Custodian REIT discusses CVAs – In its full year results, Custodian REIT discloses that it made a 9.6% return on NAV over the year ended 31 March 2018. EPRA earnings per share rose to 6.9p from 6.6p. The 2019 target dividend per share has been increased to 6.55p (2018: 6.45p). The return to shareholders was 6.7%.
Within the portfolio, rent reviews showed increases ranging from 2% to 87% with an 18% average adding GBP0.5m to the rent roll.
During the year they invested a total of GBP106.3m on the completion of 20 acquisitions, one ongoing pre-let development and one significant refurbishment, funded principally by GBP54.7m raised from the issue of new shares and GBP50.0m of new term debt. Increasing the scale of the company and a continued focus on controlling costs has reduced the ongoing charges ratio (excluding direct property expenses) from 1.20% to 1.15%.
The manager says rising valuations were principally driven by market pricing for industrial and logistics assets, which make up 39% of the portfolio, but, against that, they have also seen softening in pricing for high street retail which makes up only 14% of the portfolio.
CVAs in retail property
In secondary retail locations they expect to experience one or two rental reductions at lease expiry. Across the sector as a whole, some tenants have taken matters into their own hands to bring about early rental reductions with the aggressive use of company voluntary arrangements (“CVAs”) to step away from their lease obligations or to reduce rents. Custodian REIT has been largely unaffected by this. They have no exposure to House of Fraser or New Look and the lease over a restaurant let to Prezzo was assigned in advance of its CVA so they were unaffected, but Carpetright’s CVA has resulted in a 25% reduction in rent at their Grantham store (a GBP25k drop in rent representing 0.07% of the company’s rent roll). This is perhaps where Custodian REIT has the greatest protection against the impact of CVAs or other tenant failure, as the company’s largest tenant represents only 3.2% of the total rent roll and with 201 tenants any instance of tenant default will have only a muted impact on the company.
CREI : Custodian REIT discusses CVAs