Interim Report 2020/21

Custodian REIT plc offers investors the opportunity to access a diversified portfolio of UK commercial real estate through a closed-ended fund. Custodian REIT plc seeks to provide investors with an attractive level of income and the potential for capital growth, becoming the REIT of choice for private and institutional investors seeking high and stable dividends from well-diversified UK real estate.

Custodian REIT plc ("Custodian REIT" or "the Company") is a UK real estate investment trust ("REIT") with a portfolio comprising properties predominantly let to institutional grade tenants throughout the UK, principally characterised by properties with individual values of less than £10m at acquisition.

Warwick

KEY FACTS

Investment Manager

Richard Shepherd-Cross

MRICS

Assistant Investment

Manager

Alex Nix MRICS

Launch date 26 March 2014

Market

Premium segment of the main market of the London Stock Exchange

Target gearing

25%

Target lot size

£2-10m

INSIDE THIS REPORT

Financial highlights and

performance summary

2

Chairman's statement

4

Investment Manager's report

10

Property portfolio

20

Condensed consolidated

statement of comprehensive

income

26

Condensed consolidated

statement of financial

position

27

Condensed consolidated

statement of cash flows

28

Condensed consolidated

statements of changes

in equity

29

Notes to the interim

financial statements

30

Directors' responsibilities

for the interim financial

statements

47

Auditor's independent

review report

48

Company information

49

Financial calendar

50

For more information, please visit

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Custodian REIT plc Interim Report 2020/21

1

FINANCIAL HIGHLIGHTS AND PERFORMANCE SUMMARY

RETURN

CAPITAL

EPRA1 EPS2

SIX-MONTH DIVIDENDS

NAV PER SHARE

2.6p

2019: 3.4p

2020

2.6

2019

3.4

2018

3.5

2017

3.4

2016

3.0

  • The COVID-19 pandemic is continuing to impact the property market and our tenants:
    • A £27.4m (5.1% of property portfolio) valuation decrease during the six-month period; and
    • 88% of rent collected relating to the six-month period, adjusted for contractual rent deferrals
  • EPRA1 earnings per share2 for the six-month period decreased to 2.6p (2019: 3.4p) due to the reduced level of rent collection
  • Basic and diluted earnings per share3 decreased to -3.8p (2019: 0.2p) primarily due to property portfolio valuation decreases of £27.4m and
    a £2.9m increase in the doubtful debt provision
  • Loss before tax of £16.1m

(2019: profit of £0.7m)

2.0p

2019: 3.325p

2020

2.0

2019

3.325

2018

3.275

2017

3.225

2016

3.175

  • Aggregate dividends per share of 2.0p for the Period (2019: 3.325p), 33% ahead of the 1.5p minimum announced in April 2020
  • Share price total return4 -7.7% (2019: 8.7%)
  • NAV per share total return5 of -3.7% (2019: 0.5%) comprising 2.6% income (2019: 3.1%) and a -6.3% capital change

(2019: -2.6% capital change)

95.2p

2019: 104.3p

2020

95.2

2019

104.3

2018

108.6

2017

104.9

2016

101.7

  • NAV £399.7m (2019: £428.5m)
  • NAV per share 95.2p
    (31 March 2020: 101.6p,
    2019: 104.3p)
  • Market capitalisation £373.0m (2019: £483.0m)
  • Discount/premium of share price to NAV per share -6.7% (2019: 12.8%)
  • Net gearing6 23.4% (2019: 20.5%)
  • EPRA vacancy rate7 7.1% (2019: 4.5%)
  • Share price 88.8p (2019: 117.6p)
  1. The European Public Real Estate Association.
  2. Profit after tax excluding net loss 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.
  1. Share price movement including dividends paid during the six-month period.
  2. Net Asset Value ("NAV") movement including dividends paid during the Period on shares in issue at 31 March 2020.
  1. Gross borrowings less cash (excluding tenant rental deposits and retentions) divided by property portfolio value.
  2. ERV of vacant space as a percentage of the ERV of the whole property portfolio.
  3. Before acquisition costs of £0.1m.

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PROPERTY VALUE

Warrington

£532.3m

(31 March 2020: £559.8m, 2019: £547.2m)

  • £27.4m aggregate valuation decrease comprising a £2.8m property valuation uplift from successful asset management initiatives and £30.2m of valuation decreases, primarily due to decreases in the estimated rental value ("ERV") of retail properties, negative investment market sentiment for retail assets and the impact of the COVID-19 pandemic
  • £0.9m8 invested in the acquisition of land for a pre-let development
    of a Starbucks drive-through restaurant in Nottingham
  • Disposal of an industrial unit in Westerham for £2.8m, £0.5m (23%) ahead of the 31 March 2020 valuation, representing a net initial yield of 4.50%

Alternative performance measures

The Company presents NAV per share total return, dividend per share, share price total return, NAV per share, share price, market capitalisation, discount of share price to NAV per share, net gearing, and certain EPRA Best Practice Recommendations as 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. 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 18.

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CHAIRMAN'S STATEMENT

BETTER THAN EXPECTED

CASH COLLECTION RATE

ALLOWED DIVIDENDS ABOVE

THE MINIMUM LEVEL

DAVID HUNTER

Chairman

COVID-19

OUR RESPONSE

The Company retains its strong financial position to address the extraordinary circumstances imposed by the COVID-19 pandemic.

SIX-MONTH DIVIDENDS

2020

2.0p

2019

3.325p

2018

3.275p

2017

3.225p

2016

3.175p

The COVID-19 pandemic is continuing to impact the property market and our tenants, leading to a £27.4m property valuation decrease during the six months ended 30 September 2020 ("the Period") and 88%

of rent being collected, net of contractual deferrals. EPRA earnings per share decreased to 2.6p (2019: 3.4p) due to a £2.9m increase in the doubtful debt provision, reflecting our prudent assumptions regarding the recovery of overdue and deferred rents, and a £1.9m (4.7%) decrease in the annual rent roll since 31 March 2020 due to tenants exiting at lease expiry (2.4%), cessation of rents through Company Voluntary Arrangements ("CVAs") and Administrations (2.0%) and the disposal of an industrial asset (0.3%). Helpfully, rental decreases seen in the high street retail and other sectors were offset by increases in the industrial sector.

The recent turmoil in markets has emphasised the importance of having a well-diversified, income focused property portfolio. I was very pleased

to be able to announce that despite the inevitable disruption to cash collection caused by the COVID-19 pandemic, the Company's better than expected cash collection rate has allowed dividends per share of 2.0p to be paid for the Period, 33% ahead of the minimum level of 1.5p announced in April 2020 before the full impact of the national lockdown could be ascertained.

This higher dividend reflects the levels of rent collection seen since the onset of the COVID-19 pandemic and is fully covered by net cash receipts and 130% covered by EPRA earnings.

The Board acknowledges the importance of income for shareholders, and its objective remains paying dividends at a level broadly linked to net rental receipts that does not inhibit the flexibility of the Company's investment strategy.

These have been testing times which have necessitated an exceptional effort from the Investment Manager, both in the collection of rents and in operating remotely as a team. I would like to acknowledge the results of their efforts. I also thank my fellow Board members who have been flexible and supportive during a period which has required numerous formal and informal additional Board meetings.

Financial and operational resilience

The Company retains its strong financial position to address the extraordinary circumstances imposed by the COVID-19 pandemic. At 30 September

2020 it had:

  • A diverse and high-quality asset and tenant base comprising 161 assets and 200 typically 'institutional grade' tenants across all commercial sectors, with an occupancy rate of 92.9%;

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  • £26.2m of cash with gross borrowings of £150m resulting in low net gearing, with no short-term refinancing risk and a weighted average debt facility maturity of seven years;
  • Significant headroom on lender covenants at a portfolio level, with net gearing of 23.4% and a maximum loan to value ("LTV") covenant of 35%; and
  • Put in place interest cover covenant9 waivers on a pre-emptive basis to mitigate the risk that covenants on individual debt facilities might come under pressure due to curtailed rent receipts. These waivers have not been required due to the level of rent collected.

No lender covenants have been breached during the Period. Since the Period end the Company has charged, or is in the process of charging, five additional properties valued at £21.1m to alleviate short-term LTV covenant compliance pressure on individual security pools.

  1. Historical rental income received and projected contractual rental income receivable less certain property expenses divided by interest and fees payable to its lenders.
  2. Dividends of 2.6125p per share were paid during the Period on shares
    in issue throughout the Period.

Leeds

NET ASSET VALUE

The NAV of the Company at 30 September 2020 was £399.7m, approximately 95.2p per share, a decrease of 6.4p (6.3%) since

31 March 2020:

Pence

per share

£m

NAV at 31 March 2020

101.6

426.7

Valuation movements relating to:

- Asset management activity

0.7

2.8

- Other valuation movements

(7.2)

(30.2)

Valuation decrease before acquisition costs

(6.5)

(27.4)

Impact of acquisition costs

-

(0.1)

Valuation decrease including

acquisition costs

(6.5)

(27.5)

Profit on disposal of investment property

0.1

0.5

Net valuation movement

(6.4)

(27.0)

Revenue

4.8

20.3

Expenses and net finance costs

(2.2)

(9.3)

Dividends paid10 during the Period

(2.6)

(11.0)

NAV at 30 September 2020

95.2

399.7

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CHAIRMAN'S STATEMENT CONTINUED

The valuation decrease before acquisition costs of £27.4m was experienced across all sectors of the portfolio, further detailed in the Investment Manager's report, due to:

  • The impact of COVID-19, with the Company's valuers reflecting historical rent arrears within valuations and applying an overall increase in yield to assets let to tenants which have ceased or significantly curtailed trading, in line with current RICS advice to valuers;
  • A reduction in retail ERVs;
  • A worsening of investment market sentiment towards commercial property, especially retail; and
  • The impact of Company Voluntary Arrangements ("CVAs") and company Administrations detailed in the Investment Manager's report.

Borrowings and cash

The Company operates the following debt facilities:

  • A £35m revolving credit facility ("RCF") with Lloyds Bank plc with interest of between 1.5% and 1.8% above three-month LIBOR, determined by reference to the prevailing LTV ratio and expiring on
    17 September 2022;
  • A £20m term loan with Scottish Widows plc with interest fixed at 3.935% and repayable on 13 August 2025;
  • A £45m term loan with Scottish Widows plc with interest fixed at 2.987% and repayable on 5 June 2028; and
  • A £50m term loan with Aviva Real Estate Investors comprising:
    1. £35m Tranche 1 repayable on 6 April 2032 attracting fixed annual interest of 3.02%; and
    2. £15m Tranche 2 repayable on 3 November 2032 attracting fixed annual interest of 3.26%.

Each facility has a discrete security pool, comprising a number of the Company's individual properties, over which the relevant lender has security and covenants:

  • The maximum LTV of each discrete security pool is between 45% and 50%, with an overarching covenant on the Company's property portfolio of a maximum 35% LTV; and
  • Historical interest cover, requiring net rental receipts from each discrete security pool, over the preceding three months, to exceed 250% of the facility's quarterly interest liability.

The Company complied with all loan covenants during the Period. The Company has £174.1m

(33% of the property portfolio) of unencumbered assets which could be charged to the security pools to enhance the LTV on the individual loans and since the Period end has charged, or is in the process of charging, five of these unencumbered properties valued at £21.1m.

The weighted average cost of the Company's agreed debt facilities is 2.9% (2019: 3.0%) with a WAM of seven years (2019: eight years). 77% (2019: 75%) of the Company's debt facilities are at a fixed rate of interest, significantly mitigating interest rate risk.

Dividends

During the Period the Company paid the fourth quarterly interim dividend per share for the financial year ended 31 March 2020 of 1.6625p, relating to the quarter ended 31 March 2020, and the first quarterly dividend per share for the financial year ending 31 March 2021 of 0.95p, relating to the quarter ended 30 June 2020.

In line with the Company's dividend policy the Board approved a quarterly interim dividend of 1.05p per share for the quarter ended 30 September 2020 which was paid on 30 November 2020 to shareholders on the register on 6 November 2020.

Investment Manager Custodian Capital Limited ("the Investment Manager") is appointed under an investment management agreement ("IMA") to provide asset management, investment management and administrative services to the Company. The IMA fee structure was amended in June 2020

as detailed in Note 16.

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Bellshill

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CHAIRMAN'S STATEMENT CONTINUED

Board succession and remuneration

Three of the Company's four independent Directors were appointed in 2014. The Company's succession policy allows for

a tenure of longer than nine years, in line with the 2019 AIC Corporate Governance Code for Investment Companies ("AIC Code"), but the Board acknowledges the benefits of ongoing Board refreshment.

For this reason expected Director retirement dates are staggered within a nine-year tenure period. Where possible, the Board's policy is to recruit successors well ahead of the retirement

of Directors.

The gender diversity recommendations of the Hampton-Alexander Review are for at least 33% female representation on FTSE350 company boards. With the appointment of Hazel Adam during the past year, the female representation on the Board

is 20%. The Company is a constituent of the FTSESmallCap Index where no female representation recommendations apply, but the Board recognises the value and importance of diversity in the boardroom.

In June 2020 the Remuneration Committee postponed its decision regarding Directors' annual fees for the year ending 31 March 2021 due

to the uncertainty caused by the COVID-19 pandemic in anticipation of a clearer fiscal outlook later in the year.

In November 2020 the Remuneration Committee determined that there would be no increase in level of Directors' annual fees for the time being and subsequent reviews would be undertaken on a quarterly basis whilst uncertainty caused by the COVID-19 pandemic remained.

Environmental policy

The majority of the Company's investment properties are let on full repairing and insuring leases, meaning its day-to-day environmental responsibilities are limited because properties are controlled by their tenants. However, the Board adopts sustainable principles where possible and the key elements of the Company's current environmental policy are:

  • We want our properties to minimise their impact on the environment and the Investment Committee of the Investment Manager carefully considers the historical
    and current usage and environmental performance of assets before acquisition;
  • An ongoing examination of existing and new tenants' business activities allows assessment of the risk of pollution occurring, and tenants with high-risk activities are avoided;
  • Sites are visited periodically and any observable environmental issues are reported to the Investment Committee of the Investment Manager; and
  • All leases prepared after the adoption of the policy commit occupiers to observe any environmental regulations.

During the Period the Company agreed environmental KPIs

for the property portfolio and completed its inaugural submission for the Global Real Estate Sustainability Benchmark ("GRESB"). The Company's Annual Report for the year ended 31 March 2020 received a 'most improved' award for its first year complying with EPRA Sustainability Best Practice Recommendation reporting.

Brexit

The Board is continuing to monitor the potential risks associated with Brexit but believes the Company is well placed to weather any short-term impact because of its diverse property portfolio by sector and location with an institutional grade tenant base and low gearing.

Outlook

The absolute focus on rent collection, financial resilience and maintaining fully covered dividend payments has occupied the Board's attention throughout the Period. Indeed, the COVID-19 pandemic has reinforced Custodian REIT's strategy which, over and above decisions in relation to investment approach, has always placed income and financial resilience at the heart of the Company's objectives. When allied to the appropriate property strategy this focus underpins sustainable dividends, which

in turn support long-term total return.

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Notwithstanding some ongoing

challenges the post-pandemicSheffield outlook for real estate in a low

interest, low return environment looks promising. It has been reported that global institutional investors plan to increase their allocation to real assets over the next 12 months which should encourage wealth managers and private clients to re-weight to real estate for its income credentials.

DAVID HUNTER

Chairman

30 November 2020 

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9

INVESTMENT MANAGER'S

REPORT

INCREASING CONFIDENCE IN THE

COLLECTION OF CONTRACTUALLY

DEFERRED RENTS

RICHARD SHEPHERD-CROSS

Investment Manager

PORTFOLIO VALUE

£532.3m

2020

532.3

2019

547.2

2018

547.0

2017

474.3

2016

383.5

Property market

Investment activity is increasing and appears to be tracking the emerging picture of forecast occupier demand. There is confidence in the industrial and logistics market, which represents 47% of the Company's property portfolio value, where record investment volumes have been matched by record occupational demand for warehouse space. This occupational demand, driven by the continued growth of e-commerce and the onshoring of supply chains, combined with low vacancy rates has led to the continuation of rental growth. Much of the investment capital that might have been focused on the office or retail sectors has been redirected to industrial and logistics. We see continued opportunity in this sector as the UK has yet to build a sufficient logistics network to support the continued growth in e-commerce.

Despite widespread remote working and the resulting low utilisation of offices across the country we expect recognition from occupiers of the social and well-being impact of returning to offices in some meaningful way, post the COVID-19 pandemic. Office owners must invest in their existing buildings to create flexible working spaces which may result in greater space requirements per head but perhaps for fewer office workers.

Offices allow space for organisational productivity, rather than individual productivity which may prove better when delivered working remotely either from home or from smaller satellite offices. The lettings market

has already seen an increase in enquiries for satellite office locations reflecting this trend which could be positive for Custodian REIT's portfolio of small regional offices, acknowledging that forecasting office demand

is currently subject to significant uncertainty.

The retail market has borne the brunt of the impact of lockdown with a huge reduction in footfall and consumers switching to online retailing instead. The COVID-19 pandemic disruption has accelerated trends that were already embedded in retailing when online retail already made up almost 20% of all UK retail sales, namely an oversupply of shops, downward pressure on rents and a rise in the number of retailers failing.

ONS data indicates online retail sales reached 32.8% in May 2020 during the first national lockdown compared to 18.8% in May 2019. As lockdown was eased in the summer, so people returned to the shops and online sales dipped, which is a positive signal for physical retail. While online sales will remain an important part of retailers' strategies, the physical shop is not yet dead.

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Biggleswade

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INVESTMENT MANAGER'S REPORT CONTINUED

This physical presence is particularly relevant for prime city centre locations where retailers benefit from high footfall facilitating brand awareness and enabling 'showrooming'.

We also believe the physical shop will survive in convenience-led,out-of-town locations, especially for goods which are less likely to be bought online, namely DIY, furniture, homewares, and discount brands. We expect the Company's strategy of a low weighting to high street retail and a greater focus on out-of- town retail, let at affordable rents, will position the portfolio well to pick up as and when consumers can return to the shops with confidence.

Investment volumes have been sufficient for the Company's valuers to remove the 'material uncertainty' caveat from the property portfolio valuation as at 30 September 2020.

However, in an attempt to reflect market sentiment in the valuations a risk factor has still been applied to the collection of deferred rent or rents arrears due from tenants adversely affected by the COVID-19 pandemic. This rental risk continues to have an impact on NAV but, as deferred rents continue to be recovered, this risk adjustment applied to rents within valuations will diminish.

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 disruption, enabling better outcomes for the Company. Many of these conversations have led to positive asset management outcomes, some of which are discussed below.

88% of rent relating to the Period net of contractual rent deferrals has been collected, or 82% before contractual deferrals,

as set out below:

88% of the £0.2m contractual rent deferred falling due during the Period has been collected, indicating that the support offered to tenants during the first national lockdown is now returning a more positive result on overall rent collections.

Outstanding rental income remains the subject of discussion with various tenants, although some arrears are potentially at risk of non-recovery from CVAs or Pre-pack Administrations.

We expect the rent recovery rate for the Period to exceed

90% once tenant discussions are concluded.

To date 92% of rent relating to the quarter ending 31 December 2020 has been collected, net of contractual deferrals11.

All contractual deferrals offered to date are to be recovered through payment plans over the next 12-18 months.

The Company's doubtful debt provision has increased by £2.9m during the Period to reflect the risk over collecting outstanding and deferred rent.

Net of

Before

£m

contractual

contractual

rent deferrals

rent deferrals

Rental income from investment property (IFRS basis)

19.4

Lease incentives

(0.9)

Cash rental income expected, before contractual rent deferrals

18.5

100%

Contractual rent deferrals relating to the Period

(1.5)

(8%)

Contractual rent deferred falling due during the Period

0.2

1%

Cash rental income expected, net of contractual rent deferrals

17.2

100%

Outstanding rental income

(2.1)

(12%)

(11%)

Rental income collected

15.1

88%

82%

11. The proportion of rent collected relating to the quarter ending 31 December 2020 ("FY21 Q3") invoiced rents now due, adjusted for the agreed deferral of 1% of FY21 Q3 invoiced rents and the rents now due previously deferred from FY21 Q1 and Q2.

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Regional split

by income

West Midlands:20%

North-West: 17%

East Midlands:13%

South-East: 13%

South-West: 11%

North-East: 10%

Scotland: 8%

Eastern: 6%

Wales: 2%

Sector split by income

Industrial: 41% Retail warehouse: 21%

Other: 17%

Retail: 11%

Office: 10%

Other sector - subsector split

Motor trade: 35%

Leisure: 29%

Restaurant: 20%

Trade counter:7%

Healthcare: 3%

Hotel:3%

Nursery: 2% Place of worship:1%

Property portfolio performance At 30 September 2020 the Company's property portfolio comprised 161 assets (31 March 2020: 161 assets), 200 tenants and 265 tenancies with an aggregate net initial yield12 ("NIY") of 6.9% (31 March 2020: 6.8%) and weighted average unexpired lease term to first break or expiry ("WAULT") was 5.1 years (31 March 2020: 5.3 years).

The property portfolio is split between the main commercial property sectors, in line with the Company's objective to maintain a suitably balanced portfolio, with a relatively low exposure to office and a relatively high exposure to industrial, retail warehouse and alternative sectors, often referred to as 'other' in property market analysis.

A number of smaller assets in the high street retail sector are earmarked for disposal which should limit possible future valuation decreases in that sector.

The 31 March 2020 valuation was reported on the basis of 'material valuation uncertainty' in accordance with RICS valuation standards. This basis did not invalidate the valuation but, in the circumstances, implied that less certainty could be attached to the valuation than otherwise would be the case. However, for 30 September 2020 valuations, no 'material valuation uncertainty' clause was applied for all asset classes in the Company's property portfolio.

Industrial and logistics property remains a very good fit with the Company's strategy. The demand for smaller lot-sized units is very broad, from manufacturing, urban logistics, online traders and owner occupiers. This demand, combined with a restricted supply resulting from limited new development, supports high residual values (where the vacant possession value is closer to the investment value than in other sectors) and drives rental growth. Despite a long period of growth in this sector, we still see opportunity.

The current sector weightings are:

Valuation

movement

Valuation

Weighting

Valuation

Weighting

before

Weighting

Weighting

30 Sept

by income 13

31 Mar

by income

acquisition

by value

by value

2020

30 Sept

2020

31 Mar

costs

30 Sept

31 Mar

Sector

£m

2020

£m

2020

£m

2020

2020

Industrial

250.7

41%

257.3

40%

(4.5)

47%

46%

Retail

102.7

21%

(7.4)

19%

warehouse

109.7

22%

20%

Other14

81.6

17%

87.4

17%

(7.1)

15%

16%

High street

47.6

11%

(5.3)

9%

retail

52.8

11%

9%

Office

49.7

10%

52.6

10%

(3.1)

10%

9%

Total

532.3

100%

559.8

100%

(27.4)

100%

100%

  1. Passing rent divided by property valuation plus purchaser's costs.
  2. Current passing rent plus ERV of vacant properties.
  3. Includes car showrooms, petrol filling stations, children's day nurseries, restaurants, health and fitness units, hotels and healthcare centres.

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INVESTMENT MANAGER'S REPORT CONTINUED

Rent review

Open market:81%

RPI: 11%

Fixed: 7%

CPI: 1%

Income expiry

0-1 years: 8%

1-3 years:23%

3-5 years: 21%

5-10 years: 37%

10+ years: 11%

Amongst its far-reaching impacts, the COVID-19 pandemic has deepened the challenges facing the retail sector causing further declines in retail values across the portfolio, although with a greater percentage decline in high street locations (-10.1%) than in out-of-town locations (-6.7%). We believe that out-of-town retail/retail warehousing remains an important asset class for the Company. We expect that well- located retail warehouse units, let off low rents, located on retail parks which are considered dominant in their area will continue to be in demand from retailers. The importance of convenience, free parking, the capacity to support click and collect and the relatively low cost compared to the high street should continue to support occupational demand for the Company's retail warehouse assets.

Regional offices will remain a sector of interest for the Company and we expect there to be activity post-pandemic in regional office markets. The rise in working remotely may not be restricted to working from home with a potential increase in working from regional satellite offices. Locations that offer an attractive environment to both live and work in and that offer buildings with high environmental standards and accessibility to a skilled workforce, will be most desirable. There is latent rental growth in many regional office markets where supply has been much diminished through redevelopment to alternative uses.

For details of all properties in the portfolio please see custodianreit.com/property/ portfolio.

LEASE EXPIRY PROFILE

7,000

6,000

5,000

4,000

£000

3,000

2,000

1,000

0

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep

Sep Sep

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38 2039+

12 months to September

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Acquisition

In July 2020 the Company acquired 0.6 acres of land in Nottingham for £0.9m to be developed into a 2,163 sq ft drive-through coffee shop with 34 parking spaces. Construction, costing £0.825m, is being phased over an expected six-month build period. The unit has been pre-let to KBeverage Limited (trading as Starbucks Coffee) on a 20-year lease with no breaks and five-yearly upward only market rent reviews. On completion of the development passing rent will be £115k pa, reflecting a NIY of 6.67%.

Investment objective

The Company's key objective is to provide shareholders with an attractive relative level of income by paying dividends fully covered by net rental receipts with a conservative level of net gearing.

The Board remains committed to a strategy principally focused on regional properties with individual values of less than £10m at acquisition with a weighting towards regional industrial

and logistics. Diversification of property type, tenant, location and lease expiry profile continues to be at the centre of the strategy together with maximising cash flow by taking a flexible approach to tenants' requirements and retaining tenants wherever possible.

Property portfolio risk

The property portfolio's security of income is enhanced by 19.1% of income benefiting from either fixed or indexed rent reviews.

Short-term contractual income at risk is a relatively low proportion of the property portfolio's total income, with 31% (2019: 35%) expiring in the next three years and 8% within one year (2019: 15%).

The Company's Annual Report for the year ended 31 March

2020 set out the principal risks and uncertainties facing the Company at that time. We do not anticipate any changes to those risks and uncertainties over the remainder of the financial year, but highlight the following risks:

COVID-19 pandemic

The impact of the COVID-19 pandemic has been pervasive across the globe, and we believe it will continue to have a significant impact on rental receipts, tenant stability, property valuations, government legislation and availability of finance and compliance with financial covenants for at least the remainder of the financial year ending 31 March 2021.

We believe it is still too early to fully comprehend the short-term impact and longer-term ramifications of the COVID-19 pandemic. The Board has met frequently via video-conference during the Period to ensure the Company reacts promptly to a dynamic situation, including guiding and challenging our response and approving decisions quickly when required.

Brexit

The Board is continuing to monitor the potential risks associated with Brexit. Discussions are ongoing and the final outcome regarding the UK's future trading relationship with the EU remains unclear, making it too early to understand fully the impact Brexit will have on the Company's business. The main potential negative impact of Brexit is a deterioration of the macroeconomic environment, potentially leading to further political uncertainty and volatility in interest rates, but it could also impact

the investment and occupier markets, our ability to execute the Company's investment strategy and its income sustainability in the long term. However, we believe the Company is well placed to weather any short-term impact of Brexit because of its diverse portfolio by sector and location with an institutional grade tenant base and low gearing.

Environmental

The Board is aware of the increasing focus from external stakeholders on the Company's environmental credentials and the increasing level of disclosure requirements regarding the Company's environmental impact.

We continue to work with specialist environmental consultants to ensure compliance with new requirements and identify cost-effective opportunities to improve the Company's environmental performance. The Board recently approved a suite of environmental KPIs on which the Investment Manager will report to ensure the Company's ongoing environmental impact is considered in the decision making process.

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Custodian REIT plc Interim Report 2020/21

15

INVESTMENT MANAGER'S REPORT CONTINUED

Asset management

Our continued focus on asset management including rent reviews, new lettings, lease extensions and the retention of tenants beyond their contractual break clauses resulted in a £2.8m valuation increase in the Period. Key asset management initiatives completed during the Period include:

  • Completing a 20-year lease extension with Bannatyne Fitness on a leisure scheme in Perth, extending lease expiry to August 2046 and incorporating five-yearly RPI linked rent reviews, which increased valuation by £1.5m;
  • Unconditionally exchanging an agreement for lease with MCC Labels in Daventry on a new ten-year lease without break commencing in Spring 2021 after the current tenant vacates in December 2020, at a rent of £295k pa, which increased valuation by £0.8m;
  • Completing a five-year lease extension with DHL on an industrial unit at Speke, Liverpool, subject to a tenant- only break in year three, maintaining annual passing rent at £119k which increased valuation by £0.2m;
  • Completing a five-year lease extension with Erskine Murray at an office building in Leicester, extending the lease expiry from December 2020 to December 2025 at an increased annual rental of £72.5k (previously £66.5k) which increased valuation by £0.1m;
  • Completing a deed of variation with Urban Outfitters in Southampton to push the October 2021 tenant-only break option back to April 2024, increasing the term certain to 3.5 years, which increased valuation by £0.1m;
  • Settling an open market rent review with Synergy Health at an industrial unit in Sheffield, increasing the annual rent from £142k to £158k which increased valuation by £0.1m;
  • Unconditionally exchanging an agreement for lease with MKM in Lincoln on a new
    10-year reversionary lease on a trade counter unit, extending expiry from June 2022 to June 2032 without break and maintaining annual passing rent at £192k with 12 months' rent free, with no impact on valuation;
  • Re-gearingwith The Works in Portsmouth which removed a tenant-only break option in October 2021, extending the term certain to October 2026, with no impact on valuation;
  • Completing a lease renewal with The White Company in Nottingham for a five-year lease with 2.5-yeartenant-only break option at a reduced rent of £65k pa (previously £140k), in line with current ERV, with no impact on valuation;
  • Completing a short-termturnover-based lease with mutual breaks to retain Game in Portsmouth following expiry of its existing lease whilst we re-market the premises, with no impact on valuation; and
  • Completing a five-year lease renewal with Sports Direct on a retail park in Weymouth at a rebased annual rent
    of £90k (previously £118k), subject to a 5% turnover top-up clause and featuring rolling mutual break options after 36 months, with no impact on valuation.

Since the Period end the following initiatives have been completed:

  • Exchanging an agreement for lease with Tim Hortons Fast Food Restaurants on a drive- through restaurant in Perth (formerly a Frankie & Benny's) for a term of 15 years, with a tenant-only break option in year 10, at an annual rent
    of £90k; and
  • Completing a 10-year reversionary lease without break with DX Networks at an industrial unit in Nuneaton, pushing the lease expiry out from March 2022 to March 2032 subject to a day one rent review where we expect to secure an increase in the £267k pa passing rent.

These positive asset management outcomes have been tempered by the impact of the following business failures, which have resulted in £801k (2.0% of rent roll) of lost annual rent with a further £1,008k (2.5% of rent roll) at risk:

16

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Lost contractual annual rent since 31 March 2020

Annual rent

Location

Tenant

Sector

£000

Event

Colchester

Retail

In Administration, tenant exited both

and Grantham

Laura Ashley

warehouse

229

units during the Period

The Restaurant

CVA - rent reduced to 0% for

Perth15

Group

Restaurant

100

12 months before closure

Grantham

Retail

CVA - tenant remains in occupation

and Evesham

Poundstretcher

warehouse

221

rent free whilst units are remarketed

CVA - rent reduced to 25% of

Portishead

Travelodge

Hotel

83

passing rent in 2020 and 70% in 2021

CVA - base rent reduced by an

Leicester, Watford

average of 66% of passing rent plus

and Crewe

Pizza Hut

Restaurant

168

an 8% of turnover top-up

801

15. An agreement for a 15 year lease has been exchanged on the Perth asset with Tim Hortons Fast Food Restaurants with rent of £90k per annum.

Contractual annual rent at risk at 30 September 2020

Annual rent

Location

Tenant

Sector

£000

Event

Pre-pack Administration - new

Retail

tenant in occupation under licence,

Swindon

Go Outdoors

warehouse

325

negotiating revised lease terms

Pre-pack Administration - Oak

JB Global (t/a

Furniture Land now occupying

Carlisle and

Oak Furniture

Retail

under licence whilst new terms are

Plymouth

Land)

warehouse

390

negotiated

In Administration - tenant remains

in occupation under licence,

Torquay

Las Iguanas

Restaurant

110

negotiating revised lease terms

Edinburgh

High street

Shrewsbury

Woollen Mill

retail

93

Administration

Pre-pack Administration - new

tenant in occupation under licence,

Torquay

Le Bistrot Pierre

Restaurant

90

negotiating new lease terms

1,008

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Custodian REIT plc Interim Report 2020/21

17

INVESTMENT MANAGER'S REPORT CONTINUED

All tenants in properties with rent at risk remain in occupation and continue to trade, with negotiations for new lease terms either agreed and in solicitors' hands or under negotiation, demonstrating occupier demand remains in the market for well- located assets.

Outlook

As we see increasing confidence in the collection of contractually deferred rents and once landlords can formally pursue non-payers, positive sentiment towards the income credentials of commercial real estate investment is likely to return.

In a low return environment, where dividends are under pressure across all investment markets, we believe that property returns will look attractive and the search for income and long-term capital security will bring many investors back to real estate. We expect further tenant failures as Government support packages are withdrawn, the November 2020 English lockdown and subsequent restrictions bite and while CVAs remain legal, if questionable, practice, but this is likely to be heavily weighted towards the retail sector and should not diminish the overall appeal

of real estate.

Over the last eight months the market's focus has been on income (and therefore EPRA earnings per share) rather than NAV and we expect this focus to continue whilst disruption to contractual rent collections remains. We believe that EPRA earnings per share is a more important metric than NAV per share in demonstrating the Company's ability to deliver long-term sustainable dividends. As a result our focus has understandably been, and will remain, centred on rent collection.

We remain confident that the Company's strategy of targeting income with conservative net gearing in a well-diversified regional property portfolio

will continue to deliver the long-term returns demanded by our shareholders.

RICHARD SHEPHERD-CROSS

for and on behalf of Custodian Capital Limited Investment Manager

30 November 2020

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Maypole, Birmingham

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Custodian REIT plc Interim Report 2020/21

19

PROPERTY PORTFOLIO

SECTOR KEY

Industrial

Retail warehouse

Other

Retail

Office

PROPERTY INCOME

<£100k

£101-350k

>£350K

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INDUSTRIAL

Portfolio%16

Avonmouth

Superdrug

0.6%

Heywood Williams

Location

Tenant

Income

Bedford

Components

0.6%

Winsford

H&M

1.5%

Bristol

BSS Group

0.6%

Warrington

JTF Wholesale

1.4%

Glasgow

Menzies Distribution

0.6%

Ashby

Teleperformance

1.3%

Weybridge

Menzies Distribution

0.6%

Burton

ATL Transport

1.2%

Coventry

Royal Mail

0.5%

Salford

Restore

1.1%

Aberdeen

Menzies Distribution

0.5%

Elma Electronics and

1.0%

Hamilton

Ichor Systems

0.5%

Bedford

Vertiv Infrastructure

Stevenage

Morrison Utility Services

0.5%

Hilton

Daher Aerospace

0.9%

Livingston

A Share & Sons (t/a SCS)

0.5%

Stone

Revlon International

0.9%

Manchester

Unilin Distribution

0.5%

Eurocentral

Next

0.9%

Oldbury

Sytner

0.5%

Tamworth

ICT Express

0.8%

Aberdeen

DHL Supply Chain

0.5%

Doncaster

Silgan Closures

0.8%

Interserve Project

Kettering

Multi-let

0.8%

0.5%

Christchurch

Services

Normanton

Yesss Electrical

0.8%

Cambuslang

Brenntag

0.5%

Biggleswade

Turpin Distribution

0.8%

Warrington

Dinex Exhausts

0.4%

Procurri Europe and

0.7%

Warwick

Semcon

0.4%

Warrington

Synertec

Norwich

Menzies Distribution

0.4%

Daventry

Cummins

0.7%

Sovereign Air Movement

Gateshead

Multi-let

0.7%

0.4%

Leeds

and Tricel Composites

Edinburgh

Menzies Distribution

0.7%

Coalville

MTS Logistics

0.4%

Cannock

HellermannTyton

0.7%

West Midlands

Milton Keynes

Massmould

0.7%

Ambulance Service

Erdington

NHS Trust

0.4%

Plymouth

Sherwin-Williams

0.7%

Langley Mill

Warburton

0.4%

West

0.7%

Bromwich

OT Group Limited

Ipswich

Menzies Distribution

0.4%

Gateshead -

Irlam

Northern Commercials

0.4%

Team Valley

Worthington Armstrong

0.7%

Sheffield

Bellshill

Yodel Delivery Network

0.6%

0.4%

Parkway

Synergy Health

Nuneaton

DX Network Service

0.6%

Castleford

Bunzl

0.4%

Saint-Gobain Building

Liverpool,

Milton Keynes

Distribution

0.6%

Speke

Powder Systems

0.3%

16. % of property portfolio passing rent plus ERV of vacant units.

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Custodian REIT plc Interim Report 2020/21

21

PROPERTY PORTFOLIO CONTINUED

INDUSTRIAL

RETAIL WAREHOUSE

Swansea

Menzies Distribution

0.3%

Stockton on

Tees

Menzies Distribution

0.3%

Sheffield

Arkote

0.3%

ITM Power and

Sheffield

River Island

0.3%

Kettering

Sealed Air

0.3%

North Warwickshire

Atherstone

Borough Council

0.3%

Liverpool,

Speke

DHL International

0.3%

Huntingdon

PHS

0.3%

Glasgow

DHL Global Forwarding

0.3%

Normanton

Acorn Web Offset

0.2%

Kilmarnock

Royal Mail Group

0.2%

Vacant

2.8%

40.9%

%

Portfolio

Location

Tenant

Income

Evesham

Multi-let

2.1%

Carlisle

Multi-let

2.0%

B&Q, Halfords and

Weymouth

Sports Direct

1.8%

Winnersh

Pets at Home and Wickes

1.3%

CDS (t/a The Range)

Burton

and Wickes

1.3%

B&M, Go Outdoors

Swindon

and InstaVolt

1.2%

Leicester

Matalan

1.2%

A Share & Sons (t/a SCS)

and JB Global (t/a Oak

Plymouth

Furniture Land)

1.1%

Banbury

B&Q

1.1%

Ashton-

under-Lyne

B&M

1.0%

Plymouth -

B&M, Magnet and

Transit Way

InstaVolt

0.9%

Magnet, Smyths Toys

Gloucester

and InstaVolt

0.9%

Sheldon

Multi-let

0.9%

Leighton

Buzzard

Homebase

0.8%

Galashiels

B&Q

0.6%

Leicester

Magnet

0.6%

Torpoint

Sainsburys

0.5%

Majestic Wine, TJ Morris

(t/a HomeBargains) and

Portishead

InstaVolt

0.5%

Carpetright,

Poundstretcher and

Grantham

InstaVolt

0.4%

Vacant

1.1%

21.3%

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Custodian REIT plc Interim Report 2020/21

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OTHER

%

Portfolio

Location

Tenant

Income

Benham (Specialist

Cars) (t/a Williams BMW

Stockport

and Mini)

1.7%

Liverpool Community

Liverpool

Health NHS Trust

1.0%

Bannatyne Fitness,

Scotco Eastern

(t/a KFC) and

The Restaurant Group

Perth

(t/a Frankie & Benny's)

1.0%

Lincoln

Total Fitness

0.9%

Stoke

Nuffield Health

0.8%

Derby

VW Group

0.8%

Crewe

Multi-let

0.8%

Stafford

VW Group

0.7%

Torquay

Multi-let

0.7%

Gillingham

Co-Operative

0.6%

York

Pendragon

0.6%

Portishead

Travelodge

0.5%

Parkwood Health &

Salisbury

Fitness

0.5%

Shrewsbury

VW Group

0.5%

Lincoln

MKM Buildings Supplies

0.5%

Gateshead

MTOR and Raven Valley

0.4%

Crewe

Multi-let

0.4%

Loughborough

Listers Group

0.4%

Redhill

Honda Motor Europe

0.3%

Chokdee (t/a Giggling

Bath

Squid)

0.3%

Azzurri Restaurants

(t/a ASK) and Sam's

Club (t/a House of the

Shrewsbury

Rising Sun)

0.3%

Castleford

MKM Buildings Supplies

0.3%

High Wycombe

Stonegate Pub Co

0.3%

Maypole

Starbucks

0.3%

Shrewsbury

TJ Vickers & Sons

0.3%

Carlisle

The Gym Group

0.3%

Leicester

Pizza Hut

0.2%

Watford

Pizza Hut

0.2%

Plymouth

McDonald's

0.2%

Portishead

JD Wetherspoon

0.2%

King's Lynn

Loungers

0.1%

Universal Church of the

Stratford

Kingdom of God

0.1%

Chesham

Bright Horizons

0.1%

Knutsford

Knutsford Day Nursery

0.1%

Vacant

0.6%

17.0%

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Custodian REIT plc Interim Report 2020/21

23

PROPERTY PORTFOLIO CONTINUED

HIGH STREET RETAIL

%

Portfolio

Location

Tenant

Income

Shrewsbury

Multi-let

1.0%

Worcester

Superdrug

0.9%

Cardiff

Multi-let

0.9%

Portsmouth

Multi-let

0.7%

Southampton

URBN

0.5%

Guildford

Reiss

0.5%

H Samuel, Leeds Building

Colchester

Society and Lush

0.4%

Llandudno

WH Smith

0.4%

Birmingham

Multi-let

0.3%

Nottingham

The White Company

0.2%

Southsea

Superdrug

0.1%

Bury St

Edmunds

Savers

0.1%

Scarborough

Waterstones

0.1%

Ciel (Concessions)

Chester

(t/a Chesca)

0.1%

Done Brothers (Cash

Cheltenham

Betting) (t/a Betfred)

0.1%

Bedford

Waterstones

0.1%

Vacant

1.0%

10.5%

Felldale Retail

(t/a Lakeland) and Signet

Chester

(t/a Ernest Jones)

0.3%

Norwich

Specsavers

0.3%

Weston-

super-Mare

Superdrug

0.3%

Edinburgh

Phase Eight

0.3%

Aslan Jewellery (t/a Gasia)

Chester

& Der Touristik

0.3%

Portsmouth

The Works

0.2%

Southsea

Portsmouth City Council

0.2%

Stratford

Foxtons

0.2%

Taunton

Wilko Retail

0.2%

Bury St

Edmunds

The Works

0.2%

Kruidvat Real Estate

Colchester

(t/a Savers)

0.2%

St Albans

Crepeaffaire

0.2%

Brook Taverner &

The Danish Wardrobe Co

Cirencester

(t/a Noa Noa)

0.2%

24

Custodian REIT plc Interim Report 2020/21

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OFFICE

%

Portfolio

Location

Tenant

Income

Regus (Maidstone

West Malling

West Malling)

1.5%

Secretary of State for

Communities and Local

Sheffield

Government

0.9%

Birmingham

Multi-let

0.8%

Castle

Donnington

National Grid

0.8%

First Title (t/a Enact

Leeds

Conveyancing)

0.8%

Cheadle

Wienerberger

0.8%

First Title (t/a Enact

Leeds

Conveyancing)

0.7%

Countryside Properties

Leicester

and Erskine Murray

0.6%

Derby

Edwards Geldards

0.6%

Solihull

Lyons Davidson

0.5%

Regus

Leicester

(Leicester Grove Park)

0.4%

Glasgow

Multi-let

0.3%

Vacant

1.6%

10.3%

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Custodian REIT plc Interim Report 2020/21

25

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

Note

£000

£000

£000

Revenue

4

20,286

20,495

40,903

Investment management fee

(1,653)

(1,762)

(3,517)

Operating expenses of rental property

- rechargeable to tenants

(892)

(838)

(881)

- directly incurred

10

(3,781)

(928)

(1,883)

Professional fees

(195)

(191)

(445)

Directors' fees

(115)

(94)

(200)

Administrative expenses

(310)

(317)

(619)

Expenses

(6,946)

(4,130)

(7,545)

Operating profit before financing and revaluation

of investment property

13,340

16,365

33,358

Unrealised losses on revaluation of investment property:

- relating to gross property revaluations

9

(27,388)

(12,919)

(25,850)

- relating to acquisition costs

9

(69)

(222)

(599)

Net valuation decrease

(27,457)

(13,141)

(26,449)

Profit/(loss) on disposal of investment property

485

(79)

(101)

Net losses on investment property

(26,972)

(13,220)

(26,550)

Operating (loss)/profit before financing

(13,632)

3,145

6,808

Finance income

5

27

10

36

Finance costs

6

(2,471)

(2,428)

(4,721)

Net finance costs

(2,444)

(2,418)

(4,685)

(Loss)/profit before tax

(16,076)

727

2,123

Income tax

7

-

-

-

(Loss)/profit and total comprehensive

(expense)/income for the Period, net of tax

(16,076)

727

2,123

Attributable to:

Owners of the Company

(16,076)

727

2,123

Earnings per ordinary share:

Basic and diluted (p)

3

(3.8)

0.2

0.5

EPRA (p)

3

2.6

3.4

7.0

The loss for the Period arises from the Company's continuing operations.

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CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2020

REGISTERED NUMBER: 08863271

Unaudited

Unaudited

Audited

30 Sept

30 Sept

31 Mar

2020

2019

2020

Note

£000

£000

£000

Non-current assets

Investment property

9

532,250

547,179

559,817

Total non-current assets

532,250

547,179

559,817

Current assets

Trade and other receivables

10

7,754

4,940

5,297

Cash and cash equivalents

12

26,205

41,659

25,399

Total current assets

33,959

46,599

30,696

Total assets

566,209

593,778

590,513

Equity

Issued capital

14

4,201

4,107

4,201

Share premium

250,469

240,023

250,469

Retained earnings

145,032

184,381

172,082

Total equity attributable to equity holders

of the Company

399,702

428,511

426,752

Non-current liabilities

Borrowings

13

148,493

150,696

148,323

Other payables

575

576

576

Total non-current liabilities

149,068

151,272

148,899

Current liabilities

Trade and other payables

11

10,653

7,009

7,794

Deferred income

6,786

6,986

7,068

Total current liabilities

17,439

13,995

14,862

Total liabilities

166,507

165,267

163,761

Total equity and liabilities

566,209

593,778

590,513

These interim financial statements of Custodian REIT plc were approved and authorised for issue by the Board of Directors on 30 November 2020 and are signed on its behalf by:

DAVID HUNTER

Director

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27

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

Note

£000

£000

£000

Operating activities

(Loss)/profit for the Period

(16,076)

727

2,123

Net finance costs

5,6

2,444

2,418

4,685

Net revaluation loss

9

27,457

13,141

26,449

(Profit)/loss on disposal of investment property

(485)

79

101

Impact of lease incentives

9

(877)

(749)

(1,402)

Amortisation

4

4

7

Income tax

7

-

-

-

Cash flows from operating activities before

changes in working capital and provisions

12,467

15,620

31,963

Increase in trade and other receivables

(2,457)

(1,266)

(1,623)

Increase/(decrease) in trade and other payables

2,576

(165)

702

Cash generated from operations

12,586

14,189

31,042

Interest and other finance charges

6

(2,301)

(2,280)

(4,435)

Net cash flows from operating activities

10,285

11,909

26,607

Investing activities

Purchase of investment property

(900)

-

(24,048)

Capital expenditure and development

(348)

(1,933)

(2,804)

Acquisition costs

(69)

(222)

(599)

Proceeds from the disposal of investment property

2,800

15,383

15,383

Costs of disposal of investment property

(15)

(137)

(159)

Interest received and similar income

5

27

10

36

Net cash flows from/(used in) investing activities

1,495

13,101

(12,191)

Financing activities

Proceeds from the issue of share capital

-

14,655

25,300

Costs of the issue of share capital

-

(187)

(292)

New borrowings

13

-

13,500

11,000

New borrowings origination costs

13

-

(484)

(495)

Dividends paid

8

(10,974)

(13,307)

(27,002)

Net cash flows (used in)/from financing activities

(10,974)

14,177

8,511

Net increase in cash and cash equivalents

806

39,187

22,927

Cash and cash equivalents at start of the Period

25,399

2,472

2,472

Cash and cash equivalents at end of the Period

26,205

41,659

25,399

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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020 AND 30 SEPTEMBER 2019

Issued

Share

Retained

Total

capital

premium

earnings

equity

Note

£000

£000

£000

£000

As at 31 March 2020 (audited)

4,201

250,469

172,082

426,752

Loss and total comprehensive

expense for Period

-

-

(16,076)

(16,076)

Transactions with owners of the

Company, recognised directly in equity

Dividends

8

-

-

(10,974)

(10,974)

As at 30 September 2020 (unaudited)

4,201

250,469

145,032

399,702

Issued

Share

Retained

Total

capital

premium

earnings

equity

Note

£000

£000

£000

£000

As at 31 March 2019 (audited)

3,982

225,680

196,961

426,623

Profit and total comprehensive

income for Period

-

-

727

727

Transactions with owners of the

Company, recognised directly in equity

Dividends

8

-

-

(13,307)

(13,307)

Issue of share capital

14

125

14,343

-

14,468

As at 30 September 2019 (unaudited)

4,107

240,023

184,381

428,511

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NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

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 (£000), except when otherwise indicated. The interim financial statements were authorised for issue in accordance with a resolution of the Directors on 30 November 2020.

  1. 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 2021 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 European Union, 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 2020 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.

The interim financial statements have been reviewed by the auditor and its report to the Company is included within these interim financial statements.

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.

2.2. 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.

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  1. Basis of preparation and accounting policies continued
  2. Key sources of judgements and estimation uncertainty
    Preparation of the interim financial statements requires the Company to make judgements and estimates and apply assumptions that affect the reported amount of revenues, expenses, assets and liabilities.

The areas where a higher degree of judgement or complexity arises are discussed below:

Valuation of investment property - Investment property is valued at the reporting date at fair value.

In making its judgement over the valuation of properties, the Company considers valuations performed by the independent valuers in determining the fair value of its investment properties. The valuers make reference to market evidence of transaction prices for similar properties. The valuations are based upon assumptions including future rental income, anticipated maintenance costs and appropriate discount rates. In response to the COVID-19 pandemic, 31 March 2020 valuations were subject to a 'material uncertainty' clause in line with prevailing RICS guidance, which has not been applied to 30 September 2020 valuations. In response to the COVID-19 pandemic, the Company's valuers used historical rent arrears to indicate the potential for further short-term disruptions in tenants' trading and rental payments as well as reflecting changes to market rents and yields. This approach means for certain assets occupied by tenants currently not trading or with trade significantly curtailed, the Company's valuers assumed a prospective three to six-month rental void and applied a yield increase of 25-75bps to valuations.

The areas where a higher degree of estimation uncertainty arises significant to the interim financial statements are discussed below:

Impairment of trade receivables - As a result of the COVID-19 pandemic the Company's assessment of expected credit losses is inherently subjective due to the forward-looking nature of the assumptions made, most notably around the assessment over the likelihood of tenants having the ability to pay rent as demanded, as well as the likelihood of rent deferrals and lease incentives being offered to tenants as a result of the pandemic. The expected credit loss which has been recognised is therefore subject to a degree of uncertainty which may not prove to be accurate given the uncertainty caused by COVID-19. Details of the changes made to the assessment of expected credit losses are set out in Note 10.

2.4. Going concern

Under Provision 30 of the UK Corporate Governance Code 2018 ("the Code"), the Board needs to report whether the business is a going concern and identify any material uncertainties to the Company's ability to continue to do so. The levels of rent collection since the onset of the COVID-19 pandemic have been ahead of base case forecasts made in June 2020 to support the going concern assessment for the year ended 31 March 2020. However, in considering the Code's requirements, the Investment Manager has continued to forecast prudently in particular regarding cash flows and borrowing facilities. This 12-month forecast indicates that:

  • The Company has surplus cash to continue in operation and meet its liabilities as they fall due;
  • Interest cover covenants on borrowings are complied with;
  • LTV covenants are not breached; and
  • REIT tests are complied with.

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

  1. Basis of preparation and accounting policies continued
  1. Going concern continued
    This assessment was subject to sensitivity analysis, which involved flexing a number of key assumptions and judgements included in the financial projections to understand what circumstances would result in potential breaches of financial covenants or the Company not being able to meet its liabilities as they fall due:
  • The anticipated level of rents deferred due to the impact of the COVID-19 pandemic;
  • Tenant default;
  • Length of potential void period following lease break or expiry;
  • Acquisition NIY, disposals, anticipated capital expenditure and the timing of deployment of cash;
  • Interest rate changes; and
  • Property portfolio valuation movements.

Sensitivity analysis considered the following areas:

Covenant compliance

The Company operates four loan facilities which are summarised in Note 13. At 30 September 2020 the Company has:

  • Significant headroom on lender covenants at a portfolio level, with Company net gearing of 23.4% and a maximum LTV covenant of 35% and £174.1m (32% of the property portfolio) unencumbered by the Company's borrowings; and
  • Covenant waivers with certain of its lenders for the December quarter-end and expects further covenant waivers to be made available if needed based on discussions with each lender.

Since the Period end the Company has charged, or is in the process of charging, five additional properties valued at £21.1m to alleviate short-term LTV covenant compliance pressure on individual security pools. On charging these additional assets each security pool will have at least 17% headroom on valuations before LTV covenants are breached, leaving £153.0m of unencumbered properties available to charge

if required.

Reverse stress testing has been undertaken to understand what circumstances would result in potential breaches of financial covenants. 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' going concern assessment. The testing indicated that at a portfolio level:

  • Following expiry of interest cover covenant waivers, the rate of loss or deferral of contractual rent would need to deteriorate by a further 44% from the levels included in the Company's forecasts to breach interest cover covenants; and
  • Property valuations would have to decrease by 29% from the 30 September 2020 position to risk breaching the overall 35% LTV covenant.

The Board notes that the September 2020 IPF Forecasts for UK Commercial Property Investment survey suggests an average 5.0% reduction in rents during 2020 and a 1.9% decrease in 2021, with capital value decreases forecast of between 4.0% and 16.0% in 2020 and a 1.8% decrease in 2021. 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 161 assets and circa 200 typically 'institutional grade' tenants across all commercial sectors.

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  1. Basis of preparation and accounting policies continued
  1. Going concern continued Liquidity At 30 September 2020 the Company has:
  • £26.2m of cash with gross borrowings of £150m resulting in low net gearing, with no short-term refinancing risk and a weighted average debt facility maturity of seven years;
  • An annual contractual rent roll of £39.2m, with interest costs on drawn loan facilities of only c. £4.4m per annum; and
  • Received 92% of rents due relating to the October - December 2020 quarter.

The Company has sufficient cash to settle its expense and interest liabilities for a period of at least

12 months, even assuming no further rent is collected. Liquidity is therefore not considered a key area of sensitivity for the going concern assessment.

The Board has considered the scenario used in covenant compliance reverse stress testing, where the rate of loss or deferral of contractual rent deteriorates by a further 44% from the levels included in the Company's prudent forecast, with dividends paid at the minimum required by the REIT regime. In this scenario all financial covenants and the REIT tests are complied with and the Company has surplus cash to settle its liabilities.

As detailed in Note 13, the Company's £35m RCF expires in September 2022 but can be extended by a further two years at the lender's discretion. The Board anticipates lender support in agreeing to the available extensions, and would seek to refinance the RCF with another lender or dispose of sufficient properties to repay it in September 2022 in the unlikely event of lender support being withdrawn.

The Company's financial resilience is described in the Chairman's statement.

Having due regard to these matters and after making appropriate enquiries, the Directors have 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.

2.5. 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 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 property as a portfolio, the Directors have identified a single operating segment, that of investment in commercial properties.

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

  1. Basis of preparation and accounting policies continued
  1. 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:
  • COVID-19pandemic response;
  • Loss of revenue;
  • Decrease 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;
  • Regulatory or legal changes; and
  • Business interruption from cyber or terrorist attack.

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 2020. The Company's principal risks and uncertainties have not changed materially since the date of that report but the following emerging risks are discussed in more detail in the Investment Manager's report which may change materially during the remaining six months of the Company's financial year and will be detailed within the Company's Annual Report for the year ending 31 March 2021:

  • COVID-19pandemic;
  • Brexit; and
  • Environmental.

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.

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3. Earnings per ordinary share continued

The following reflects the income and share data used in the basic and diluted earnings per share computations:

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

Net (loss)/profit and diluted net (loss)/profit attributable

to equity holders of the Company (£000)

(16,076)

727

2,123

Net losses on investment property (£000)

26,972

13,220

26,550

EPRA net profit attributable to equity holders

of the Company (£000)

10,896

13,947

28,673

Weighted average number of ordinary shares:

Issued ordinary shares at start of the Period (thousands)

420,053

398,203

398,203

Effect of shares issued during the Period (thousands)

-

6,978

11,508

Basic and diluted weighted average number of shares (thousands)

420,053

405,181

409,711

Basic and diluted EPS (p)

(3.8)

0.2

0.5

EPRA EPS (p)

2.6

3.4

7.0

4. Revenue

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Rental income from investment property

19,394

19,657

40,022

Income from recharges to tenants

892

838

881

20,286

20,495

40,903

5. Finance income

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Bank interest

27

10

36

27

10

36

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

6. Finance costs

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Amortisation of arrangement fees on debt facilities

170

148

286

Other finance costs

96

147

200

Bank interest

2,205

2,133

4,235

2,471

2,428

4,721

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 19.0%. The differences are explained below:

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

(Loss)/profit before income tax

(16,076)

727

2,123

Tax (benefit)/charge on profit at a standard rate of 19.0%

(30 September 2019: 19.0%, 31 March 2020: 19.0%)

(3,054)

138

403

Effects of:

REIT tax exempt rental losses/(profits)

3,054

(138)

(403)

Income tax expense for the Period

-

-

-

Effective income tax rate

0.0%

0.0%

0.0%

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.

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8. Dividends

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Interim equity dividends paid on ordinary shares

relating to the quarters ended:

31

March 2019: 1.6375p

-

6,521

6,521

30 June 2019: 1.6625p

-

6,786

6,786

30 September 2019: 1.6625p

-

-

6,828

31

December 2019: 1.6625p

-

-

6,867

31

March 2020: 1.6625p

6,983

-

-

30 June 2020: 0.95p

3,991

-

-

10,974

13,307

27,002

All dividends paid are classified as property income distributions.

The Directors approved an interim dividend relating to the quarter ended 30 September 2020 of 1.05p per ordinary share in October 2020 which has not been included as a liability in these interim financial statements. This interim dividend was paid on 30 November 2020 to shareholders on the register at the close of business on 6 November 2020.

9. Investment property

£000

At 31 March 2020

559,817

Impact of lease incentives

877

Additions

969

Capital expenditure

348

Disposals

(2,300)

Amortisation of right-of-use asset

(4)

Valuation decrease before acquisition costs

(27,388)

Acquisition costs

(69)

Valuation decrease including acquisition costs

(27,457)

As at 30 September 2020

532,250

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

9. Investment property continued

£000

At 31 March 2019

572,745

Impact of lease incentives

749

Capitalised costs relating to post Period-end acquisitions

222

Capital expenditure

1,933

Disposals

(15,325)

Amortisation of right-of-use asset

(4)

Valuation decrease before acquisition costs

(12,919)

Acquisition costs

(222)

Valuation decrease including acquisition costs

(13,141)

As at 30 September 2019

547,179

Included in investment property is £610k relating to right-of-uselong-leasehold assets.

The investment property is stated at the Directors' estimate of its 30 September 2020 fair value. Lambert Smith Hampton Group Limited ("LSH") and Knight Frank LLP ("KF"), professionally qualified independent valuers, valued the properties as at 30 September 2020 in accordance with the Appraisal and Valuation Standards published by the Royal Institution of Chartered Surveyors. LSH and KF have recent experience in the relevant location and category of the properties being valued. The 31 March 2020 valuations for all properties were subject to a 'material uncertainty' clause in line with prevailing RICS guidance. This clause has not been applied to 30 September 2020 valuations.

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 equivalent yields used ranged from 4.7% to 12.0%. Valuation reports are based on both information provided by the Company, e.g. 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 valuers, e.g. ERVs and yields. These assumptions are based on market observation and the valuers' professional judgement. In estimating the fair value of the property, the highest and best use of the properties is their current use. In response to the COVID-19 pandemic, the Company's valuers used historical rent arrears to indicate the potential for further short-term disruptions in tenants' trading and rental payments as well as reflecting changes to market rents and yields. This approach means for certain assets occupied by tenants currently not trading or with trade significantly curtailed, the Company's valuers assumed a prospective three to six-month rental void and applied a yield increase of 25-75bps to valuations.

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10. Trade and other receivables

Unaudited

Unaudited

Audited

as at

as at

as at

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Trade receivables before expected credit loss provision

10,220

2,475

4,700

Expected credit loss provision

(3,246)

(159)

(341)

Trade receivables

6,974

2,316

4,359

Other receivables

218

2,017

217

Prepayments and accrued income

562

607

721

7,754

4,940

5,297

The Company has provided fully for those receivable balances that it does not expect to recover based on a specific assessment of the reason for non-payment and the creditworthiness of the counterparty.

For remaining balances the Company has applied an updated expected credit loss ("ECL") matrix based on its experience of collecting rent arrears and deferred rents since the onset of COVID-19 disruption.

The ECL matrix fully provides for receivable balances more than 90 days past due, partially provides against receivable balances between one and 90 days past due and partially provides against receivable balances subject to contractual deferral.

The movement in the expected credit loss provision is recognised within directly incurred operating expenses of rental property of £3,781k in the income statement.

11. Trade and other payables

Unaudited

Unaudited

Audited

as at

as at

as at

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Falling due in less than one year:

Trade and other payables

2,956

2,056

2,091

Social security and other taxes

4,302

1,173

2,462

Accruals

2,717

2,699

2,563

Rental deposits and retentions

678

1,081

678

10,653

7,009

7,794

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.

Included within social security and other taxes is £3.5m of VAT relating to the period March-June 2020 due on 31 March 2021 due to the COVID-19 VAT payments deferral scheme.

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

12. Cash and cash equivalents

Unaudited

Unaudited

Audited

as at

as at

as at

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Cash and cash equivalents

26,205

41,659

25,399

Cash and cash equivalents at 30 September 2020 include £3.5m (2019: £16.5m, 31 March 2020: £0.9m)

of restricted cash comprising: £2.6m (2019: £nil, 31 March 2020: £nil) interest 'prepayments' in connection

with arranging interest cover covenant waivers, £0.7m (2019: £1.1m, 31 March 2020: £0.7m) rental deposits

held on behalf of tenants, £0.2m (2019: £0.2m, 31 March 2020: £0.2m) retentions held in respect of

development fundings and £nil (2019: £15.2m, 31 March 2020: £nil) disposal proceeds.

13. Borrowings

Costs

incurred in the

arrangement

Bank

of bank

borrowings

borrowings

Total

£000

£000

£000

At 31 March 2020

150,000

(1,677)

148,323

New borrowings

-

-

-

Costs incurred in the arrangement of bank borrowings

-

-

-

Amortisation

-

170

170

At 30 September 2020

150,000

(1,507)

148,493

Costs

incurred in the

arrangement

Bank

of bank

borrowings

borrowings

Total

£000

£000

£000

At 31 March 2019

139,000

(1,468)

137,532

New borrowings

13,500

-

13,500

Costs incurred in the arrangement of bank borrowings

-

(484)

(484)

Amortisation

-

148

148

At 30 September 2019

152,500

(1,804)

150,696

All of the Company's borrowing facilities require minimum interest cover of 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 2020 is set out in the Annual Report for the year ended 31 March 2020.

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14. Issued capital and reserves

Ordinary shares

Share capital

of 1p

£000

At 31 March 2020

420,053,344

4,201

Issue of share capital

-

-

At 30 September 2020

420,053,344

4,201

Ordinary shares

Share capital

of 1p

£000

At 31 March 2019

398,203,344

3,982

Issue of share capital

12,500,000

125

At 30 September 2019

410,703,344

4,107

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 earnings

All other net gains and losses and transactions with owners (e.g. dividends)

not recognised elsewhere.

15. Financial instruments Fair values

The fair values of financial assets and liabilities are not materially different from their carrying values in the half yearly financial report. The IFRS 13 'Fair Value Measurement' 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 or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
  • Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

There have been no transfers between levels 1, 2 and 3 during the Period. 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. These values were determined after having taken into consideration recent market transactions for similar properties in similar locations to the investment property held by the Company. The fair value hierarchy of investment property is level 3. At 30 September 2020, the fair value of investment property was £532.3m and during the Period the valuation decrease was £27.5m.

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

15. Financial instruments continued

Interest bearing loans and borrowings - level 3

As at 30 September 2020, the amortised cost of the Company's loans with Lloyds Bank plc, Scottish Widows plc and Aviva Real Estate Investors approximated their fair value.

Trade and other receivables/payables - level 3

The carrying amounts of all receivables and payables deemed to be due within one year are considered to reflect the fair value.

16. Related party transactions Directors and officers

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. 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 plc ("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.

During the period from 1 April 2020 to 22 June 2020 asset management and investment management fees payable to the Investment Manager under the IMA were calculated as follows:

  • 0.9% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200m divided by 4;
  • 0.75% of the NAV of the Company as at the relevant quarter day which is in excess of £200m but below £500m divided by 4; plus
  • 0.65% of the NAV of the Company as at the relevant quarter day which is in excess of £500m divided by 4.

During the period from 1 April 2020 to 22 June 2020 administrative fees payable to the Investment Manager under the IMA were calculated as follows:

  • 0.125% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200m divided by 4;
  • 0.08% of the NAV of the Company as at the relevant quarter day which is in excess of £200m but below £500m divided by 4; plus
  • 0.05% of the NAV of the Company as at the relevant quarter day which is in excess of £500m divided by 4.

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16. Related party transactions continued Investment Management Agreement continued

On 22 June 2020 the terms of the IMA were amended to extend the appointment of the Investment Manager for a further three years and to introduce further fee hurdles such that since 22 June 2020 asset management and investment management fees payable to the Investment Manager under the IMA were:

  • 0.9% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200m divided by 4;
  • 0.75% of the NAV of the Company as at the relevant quarter day which is in excess of £200m but below £500m divided by 4;
  • 0.65% of the NAV of the Company as at the relevant quarter day which is in excess of £500m but below £750m divided by 4; plus
  • 0.55% of the NAV of the Company as at the relevant quarter day which is in excess of £500m divided by 4.

Administrative fees payable to the Investment Manager under the IMA since 22 June 2020 were:

  • 0.125% of the NAV of the Company as at the relevant quarter day which is less than or equal to £200m divided by 4;
  • 0.08% of the NAV of the Company as at the relevant quarter day which is in excess of £200m but below £500m divided by 4;
  • 0.05% of the NAV of the Company as at the relevant quarter day which is in excess of £500m but below £750m divided by 4; plus
  • 0.03% of the NAV of the Company as at the relevant quarter day which is in excess of £750m divided by 4.

The IMA is terminable by either party by giving not less than 12 months' prior written notice to the other, which notice may only be given after the expiry of the three-year term. 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% (2019: 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 £1.63m (2019: £1.76m) in respect of

asset management and investment management fees, £0.21m (2019: £0.22m) in respect of administrative

fees and £nil (2019: £0.03m) in respect of marketing fees.

17. Events after the reporting date Property acquisitions

In November 2020 the Company acquired four industrial units covering an aggregate 23,250 sq ft on Hilton Business Park, Derby for £1.975m. The units are occupied by M P Bio Science, Shakespeare Pharma and Jangala Softplay with an aggregate passing rent of £134k per annum, reflecting a NIY of 6.39%.

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

18. Additional disclosures NAV per share total return

A 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.

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

Net assets (£000)

399,702

428,511

426,752

Shares in issue at the Period end (thousands)

420,053

410,703

420,053

NAV per share at the start of the Period (p)

101.6

107.1

107.1

Dividends per share paid during the Period (p)

2.6125

3.325

6.625

NAV per share at the end of the Period (p)

95.2

104.3

101.6

NAV per share total return

(3.7%)

0.4%

1.1%

Share price total return

A 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.

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

Share price at the start of the Period (p)

99.0

111.2

111.2

Dividends per share for the Period (p)

2.6125

3.325

6.625

Share price at the end of the Period (p)

88.8

117.6

99.0

Share price total return

(7.7%)

8.7%

(5.0%)

Premium of share price to NAV per share

The difference between the Company's share price and NAV, shown as a percentage at the end of the Period.

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

NAV per share (p)

95.2

104.3

101.6

Share price at the end of the year (p)

88.8

117.6

99.0

(Discount)/premium

(6.7%)

12.8%

(2.6%)

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18. Additional disclosures continued Net gearing

Gross borrowings less unrestricted cash, divided by property portfolio value.

Unaudited

Unaudited

Audited

as at

as at

as at

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Gross borrowings

150,000

152,500

150,000

Cash

(26,205)

(41,659)

(25,399)

Tenant rental deposits and retentions

908

1,328

911

Net borrowings

124,703

112,169

125,512

Investment property

532,250

547,179

559,817

Net gearing

23.4%

20.5%

22.4%

EPRA EPS

EPRA earnings represent the earnings from core operational activities, excluding investment property valuation movements and gains or losses on asset disposals. It demonstrates the extent to which dividend payments are underpinned by recurring operational activities.

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

(Loss)/profit for the Period after taxation

(16,076)

727

2,123

Net losses on investment property

26,972

13,220

26,550

EPRA earnings

10,896

13,947

28,673

Weighted average number of shares in issue (thousands)

420,053

405,181

409,711

EPRA EPS (p)

2.6

3.4

7.0

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NOTES TO THE INTERIM FINANCIAL STATEMENTS CONTINUED

FOR THE PERIOD ENDED 30 SEPTEMBER 2020

18. Additional disclosures continued EPRA vacancy rate

EPRA vacancy rate is the ERV of vacant space as a percentage of the ERV of the whole property portfolio.

Unaudited

Unaudited

Audited

6 months to

6 months to

12 months to

30 Sept

30 Sept

31 Mar

2020

2019

2020

£000

£000

£000

Annualised potential rental value of vacant premises

3,024

1,862

1,745

Annualised potential rental value for the property portfolio

42,516

40,946

42,600

EPRA vacancy rate

7.1%

4.5%

4.1%

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DIRECTORS' RESPONSIBILITIES FOR THE INTERIM FINANCIAL STATEMENTS

The Directors have prepared the interim financial statements of the Company for the period from 1 April 2020 to 30 September 2020.

We confirm that to the best of our knowledge:

  1. The condensed interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;
  2. The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;
  3. The interim financial statements include a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year, and their impact on the Condensed Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
  4. The interim financial statements include a fair review of the information required by DTR 4.2.8R of the Disclosure and Transparency Rules, being material related party transactions that have taken place in the first six months of the current financial year and any material changes in the related party transactions described in the last Annual Report.

A list of the current Directors of Custodian REIT plc is maintained on the Company's website at custodianreit.com.

By order of the Board

DAVID HUNTER

Chairman

30 November 2020

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INDEPENDENT REVIEW REPORT TO CUSTODIAN REIT PLC

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 2020, which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows, the condensed consolidated statement of changes in equity and related Notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, 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.

As disclosed in Note 2.1, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 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. 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.

Conclusion

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 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. 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

Crawley, United Kingdom

30 November 2020 

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COMPANY INFORMATION

Directors

David Hunter

(Independent Non-Executive Chairman)

Barry Gilbertson

(Senior Independent Non-Executive Director)

Ian Mattioli MBE

(Non-Executive Director)

Matthew Thorne

(Independent Non-Executive Director)

Hazel Adam

(Independent Non-Executive Director)

Company Secretary

Ed Moore

Registered office 1 New Walk Place Leicester

LE1 6RU

Registered number 08863271

Investment Manager

Custodian Capital Limited

1 New Walk Place

Leicester

LE1 6RU

Depositary

Langham Hall UK Depositary LLP

1 Fleet Place

London

EC4M 7RA

Broker

Numis Securities Limited

The London Stock Exchange Building

10 Paternoster Square

London

EC4M 7LT

Banker

Lloyds Bank plc

114-116 Colmore Row Birmingham

B3 3BD

Solicitors

DWF LLP

20 Fenchurch Street

London

EC3M 3AG

Walker Morris LLP

Kings Court

12 King Street

Leeds

LS1 2HL

Tax adviser

KPMG LLP

One Snowhill

Snow Hill Queensway

Birmingham

B4 6GH

Registrars

Link Market Services Limited

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

Valuers

Lambert Smith Hampton Group Limited

UK House

180 Oxford Street

London

W1D 1NN

Knight Frank LLP

55 Baker Street

London

W1U 8AN

Auditor

Deloitte LLP

Park House

Crawley Business Quarter

Manor Royal

Crawley

RH10 9AD

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FINANCIAL CALENDAR

5 November

Ex-dividend date for Q2 dividend

6 November

Record date for Q2 dividend

30 November

Payment of Q2 dividend

1 December

Announcement of results for the period ended 30 September 2020

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Design and Production www.carrkamasa.co.uk

1 New Walk Place

Leicester

LE1 6RU

0116 240 8740 custodianreit.com

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Custodian REIT plc published this content on 16 December 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 December 2020 15:34:06 UTC