Custodian Property Income REIT plc: Continued strong leasing supporting a c. 8% dividend yield
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Custodian Property Income REIT plc (CREI)
8 August 2024
Custodian Property Income REIT plc
(“Custodian Property Income REIT” or “the Company”)
Continued strong leasing supporting a c. 8% dividend yield
Custodian Property Income REIT (LSE: CREI), which seeks to deliver an enhanced income return by investing in a diversified portfolio of smaller, regional properties with strong income characteristics across the UK, today provides a trading update for the quarter ended 30 June 2024 (“Q1” or the “Quarter”).
Strong leasing activity continues to support rental growth and underpins fully covered dividend
Valuations now stabilised across the Company’s c.£580m portfolio
Asset recycling continues to generate aggregate proceeds in excess of valuation
Redevelopment and refurbishment activity continues to be accretive with an expected yield on cost of c.7%
Prudent debt levels
The Company paid total dividends per share of 1.675p on 31 May 2024, comprising the FY24 Q4 target dividend of 1.375p and a fifth interim (special) dividend of 0.3p, resulting in aggregate dividends relating to the year ended 31 March 2024 of 5.8p, fully covered by EPRA earnings.
The Board has approved a fully covered interim dividend per share of 1.5p for the Quarter payable on Friday 30 August 2024 to shareholders on the register on 12 July 2024, which will be designated as a property income distribution (“PID”).
Net asset value
The Company’s unaudited NAV at 30 June 2024 was £410.3m, or approximately 93.1p per share:
The unaudited NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation at 30 June 2024 and net income for the Quarter. The movement in unaudited NAV reflects the payment of interim dividends per share of 1.375p and 0.3p during the Quarter, but as usual this does not include any provision for the approved dividend of 1.5p per share for the Quarter to be paid on Friday 30 August 2024.
Market update
In the six months to 30 June 2024 Custodian Property Income REIT recorded near flat valuations, with headline valuations for the Quarter up 0.3% on a like-for-like basis, but down 0.1% net of capital expenditure. After a period of stabilisation, the trajectory of valuations appears to be turning positive and the Company, together with its peers, has a more optimistic outlook.
Investors in listed real estate have reason to be optimistic with falling vacancy rates, rental growth and discounted share prices creating generous dividend yields and room for share price recovery. Along with the recent cut in interest rates which we expect to support valuations further, we believe this could be a very opportune time for investors to re-engage with real estate.
LSH’s recent UK Investment Transactions report recorded a 12% increase in UK transaction volumes for the six months to 30 June 2024, albeit this is still below the five-year average. CBRE’s UK Mid-Year Market Outlook reported stronger signs of a turning point for real estate noting inflation is on target and cost of living pressures have moderated, creating space for consumer demand to rebound. Overall, according to this report, the economic backdrop is positive for both occupiers and investors.
This positive outlook has flowed through into the Custodian Property Income REIT portfolio which has recorded a 1.2% like-for-like increase in the passing rent over the Quarter to £43.6m and a 1.0% increase in the estimated rental value of the portfolio. The portfolio now offers reversionary potential of 13%, reflecting the reversion captured and sales undertaken during the Quarter. This has supported earnings per share of 1.5p, fully covering the target dividend.
An example of the dynamic nature of rental growth being delivered is the settlement of a rent review during the Quarter at the Company’s 55k sqft warehouse in Tamworth where the annual rent, set in 2018, was £359k and our independent estimated rental value, based on evidence in the market, was £400k. Such is the shortage of supply and the rapid pace of change in letting markets we recently agreed the rent review at £508k, crystallising a 42% increase in rent.
The Investment Manager has remained focused on active asset management during the Quarter, completing three rent reviews at an aggregate 41% increase in annual rent from £0.9m to £1.3m, along with nine new lettings, lease renewals and lease regears, with rental levels remaining affordable to our occupiers. In aggregate these initiatives increased property capital value by £0.8m and had a positive impact on weighted average unexpired lease term, which only decreased to 4.7 years during the Quarter. (31 Mar 24: 4.9 years)
Details of these asset management initiatives are shown below:
Rent reviews
Three rent reviews undertaken at an aggregate 11% above ERV and increasing the aggregate rent by 41% comprising new annual rent of:
Renewals
Two lease renewals signed in line with previous passing rent and 6% ahead of ERV:
New leases
A further £0.3m of new rental income was added through seven new leases completed on vacant units, in line with ERV, during the Quarter:
Since the Quarter end the Company has completed two lease renewals and three new leases at a combined average of 35% above the previous passing rent:
In addition, two 12-month fixed term leases of the remaining flats in Shrewsbury have been agreed, delivering annual aggregate income of £23k.
Occupancy
EPRA occupancy has remained at 92%, with the impact of new lettings and the sale of vacant assets offset by the exit of an industrial tenant in Plymouth at lease expiry which was no longer in occupation. We are progressing plans for a comprehensive refurbishment of the property whilst interest from owner-occupiers to purchase the property is assessed.
Sustainability
The Company published its Asset Management and Sustainability report In June 2024 which is available at: custodianreit.com/environmental-social-and-governance-esg/. This report contains details of the Company’s asset management initiatives over the previous 12 months including case studies of recent positive steps taken to improve the environmental performance of the portfolio.
Disposals
During the Quarter a vacant former car showroom in Redhill and a vacant industrial property in Warrington were sold for £11.3m. In aggregate these disposals were made 49% ahead of their 31 December 2023 valuations and broadly in line with prevailing valuations.
The Company has three smaller units under offer to sell with aggregate expected proceeds of £4.0m.
Borrowings
At 30 June 2024 the Company had £168.0m of debt drawn at an aggregate weighted average cost of 3.9% (31 Mar 24: 4.1%) with no expiries until August 2025 and diversified across a range of lenders. This debt comprised:
At 30 June 2024 the Company’s borrowing facilities are:
Variable rate borrowing
Fixed rate borrowing
Each facility has a discrete security pool, comprising a number of individual properties, over which the relevant lender has security and covenants:
Portfolio analysis
At 30 June 2024 the portfolio is split between the main commercial property sectors, in line with the Company’s objective to maintain a suitably balanced investment portfolio. Sector weightings are shown below:
For details of all properties in the portfolio please see custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's website custodianreit.com or please contact:
Notes to Editors
Custodian Property Income 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 portfolio comprises properties predominantly let to institutional grade tenants throughout the UK and is principally characterised by smaller, regional, core/core-plus properties.
The Company offers investors the opportunity to access a diversified portfolio of UK commercial real estate through a closed-ended fund. By principally targeting smaller, regional, core/core-plus properties, the Company seeks 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 custodianreit.com and custodiancapital.com. [1] Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in issue. [2] Price on 7 August 2024. Source: London Stock Exchange. [3] Adjusting for property acquisitions, disposals and capital expenditure. [4] ERV of let property divided by total portfolio ERV. [5] NAV per share movement including dividends paid during the Quarter. [6] Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation. [7] Comprises drive-through restaurants, car showrooms, trade counters, gymnasiums, restaurants and leisure units.
Dissemination of a Regulatory Announcement that contains inside information in accordance with the Market Abuse Regulation (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. |
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| ISIN: | GB00BJFLFT45 |
| Category Code: | MSCH |
| TIDM: | CREI |
| LEI Code: | 2138001BOD1J5XK1CX76 |
| OAM Categories: | 3.1. Additional regulated information required to be disclosed under the laws of a Member State |
| Sequence No.: | 339222 |
| EQS News ID: | 1963417 |
| End of Announcement | EQS News Service |
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