Custodian REIT plc : Statement on Coronavirus (COVID-19)

9 April 2020

Custodian REIT plc

("Custodian REIT" or "the Company")

Statement on Coronavirus (COVID-19)

Custodian REIT (LSE: CREI), the UK commercial real estate investment company, provides the following update on the impact of the COVID-19 pandemic.  The Company's focus is on managing cash resources and maintaining liquidity to mitigate the risks associated with a period of uncertainty created by the global health emergency. 

The health and safety of colleagues, tenants and our wider stakeholders remain the Company's top priority.  We continue to monitor closely the recommendations issued by the World Health Organisation, UK Government, Public Health England, the NHS and other relevant authorities and we are complying with these recommendations across our business. 

Dividends

The Board intends to make the fourth quarterly interim dividend payment relating to the quarter ending 31 March 2020 of 1.6625p per share on 29 May 2020, reflecting the full collection of rent for that period.

We are experiencing an inevitable disruption to cash collection in the current quarter as a number of tenants seek to defer rental payments in order to protect their own cash flows.  As a result, the current level of dividend is not expected to be fully supported by net rental receipts going forward.  The Company intends to continue to pay quarterly dividends at a level broadly linked to net rental receipts, with support from prior years' undistributed reserves if required, of no less than an aggregate 1.5p per share for the first half of the financial year ending 31 March 2021, until deferred rents can be collected and the dividend can return towards the target level. 

Financial resilience

The extraordinary circumstances imposed by COVID-19 find the Company in good financial health, having:

• A diverse and high-quality asset and tenant base - the Company has 161 assets last valued at £571.2m at 31 December 2019, with over 250 typically 'institutional grade' tenants across all commercial sectors with a current occupancy rate[1] of more than 95%;
• Low levels of net debt - the Company holds £25m of cash and has gross borrowings of £150m resulting in low net-gearing with no short-term refinancing risk and a seven year weighted average debt facility maturity;
• Significant headroom on borrowings covenants - the maximum 35% loan to value ("LTV") and minimum 250% interest cover[2] covenants compare to prevailing net-gearing[3] of 21.9% LTV and aggregate interest cover on borrowings of more than 600% at 31 March 2020, albeit covenants on individual facilities may come under some short-term pressure;
• An annual contractual rent roll of £40.8m, with interest costs if loan facilities are fully drawn of only £5.1m per annum; and
• Put pipeline acquisitions on hold to preserve cash.

The Company operates four loan facilities, each of which has a discrete allocation of the Company's individual properties over which the relevant lender has security.  Each loan has covenants over the LTV and interest cover of its discrete security pool.  In the expectation that interest cover covenants on some individual loans at 30 June 2020 may come under pressure, the Company is in advanced discussions with its lenders to agree covenant waivers for the next two quarters in return for depositing amounts equivalent to interest into charged accounts.

While LTV covenants are not currently a concern, approximately £191.3m (33%) of the Company's property portfolio is unencumbered by its borrowings.  These unencumbered assets could, in the future, be charged individually by one or more of the Company's lenders to cure any potential covenant breaches. 

Rent collection

The Investment Manager is working closely with tenants to support them through these challenging times, to maintain occupancy levels and to protect long-term rental receipts.

The Company's rent invoicing profile comprises quarterly in advance on both English and Scottish quarter days and monthly in advance.  Following negotiations regarding the March quarter rent, the Company has agreed that a number of tenants move from quarterly in advance to monthly in advance rent payments, or defer the March quarter's rent with a full recovery over the next 12 months.  Some tenants have yet to agree a payment profile, but the Investment Manager remains in active discussion with over 40 tenants to agree payment plans for the balance of outstanding rent, which remains contractually due. 

Given the varied profile of the Company's rental invoicing, the Board believes reporting rent collected relating to the month of April best reflects the prevailing level of income generation from the Company's property portfolio.  So far, 67% of rent due relating to the month of April has been collected, with a further 5% expected to be received shortly.

While the short-term picture is challenging and hard to predict, the long-term case for property investment remains. The defensive nature of Custodian REIT's investment strategy and diverse portfolio should continue to support returns for shareholders.

- Ends -

Further information:

Further information regarding the Company can be found at the Company's website www.custodianreit.com or please contact:

Notes to Editors

Custodian REIT plc is a UK real estate investment trust, which listed on the main market of the London Stock Exchange on 26 March 2014.  Its property portfolio comprises properties predominantly let to institutional grade tenants on long leases throughout the UK and is principally characterised by properties with individual values of less than £10m at acquisition.

The Company offers investors the opportunity to access a diversified property portfolio of UK commercial real estate through a closed-ended fund.  By targeting sub £10m lot-size, regional properties, the Company intends to provide investors with an attractive level of income with the potential for capital growth. 

Custodian Capital Limited is the discretionary investment manager of the Company.

For more information visit www.custodianreit.com and www.custodiancapital.com.

[1] Passing rent of let property divided by passing rent of let property plus estimated rental value of vacant property.

[2] Historical rental income received and projected contractual rental income receivable less certain property expenses divided by interest payable.

[3] Gross borrowings less unrestricted cash divided by last published property portfolio valuation.