5 November 2015
Custodian REIT’s proposed issue of equity
The Board of Custodian REIT today announces that the Company proposes to raise gross proceeds of up to £50 million, with the ability to increase this to up to £75 million (approximately £48.8 million and £73.4 million, respectively, net of expenses) through the issue of up to 71,976,967 new Ordinary Shares by way of a Placing, an Open Offer and an Offer for Subscription (the “Issue”), all at 104.2 pence per Ordinary Share (the ‘‘Issue Price’‘). In addition to the Issue, the Company is facilitating potential issues of up to 100 million Ordinary Shares pursuant to a rolling twelve month Placing Programme.
The Company has published a prospectus relating to the Issue and the Placing Programme (the “Prospectus”) which will be available on the Company’s website (http://www.custodianreit.com) and will be posted to Shareholders on Friday 6 November 2015.
Unless otherwise defined, capitalised words and phrases in this announcement shall have the meaning given to them in the Prospectus.
Current trading and prospects
As at 31 October 2015 the value of the Property Portfolio was approximately £246 million and consisted of 101 assets held directly by the Company. The Property Portfolio is held in accordance with the Investment Policy and the Investment Objective and accordingly the properties are diversified by region, sector and income.
In order to fund property acquisitions and the Company’s general working capital requirements, as at 31 October 2015, approximately £64.6 million had been raised by the issue of Ordinary Shares since the Initial Admission Date, at an average premium of 6% to the prevailing NAV at the time of each such issue. The success of such issues has allowed the Company to seek to maximise the opportunities in the property market and exploit economies of scale relating to ongoing charges. This has been further enhanced by drawing and deploying £20 million of variable rate, five year term debt and £20 million of ten year fixed rate debt to meet the Company’s gearing target of 25% loan to value, which, as at the date of the Prospectus, was 17.3%.
The Company believes that the current property market dynamic supports its strategy of targeting a high income return, fully covered by income from smaller lot size properties across regional markets.
The Investment Manager anticipates that demand for property will continue from across the investor spectrum as interest rates stay ‘‘lower for longer’‘ and that a competitive investment market has the potential to generate value growth.
The Company’s focus on smaller lot sizes has allowed it to secure a strong pipeline of opportunities and it is expected that lesser levels of competition for these assets will endure, with many larger funds continuing to sell their smaller lots.
Given this market dynamic, and an expectation of continued growth in the regions, it is anticipated that the Company’s typical investment in good quality secondary regional property will show value relative to larger lots. This value may be expressed through a higher initial income yield, but also through opportunities for future rental growth which are not ‘‘priced-in’‘ to every deal.
Reasons for the Issue and use of proceeds
To capitalise on current opportunities to invest in commercial real estate properties in the UK, the Company proposes to raise further capital to make further investments. To ensure the Company’s continued compliance with the Investment Policy and the Facilities Agreements, the Directors believe that the most effective method of raising such funds is to complete the Issue and the Placing Programme.
The net proceeds of the Issue and the Placing Programme are expected to be used first to repay amounts drawn under the RCF (approximately £3.9 million as at 31 October 2015) and then invested by the Company within a period of six to nine months after Admission (depending on the amount of net proceeds of the Issue) in the property pipeline (including the Target Portfolio discussed below) and additional UK commercial real estate properties to complement the properties in the Property Portfolio.
The Company recently entered into non-legally binding heads of terms to acquire a portfolio of 11 UK commercial properties for an aggregate consideration of approximately £69.4 million. The Target Portfolio is consistent with the Investment Policy, comprising smaller size, good quality, secondary offices, retail and industrial assets diversified by tenant and region. The tenant covenant profile also meets the minimum criteria set out in the Investment Policy.
It is intended, subject to the completion of due diligence and to contract, that the acquisition of the Target Portfolio will be completed in two tranches in early January 2016. First, it is intended that approximately £28 million of assets will be acquired through a combination of the Company’s existing cash resources and capacity under the RCF. Second, it is intended that the balance of the Target Portfolio (or part thereof) will be acquired by the Company subject to the availability of net proceeds of the Issue and the Placing Programme.
Following the intended acquisition of the Target Portfolio, the weighted average unexpired lease term of the Property Portfolio as a whole would stand at approximately 6.1 years. The Board believes the acquisition will enhance returns to Shareholders while improving dividend cover and offering the potential for a number of asset management opportunities.
In addition to the Target Portfolio, the Company has committed pipeline investments in the form of the funding of pre-let industrial developments in Cannock and Stevenage, and the completion of the refurbishment of an industrial unit in Milton Keynes. This committed pipeline totals approximately £5 million of further investment. The Company also has a £6.6 million leisure park under offer and the Investment Manager continues to track other investment opportunities including a single let industrial property, a high street retail property adjoining an existing portfolio holding and a city centre office building. The combined value of these other opportunities is approximately £12.5 million.
Principal terms of the Issue
Up to 71,976,967 Ordinary Shares are available under the Issue at the Issue Price of 104.2 pence per Ordinary Share to raise up to £75 million (before expenses), of which 38,661,131 Ordinary Shares, to raise approximately £40.3 million (before expenses), are first available to existing Shareholders. The total number of Ordinary Shares issued under the Issue will be determined by Numis, after consultation with the Company and the Investment Manager, and will be notified by the Company via an RIS announcement and the Company’s website, prior to Admission.
All elements of the Issue have the same Issue Price. The Issue Price was set based on the Directors’ assessment of market conditions and to ensure the Issue Costs are at least covered by the premium of the Issue Price over the NAV per Ordinary Share.
At the Annual General Meeting of the Company held on 22 July 2015, the Directors sought approval from Shareholders for, amongst other things, approval to allot new Ordinary Shares. The necessary resolutions were passed by the Shareholders and the Directors now have unused authority and power to allot up to 80,952,829 Ordinary Shares, without being required to first offer such Ordinary Shares to Shareholders. If required, the Directors may convene a general meeting of the Company to seek further authorities to allot Ordinary Shares as and when required to enable the Placing Programme to be fully implemented.
09 Nov 2022
08 Nov 2022
21 Oct 2022
06 Oct 2022
13 Sep 2022