% OF RETAIL LOCATIONS
RENTAL GROWTH
• Central London office markets have seen rents have fallen from their peak in 2016
• Regional markets rental growth took hold in early 2016 following a sustained recession
Rents since 2008 while inflation averaged 3% per annum
Real term rental declines of 20-25%, 2008 – 2016
• Rents are now growing from a low and affordable base
• Market should be better insulated from shocks than it was in previous rental growth cycles
• Many properties are let at rents below the threshold necessary to bring forward new development
• Tenants are accepting of rental growth, which they have probably avoided for as much as 10 years
• Occupational dynamics, particularly in regional markets, are robust 10
REGIONAL PROPERTY MARKET DRIVERS
Supply vs demand
• Lack of supply – minimal development since 2008
• Limited speculative development
• Continued rental growth
• Good occupational demand
• Highest levels of employment since records began (1971)
Regional property vs London
• Less sensitive to BREXIT than London
• UK economy has proved more resilient than forecast
• Capital values often below replacement cost
REGIONAL PROPERTY REMAINS GOOD VALUE
RENTAL GROWTH REDUCED VOLATILITY
11
REGIONAL STRATEGY
• Strong commercial locations
• 147 properties
• Modern, ‘fit for purpose’ property
• All sectors
• Nationwide portfolio
18%
19%
16% 8%
6%
13%
9%
1%
10%
INCOME FOCUSSED STRATEGY
SUB-£10MSTRATEGY
LOW GEARINGSTRATEGY
12
WHY LOTS UNDER £10 MILLION
Benefits
• Less yield compression
• Less competition
• Pricing arbitrage
• Higher income return
Source: LSH – Investment transactions data
And still possible to achieve:
• Good quality buildings
• Excellent locations
• Strong tenants
• Rental growth13
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2 y
r ro
llin
g av
era
ge m
argi
n
Marginal initial income return for sub £10m property
Pricing Arbitrage
DIVIDEND STRATEGY
SUSTAINABLE DIVIDEND GROWTH
FULLY COVERED DIVIDEND
14
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Div
ide
nd
Yie
ld
Investment Company Dividend Yield (Q4 2017)• Property strategy supports
dividend strategy
• Year 1 – 5.25 pps
• Year 2 – 6.25 pps
• Year 3 – 6.35 pps
• Year 4 – 6.45 pps*
* Prospective dividend
LOW RISK PROPERTY STRATEGY
Core/Core plusValue Add
Property Strategy
SECTOR STRATEGY
• Long-term strategy
• Minimal trading
• Low obsolescence – lower capital expenditure
• High residual values
–Value in ‘bricks and mortar’ rather than lease contracts
• Close correlation with occupational market
• Compared to peer group:
–Over-weight in industrial
–Under-weight in offices
–Over-weight in Alternatives
15
MANAGEMENT STRATEGY
Source: LSH – Investment transactions data
• Fund management is fully delegated by Board to Custodian Capital
• In-house asset management of entire portfolio
• Hands on approach
• Annual inspections of all properties – minimum threshold
• In-house collection of rent
• Wide circle of property advisers engaged on lease renewals/new
lettings/project management etc
• Out sourcing of service charge management
- Providing property services to tenants
KPIs
Rental growth potential
• Net initial yield 6.71%
Residual value
• Vacant possession value
73% of investment value
Occupancy rate
• 97.2%
Reversionary Potential
• 7.7%
16
MANAGEMENT STRATEGY
Top tenants by income• High quality tenants
• Over 275 separate tenancies
• Long leases
• WAULT 5.9 years to first break
17
CONCLUSION
The Company
• Closed ended fund
• Income focused, regional strategy
• First 3 years, total return 10% pa
• Sustainable dividend growth – 6.45pps in prospect
The portfolio
• Rental growth in regional markets
• 97.2% occupancy
• Asset management led valuation growth
• Strong pipeline of new investment
18
Investor’s Chronicle 23November 2016
APPENDICIES
19
• 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• Former 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 HunterIndependent Chairman
• Property expert with more than 40 years’ experience advising on property • An adviser to the Bank of England 2003-2014 • 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 Granite REIT quoted on NYSE and TSX
Barry Gilbertson Independent
Non-executive Director
• Qualified with Price Waterhouse in 1978• Independent director of Bankers Investment Trust plc• Adviser to Consensus Business Group• Former Group Finance Director of McCarthy & Stone• Former Investment Director of Beazer plc
Matthew Thorne Independent Non-executive Director
• 30 years’ experience in the pensions and wealth management sector• Established Mattioli Woods in 1991 • CEO of Mattioli Woods group with over £7.5 billion, assets under advice• Established the Mattioli Woods property business in 2002• Chairman of Custodian Capital
Ian Mattioli MBENon-executive Director
21BOARD OF DIRECTORS
20
Custodian Capital Limited• Subsidiary of the AIM listed Mattioli Woods plc• Authorised and regulated by the FCA• Alternative Investment Fund Manager• Established market presence• Experience in small lot sizes• Proven record of asset management• Party to over 100 property transactions in last 13
years• 15 year track record of property syndication
Richard Shepherd-Cross BSc MRICS• Managing Director, Custodian
Capital• Fund Manager• 22 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
22FUND MANAGER
21
23FUND MANAGER
Richard Shepherd-Cross MRICS
Fund Manager
Nathan Imlach CA FCSI CFFinance Director
Alex Nix MRICSAssistant Fund Manager
Tom Donnachie MRICSPortfolio Manager
Javed Sattar MRICSPortfolio Manager
Jas RiyaitPA
Ed Moore FCAFinance Manager
Priya Patel ACCAFinancial Controller
Jeremy WilsonFinance
Kelly DuvnjakFinance
Michelle DewickFinance
Ben AspellBusiness Development Mark Smith
Compliance Officer
Investment Committee
Custodian REIT
Board
Chantelle HoolahanAdministrator
Custodian Capital
Investment Manager
Ieva MockuteFinance
Esala AbeyratneTrainee Surveyor
Rob GarnerFinance
22
TOP 200 TENANTS
23
B&M - 2.72% B&Q plc - 2.22% Benham (Specialist Cars) Ltd - 1.94% First Title Limited - 1.85%Regus (Maidstone West Malling) Ltd - 1.64% Homebase Ltd - 1.54% Assa Abloy Ltd (sub let to Kuehne + Nagel Ltd) - 1.51% Kings Road Tyres Group Ltd - 1.5%JTF Wholesale Ltd - 1.43% Teleperformance Ltd - 1.37% Magnet Limited - 1.36% Wickes Building Supplies - 1.32%H&M (Hennes & Mauritz Limited) - 1.24% Staples UK Ltd & Staples Inc - 1.23% Restore Plc - 1.19% Superdrug Stores PLC - 1.11%Poundland Ltd - 1.11% Portola Packaging Ltd - 1.04% Next Plc - 1.03% Nuffield Health Ltd - 1.03%Mattioli Woods PLC - 1.02% Yesss (B) Ltd - 0.99% Royal Mail Group Limited - 0.97% Go Outdoors Ltd - 0.95%National Grid electricity Transmission Plc - 0.95% Revlon International Corporation - 0.95% Amco Services (International) Ltd - 0.92% DHL Supply Chain Ltd and DHL Express (UK) Ltd - 0.91%Sapa Profiles UK Ltd - 0.89% Wienerberger Ltd - 0.89% MKM Buildings Supplies Ltd - 0.89% Turpin Distribution Services Ltd - 0.88%Tai Pan Buffet Restaurants Ltd - 0.85% Hellermann Tyton - 0.83% Massmould Ltd - 0.82% Co-Operative Foodstores Limited - 0.79%DX Network Service Ltd - 0.78% Mecca Bingo Limited - 0.78% Saint Gobain Building Distribution Ltd - 0.78% SHERWIN-WILLIAMS DIVERSIFIED BRANDS LIMITED - 0.76%Smyths Toys Ltd - 0.75% Edwards Geldards LLP - 0.75% Pizza Hut (UK) Ltd - 0.74% BSS Group Ltd - 0.73%OyezStraker Group Ltd - 0.73% Bannatyne Fitness Ltd - 0.71% Laura Ashley - 0.71% Pendragon Property Holdings Ltd - 0.7%JB Global Ltd t.s Oak Furniture Land) - 0.69% Heywood Williams Components Ltd - 0.69% Elma Electronics Ltd - 0.67% A Share & Sons (t/a SCS) - 0.67%Tesco Stores Ltd - 0.67% Morrison Utility Services Ltd - 0.66% Travelodge Hotels Ltd - 0.65% Cummins Ltd - 0.65%Unilin Distribution Ltd - 0.64% URBN UK Ltd - 0.64% Sainsburys - 0.64% Vertiv Infrastructure Ltd - 0.56%Sytner Group Limited - 0.61% DHL Express (UK) Ltd - 0.61% Pets at Home Ltd - 0.6% Constantine Ltd - 0.59%MFA Bowl Limited - 0.59% Parkwood Health & Fitness Limited - 0.59% Specsavers Optical Superstores Ltd - 0.59% Interserve Project Services Ltd - 0.58%Greggs PLC - 0.58% Reiss Ltd - 0.58% Brenntag UK Ltd - 0.58% WH Partnership Ltd - 0.57%The Works Stores Ltd - 0.57% Lyons Davidson - 0.55% Dinex Exhausts Ltd - 0.54% Semcon - 0.53%Waterstones Booksellers Ltd - 0.52% Liverpool Community Health NHS Trust - 0.52% Ichor Systsems Ltd - 0.51% A Share & Sons (t/a SCS) - 0.51%EAF Supply Chain Ltd - 0.48% Digby Brown LLP - 0.47% Regus - 0.47% Dreams Ltd - 0.47%Cotswold Outdoor Ltd - 0.47% Jump Arena - 0.47% Halfords Ltd - 0.45% West Midlands Ambulance Service NHS Trust - 0.44%Paperchase Products Limited - 0.44% WH Smith Retail Holdings Ltd - 0.44% TJ Morris t/a Homebargains - 0.42% Warburton Ltd - 0.42%Synergy Health (UK) Ltd - 0.42% Triumph Structures Farnborough Ltd - 0.42% VP Packaging - 0.41% Honda Motor Europe Ltd - 0.41%Northern Commercials (Mirfield) Ltd - 0.41% The White Company (UK) Ltd - 0.41% Powder Systems Ltd - 0.4% Aqualisa Products Ltd - 0.39%MTS Logistics - 0.38% Bunzl UK Ltd - 0.36% Prezzo PLC - 0.36% Arkote Ltd - 0.35%DHL International Ltd - 0.35% Sealed Air Ltd - 0.35% Game Retail Ltd - 0.34% Bright Horizons Family Solutions Ltd - 0.33%North Warwickshire Borough Council - 0.33% Sportswift Ltd - 0.33% Stonegate Pub Co Ltd - 0.33% Las Iguanas Ltd - 0.32%Phase Eight (Fashions & Designs) Ltd - 0.32% Metaswitch Networks - 0.32% Age Scotland - 0.31% PHS Group - 0.3%The Restauarant Group (UK) Ltd (Frankie & Bennies) - 0.29% Poundstretcher - 0.29% Carpetright - 0.29% Holland & Barrett - 0.29%Kruidvat Real Estate UK Ltd - 0.28% Synertec Ltd - 0.28% Azzuri Restaurants Limited t/a ASK - 0.27% The Edinburgh Woollen Mill Limited - 0.27%DHL Global Forwarding (UK) Ltd - 0.27% Wilko Retail Ltd - 0.27% Iceland Foods Ltd - 0.27% Le Bistrot Pierre - 0.26%McDonald's Real Estate LLP - 0.26% Signet Trading Ltd t/a Ernest Jones - 0.26% Systra Limited - 0.26% Cognizant Technology Solutions UK Ltd - 0.26%Acorn Web Offset Ltd - 0.25% Andrew Page Limited - 0.24% TCCT Retail Limited t/a Thomas Cook - 0.23% H Samuel - 0.22%Portsmouth City Council - 0.22% Sovereign Air Movement Ld - 0.22% Lush - 0.21% Scotco Eastern Ltd (KFC) - 0.21%Ciel (Concessions) ltd t/s Chesca - 0.2% Global Furniture Alliance Ltd - 0.2% JD Wetherspoons - 0.2% Kuoni Travel Ltd - 0.2%W H Smith Retail Holdings Limited - 0.2% Boots UK Ltd - 0.19% Chesham Insurance Limited - 0.19% Dakeyne Emms Gilmore Liberson Ltd - 0.19%Your Phone Care Ltd - 0.19% Multi Tile Ltd t/a Tile Giant - 0.18% Loungers Ltd - 0.17% Rapid Vehicle Repairs - 0.17%Lloyds TSB plc - 0.17% Kerr Barrie - 0.16% Savers Health & Beauty Ltd - 0.15% Reid Lifting Ltd - 0.15%Rexel UK Ltd - 0.14% F1 autocentres - 0.14% Feldale Retail Ltd t/s Lakeland - 0.14% Knutsford Day Nursery Ltd (Bupa Investments Ltd Guarantor) - 0.14%TP Cuthbertson and MG Stocks - 0.14% Gamestec Leisure Ltd - 0.14% Bathstore.com - 0.13% Majestic Wine Warehouse Ltd - 0.13%Sam's Club Limited t/a House of the Rising Sun - 0.12% Workers Educational Association - 0.12% Done Brothers (Cash Betting) Ltd t/a Betfred - 0.12% KFC - 0.12%U/O to Aslan Jewellery Ltd - 0.11% Stoford Properties Ltd - 0.11% Framemakers Galleries Ltd - 0.1% Leeds BS - 0.1%Quantem Consulting Limited - 0.1% JR Forster & LJ Green - 0.09% Naismiths Limited - 0.09% Reward Gateway - 0.09%The Danish Wardrobe (t/a Noa Noa) - 0.09% Coral - 0.08% KWB Property Management Ltd - 0.08% Nital Training Academy - 0.08%Whittard Trading Limited - 0.08% Edmundson Electrical - 0.08% Equinox Aromas - 0.07% Jurassic Coast Coffee Ltd t/a Costa Coffee - 0.07%Safe Deposits - 0.06% River Island Clothing ltd - 0.06% Copeland Wedge Associates - 0.06% Castle Energy Services Ltd - 0.06%R Scott Bathrooms Ltd - 0.05% Ellani Cars Ltd - 0.05% The Solder Connection Ltd - 0.05% Virtus Development and Construction Consultants Ltd - 0.05%DPR Press Ltd - 0.05% The Gas Transportation Co Ltd - 0.05% PDC Utility Services Ltd - 0.05% Bell Cornwall Associates Ltd - 0.04%Qlite Ltd - 0.04% ENSCO 1078 ltd - 0.04% Subway - 0.04% William Hill (Midlands) Limited - 0.03%
TYPICAL PORTFOLIO PROPERTIES
TYPICAL PORTFOLIO PROPERTIES
TYPICAL PORTFOLIO PROPERTIES
Custodian REIT plc
c/o Custodian Capital Limited
1 Penman Way, Grove Park,
Enderby, Leicester LE19 1SY
3rd Floor, 86-87 Baker Street
London W1
Tel: 0116 240 8740 | Fax: 0116 240 8749
Email: [email protected]
Web: www.custodiancapital.com
Richard Shepherd-Cross – Fund Manager
Tel: 0116 240 8741 | Mob: 07801 225 992
Ben Aspell – Business Development Manager
Tel: 0116 240 8743 | Mob: 07983 433 507 [email protected]
Nathan Imlach – Finance Director
Tel: 0116 240 8700 | Mob: 07876 548 360
Ed Moore – Finance Manager
Tel: 0116 240 8740 | Mob: 07947 460 182 [email protected]
Authorised and regulated by the Financial Conduct Authority.
28Contact detailsCONTACT DETAILS
IMPORTANT
This document (‘Document’), which relates to Custodian REIT plc (‘Custodian REIT’), has been issued and approved by Custodian Capital Limited (the ‘Company’) which is authorised and regulated by the Financial Conduct Authority. The Company is solely responsible for this Document and its contents.
This Document does not constitute a prospectus within the meaning of Part VI of the Financial Services and Markets Act 2000 and is not an offer of, or invitation to apply for, shares in Custodian REIT and must not be relied on in connection with the acquisition of shares in Custodian REIT. Subject to its compliance with its legal and regulatory obligations, the Company gives no warranty, representation, undertaking or other assurance as to the accuracy, fairness or completeness of this Document. Copies of the prospectus of Custodian REIT are available from the registered office of Custodian REIT.
The information contained in this Document, which has not been verified by the Company, is subject to alteration without notice. To the maximum extent permitted by law, 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 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 shares in Custodian REIT. Recipients should consult a financial adviser before investing in shares in Custodian REIT.
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 to, among other things, 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, recipients should not rely on any forward-looking statements and the Company accepts no obligation to disseminate any updates or revisions to such forward-looking statements. Custodian REIT shares are 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.
