Custodian REIT : reports unaudited net asset value as at 31 December 2020 and dividend update

2 February 2021

Custodian REIT plc

("Custodian REIT" or "the Company")

Unaudited net asset value as at 31 December 2020 and dividend update

Custodian REIT (LSE: CREI), the UK commercial real estate investment company, today reports its unaudited net asset value ("NAV") as at 31 December 2020, highlights for the period from 1 October 2020 to 31 December 2020 ("the Period") and dividends payable.

Dividends

• Dividend per share for the Period increased by 19% to 1.25p (quarter ended 30 September 2020: 1.05p), fully covered by net cash receipts with 96% of rent collected relating to the Period, adjusted for contractual rent deferrals

• Target dividend per share of 1.25p for the quarter ending 31 March 2021 ("FY21 Q4"), expected to be fully covered by net cash receipts with rent collected to date relating to FY21 Q4, adjusted for contractual rent deferrals, in line with the Period's collection profile
• Target dividend per share of not less than 5.0p for the year ending 31 March 2022, based on rent collection levels remaining in line with expectations

Financial highlights

• EPRA earnings per share1 for the Period increased to 1.5p (30 September 2020: 1.2p)
• NAV total return per share2 for the Period of 2.4%, comprising 1.1% dividends paid and a 1.3% capital increase
• NAV per share of 96.4p (30 September 2020: 95.2p)
• NAV of £405.0m (30 September 2020: £399.8m)
• Net gearing3 of 24.0% loan-to-value (30 September 2020: 23.4%)

Portfolio highlights

• Property portfolio value of £546.8m (30 September 2020: £532.3m):
• • £4.1m aggregate valuation increase for the Period (0.8% of property portfolio) from successful asset management initiatives, with general valuation increases in the industrial sector of £6.6m being offset by similar aggregate decreases in the retail, office and other sectors
  • Acquisition of an industrial unit in Hilton, Derby and offices in Oxford for an aggregate consideration of £9.8m4
  • Disposal of three high street retail units at valuation for an aggregate consideration of £1.3m. Since the Period end, the disposal of a further high street retail unit at valuation for £0.3m
• EPRA occupancy5 92.3% (30 September 2020: 92.9%)

1. Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in issue.
2. NAV per share movement including dividends paid during the Period.
3. Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation.
4. Before acquisition costs of £0.6m
5. Estimated rental value ("ERV") of let property divided by total portfolio ERV.

Net asset value

The unaudited NAV of the Company at 31 December 2020 was £405.0m, reflecting approximately 96.4p

per share, an increase of 1.2p (1.3%) since 30 September 2020:
	Pence per
	share	£m
NAV at 30 September 2020	95.2	399.8
Valuation movements relating to:
- Asset management activity	1.0	4.1
- General valuation increases in the industrial sector	1.6	6.6
- General valuation decreases in the retail, office and other sectors	(1.6)	(6.6)
- Loss on disposal	-	(0.1)
Net valuation movement	1.0	4.0
Acquisition costs	(0.2)	(0.6)
	0.8	3.4
Income earned for the Period	2.2	9.6
Expenses and net finance costs for the Period5	(0.8)	(3.4)
Dividends paid6 relating to the previous quarter	(1.0)	(4.4)
NAV at 31 December 2020	96.4	405.0

6 Dividends of 1.05p per share relating to the quarter ended 30 September 2020 were paid on 30 November 2020.

The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation as at 31 December 2020 and net income for the Period. The movement in NAV reflects the payment of a 1.05p per share dividend

relating to the quarter ended 30 September 2020 during the Period, which was fully covered by net cash collections and EPRA earnings in that quarter, but does not include any provision for the approved dividend of 1.25p per share for the Period to be paid on 26 February 2021.

Market commentary

Commenting on the market, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited (the Company's discretionary investment manager) said:

"While the COVID-19 pandemic dominates the headlines, recent levels of commercial property investment activity demonstrate that investors are looking beyond the pandemic. The focus on reporting rent collection statistics over the past nine months highlights the importance of real estate's strongest investment attribute

• the right to receive rent and its consequent distribution as dividends. Direct investors seek to secure properties to provide long-term cash flows and indirect investors are primarily pricing investment company stocks off their capacity to pay cash covered dividends rather than off NAV.

"The property market has shown itself to be remarkably resilient in a year when the enforcement of rent obligations was suspended, occupiers deserted their offices and shoppers were forced online. Landlords have been able to work closely with most tenants to reach agreement on the payment of rent and, across the board, rent collection rates of 90% plus have not been unusual.

"While property investment company dividends were set at cautious levels early in the pandemic, rent collection has been better than many feared and dividends appear to be reacting to a more optimistic outlook for real estate.

"Savills recorded investment of £4.7bn in the industrial and logistics market in 2020, a 25% increase on 2019 figures and £500m higher than the previous record of £4.2bn set in 2014. The undoubted popularity of this sector has supported further price increases through the quarter as a limited supply is pursued by excess demand. Custodian REIT has benefited from this trend with a 3.8% increase in the valuation of its industrial and logistics portfolio during the Period.

"The final quarter of 2020 saw £4.9bn of investment into central London, well above the average quarterly investment of £3.4bn, according to Knight Frank. Much of the activity was driven by overseas investors who identified value relative to other leading European cities. Many commentators are optimistic for the future of offices but have identified flexibility and accessibility as keen determinants of successful office investments. These determinants could be positive for regional office locations and were key factors in Custodian REIT's recent acquisition of offices at Willow Court, Oxford.

"Activity in the out of town, retail warehouse market has also increased as investors are attracted by income yields more than 50% higher than achievable in prime logistics. Added to the attractive initial yield are large site areas, strategic locations close to town centres and high alternate use values which provide good downside valuation protection.

"The high street retail, shopping centre and hospitality sectors still feel high risk. However, redevelopment and re-purposing of retail and shopping centres is starting to deliver solutions to investors, albeit this still has some way to go. Hospitality occupiers that can survive the pandemic may prosper but it is likely to take some time before we see growth in this sector.

"Perhaps the surprising feature of real estate performance, in the midst of yet another national lockdown, is that many occupiers are also looking beyond the pandemic enabling continuing positive asset management outcomes, which have driven this quarter's positive NAV performance, and are detailed below."

Rent collection

As Investment Manager, Custodian Capital invoices and collects rent directly, importantly allowing it to hold direct conversations promptly with most tenants regarding the payment of rent. This direct contact has proved invaluable through the COVID-19 pandemic, facilitating better outcomes for the Company.

The Period

96% of rent relating to the Period, net of contractual rent deferrals, has been collected as set out below:

	£m
Rental income (IFRS basis)	9.6
Lease incentives	(0.6)
Cash rental income expected, before contractual rent deferrals	9.0
Contractual rent deferrals relating to the Period	0.0
Contractual rent deferred from prior periods falling due during the Period	0.4
Cash rental income expected, net of contractual deferrals	9.4	100%
Outstanding rental income	(0.4)	(4%)
Collected rental income	9.0	96%

89% of the £0.4m contractual rent deferred from prior periods falling due during the Period has been collected, indicating that the support offered to tenants during the initial national lockdown is returning a positive result on overall rent collections.