23 January 2015

Custodian REIT: Intention to issue equity

Following the Company’s admission to the Official List on 26 March 2014 (“IPO”) and further equity issue on 8 October 2014, the Board today announces that in light of the level of cash deployed since IPO and the pipeline of current investment opportunities, it is making available additional new ordinary shares (“New Shares”) under the Placing Programme established in the Company’s February 2014 prospectus (“the Issue”). The Board intends to raise approximately £20 million (before costs and expenses) but reserves the right to increase the issue size in light of demand.

The company has contractually committed to deploy cash of £2.5 million on a pre-let development funding and has £6.5 million of properties under offer, which subject to satisfactory acquisition due diligence are expected to complete within the next two weeks. These acquisitions, which would be funded from debt, will increase loan to value to 18.2% (£35 million), compared to the target gearing of 25.0% loan to value, leaving limited headroom for further investment. However, the Board believes there is a significant opportunity, in the context of market developments explained below, to acquire further assets that can increase diversification in the portfolio and enhance income yield.

The Company’s target dividend is 5.25 pence per share in the year ending 31 March 2015 and 6.25 pence per share in subsequent years. Since IPO the Company has invested £87.5 million at an average net initial yield of 7.5%, which has supported the Company’s ability to fully cover the target dividend. This has been achieved without compromising the quality of property, location, tenant or unexpired lease term despite yield compression in the broader market and consequent price inflation.

The principal focus of investor demand from institutional or open-ended funds, public property companies and overseas investors has been for lot sizes greater than £10 million, leading to strong competition for these larger assets. Many of these investors have been simultaneously selling their smaller properties creating a strong pipeline of high quality assets that fit Custodian REIT’s investment strategy. The Company has targeted these high quality, regional property assets of lot size below £7.5 million and has benefitted from a significant net initial yield advantage accordingly. The Board believes these market dynamics will continue through the first half of 2015 and that the property market is at the beginning of a phase of rental growth, which will enhance future income returns and support capital value growth over the long-term.

This placing will therefore support the investment strategy and allow the Company to maximise the current market opportunity.

The Issue will be made to Qualified Investors (as defined in section 86(7) of the Financial Services and Markets Act 2000 (as amended)) through Numis Securities Limited (“Numis”), and application made for the admission of the New Shares to the premium segment of the Official List of the UK Listing Authority and to trading on the London Stock Exchange plc’s main market for listed securities.

The Issue is expected to close at 12.00 p.m. (London time) on 12 February 2015, with admission on 17 February 2015, but may close earlier or later at the absolute discretion of the Company and Numis. The issue price per New Share will be 104 pence which is a premium of 5% to the net asset value (“NAV”) per share at 31 December 2014, having deducted the proposed third quarter dividend of 1.25p which is payable to shareholders on the register at the close of business on 6 February 2015.

Qualified Investors are invited to apply for New Shares by contacting Nathan Brown or Hugh Jonathan at Numis on +44 (0)20 7260 1000. The decision to allot New Shares to any Qualified Investor and the actual issue size shall be at the absolute discretion of the Company and Numis.

The Board and the Fund Manager believe the Issue is in Shareholders’ interests as it will increase the Company’s NAV and offer the opportunity to further diversify its portfolio, with the proceeds expected to be invested on a timely basis consistent with the Company’s published objectives.