REG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Continued strong leasing supporting a c. 8% dividend yield
08/08/2024 07:15
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Custodian Property Income REIT plc (CREI)
Custodian Property Income REIT plc: Continued strong leasing supporting a c.
8% dividend yield
08-Aug-2024 / 07:00 GMT/BST
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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
• 1.5p dividend per share approved for the Quarter, fully covered by
unaudited European Public Real Estate Association (“EPRA”) earnings per
share 1 1 , in line with target of at least 6.0p for the year ending 31
March 2025 (FY24: 5.8p). This target dividend represents a 7.7% yield
based on the prevailing 78p share price 2 2
• EPRA earnings per share of 1.5p for the Quarter (FY24 Q4: 1.5p)
• During the Quarter, 1.2% increase in like-for-like 3 3 passing rent and
1.0% increase in like-for-like estimated rental value (“ERV”), driven by
rental growth in the industrial sector, with all other sectors showing
stable ERVs
• Portfolio ERV (£49.4m) exceeds passing rent (£43.6m) by 13% (31 Mar 2024:
15%) reflecting the reversion captured and sales undertaken during the
Quarter. There remains significant potential to grow rental income by
capturing reversion typically at five-yearly rent reviews or on
re-letting, in addition to continuing to drive rental growth through
asset management
• Leasing activity during the Quarter added £0.7m of new annual rent,
comprising:
◦ Three rent reviews on industrial assets at an aggregate 11% ahead of
ERV and 41% above previous passing rent;
◦ Two renewals agreed in aggregate in line with previous passing rent
and at a 6% premium to ERV; and
◦ Seven new leases across various sectors adding £0.3m of new rent, in
line with ERV.
• EPRA occupancy 4 4 has remained stable at 92% (31 Mar 2024: 92%) and is
expected to rise towards 95% when vacant property currently under offer
to let or sell is excluded. A further 1% of ERV is vacant but subject to
refurbishment
• Asset management initiatives completed during the Quarter increased
property capital values by £0.8m
Valuations now stabilised across the Company’s c.£580m portfolio
• The valuation of the Company’s portfolio of 153 assets of £579.6m
remained flat on a like-for-like basis during the Quarter, net of a £0.8m
valuation increase from active asset management activity (FY24 Q4: £2.0m
increase from asset management) and £1.9m of capital expenditure
• Q1 net asset value (“NAV”) total return per share 5 5 of 1.6%
• NAV per share of 93.1p (31 Mar 2024: 93.4p) with a NAV of £410.3m (31 Mar
2024: £411.8m)
Asset recycling continues to generate aggregate proceeds in excess of
valuation
• During the Quarter a former car showroom in Redhill and an industrial
property in Warrington were sold for £11.3m, an aggregate 49% ahead of
their 31 December 2023 valuations
• Proceeds from disposals have been used to reduce variable rate borrowings
Redevelopment and refurbishment activity continues to be accretive with an
expected yield on cost of c.7%
• £1.9m of capital expenditure undertaken during the Quarter, primarily
relating to office refurbishments in Leeds and Manchester, expected to
enhance the assets’ valuations and environmental credentials and, once
let, increase rents to give a yield on cost of at least 7%, ahead of the
Company’s marginal cost of borrowing
• During the Quarter the Company generated £0.1m of revenue from its owned
solar panel arrays, selling the clean electricity generated to tenants
and exporting any surplus. During the Quarter new solar arrays in
Swansea and Warrington were brought into use with further installations
planned during the remainder of the financial year
• Weighted average energy performance certificate rating has remained at
C(53) with re-ratings being carried out across six assets during the
Quarter
Prudent debt levels
• Net gearing 6 6 was 28.8% loan-to-value as of 30 June 2024 (31 Mar 24:
29.2%) with property disposals during the Quarter drawing the LTV closer
to the Company’s 25% medium-term target
• £168.0m of drawn debt comprising £140m (83%) of fixed rate debt and £28m
(17%) drawn under the Company’s available revolving credit facility
(“RCF”)
• Weighted average cost of aggregate borrowings has decreased to 3.9% (31
Mar 24: 4.1%) due to proceeds from the disposal of properties being used
to repay the RCF
• Fixed rate debt facilities have a weighted average term of 5.8 years and
a weighted average cost of 3.4% offering significant medium-term interest
rate risk mitigation
Dividends
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:
Pence per share £m
NAV at 31 March 2024 93.4 411.8
Valuation decrease and profit on disposal (0.1) (0.8)
EPRA earnings for the Quarter 1.5 6.7
Interim quarterly dividend, paid during the Quarter, (1.4) (6.1)
relating to FY24 Q4
0.1 0.6
Special dividend, paid during the Quarter, relating to (0.3) (1.3)
FY24
NAV at 30 June 2024 93.1 410.3
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.
Investment Manager’s commentary
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.
Asset management
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:
• £579k with Next at an industrial unit in Motherwell;
• £173k with Arkote at an industrial unit in Sheffield; and
• £508k with ICT Express at an industrial unit in Tamworth.
Renewals
Two lease renewals signed in line with previous passing rent and 6% ahead of
ERV:
• For 10 years to Jangala Soft Play at a warehouse unit in Hilton, with an
annual rent of £48k, increasing the valuation by £0.1m; and
• For five years to Superdrug with a third-year break option at a retail
unit in Southsea, at an annual rent of £46k, increasing the valuation by
£0.1m.
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:
• A 10-year lease with a five-year tenant break option and open market rent
review to Ark Housing Association on an office unit in Edinburgh, at an
annual rent of £92k, increasing valuation by £0.3m
• Two five-year leases to Razor Oil Tools with third year tenant break
options at industrial units in Aberdeen, with aggregate annual rent of
£64k, increasing valuation by £0.2m
• A five-year lease to KWB Property Management at an office suite in
Birmingham, with an annual rent of £48k, increasing valuation by £0.1m
• Two of four newly refurbished flats in Shrewsbury, recently converted
from vacant retail storage space, successfully let on 12 month and 36
month fixed terms respectively with aggregate income of £25k
• A new 10-year lease with fifth year break option and open market rent
review to McLaren Group, on an office suite in Glasgow, with an annual
rent of £29k
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:
• A five-year lease renewal to NatWest at an office suite in Oxford, with
an annual rent of £128k;
• A 10-year lease renewal to Barrhead Travel Service, with a tenant break
option on the 5th and 7th anniversaries, at an annual rent of £65k; and
• Three leases of industrial units in Atherstone, with a combined annual
rent of £29k.
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:
7 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:
• £28m (17%) at a variable prevailing interest rate of 6.9% and a facility
maturity of 2.4 years; and
• £140m (83%) at a weighted average fixed rate of 3.4% with a weighted
average maturity of 5.8 years.
At 30 June 2024 the Company’s borrowing facilities are:
Variable rate borrowing
• A £50m RCF with Lloyds Bank plc (“Lloyds”) with interest of between 1.62%
and 1.92% above SONIA, determined by reference to the prevailing LTV
ratio of a discrete security pool of assets, and expiring on 10 November
2026. The facility limit can be increased to £75m with Lloyds’
approval.
Fixed rate borrowing
• A £20m term loan with Scottish Widows plc (“SWIP”) repayable on
13 August 2025 with interest fixed at 3.935%;
• A £45m term loan with SWIP repayable on 5 June 2028 with interest fixed
at 2.987%; and
• A £75m term loan with Aviva comprising:
▪ A £35m tranche repayable on 6 April 2032 with fixed annual interest
of 3.02%;
▪ A £25m tranche repayable on 3 November 2032 with fixed annual
interest of 4.10%; and
▪ A £15m tranche repayable on 3 November 2032 with fixed annual
interest of 3.26%.
Each facility has a discrete security pool, comprising a number of individual
properties, over which the relevant lender has security and covenants:
• The maximum LTV of the discrete security pools is either 45% or 50%, with
an overarching covenant on the property portfolio of a maximum of 35% or
40% LTV; and
• Historical interest cover, requiring net rental receipts from the
discrete security pools, over the preceding three months, to exceed
either 200% or 250% of the associated facility’s quarterly interest
liability.
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:
30 June 2024 31 March 2024
Quarter
Val’n valuation
movement Quarter
£m Weighting Weighting valuation Weighting Weighting
by value by income £m movement by value by income
Sector
Industrial 284.5 49% 41% 1.7 0.6% 49% 40%
Retail 122.8 21% 22% - - 21% 23%
warehouse
Other 8 7 76.9 13% 14% (0.4) (0.6%) 13% 13%
Office 63.3 11% 16% (2.0) (3.2%) 11% 16%
High street 32.1 6% 7% (0.3) (0.7%) 6% 8%
retail
Total 579.6 100% 100% (1.0) (0.2%) 100% 100%
For details of all properties in the portfolio please see
9 custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's
website 10 custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Tel: +44 (0)116 240 8740
Mattioli MBE
11 www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
FTI Consulting
Richard Sunderland / Ellie Sweeney / Tel: +44 (0)20 3727 1000
Andrew Davis / Oliver Parsons
12 custodianreit@fticonsulting.com
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 13 custodianreit.com and
14 custodiancapital.com.
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15 1 Profit after tax excluding net gains or losses on investment property
divided by weighted average number of shares in issue.
16 2 Price on 7 August 2024. Source: London Stock Exchange.
17 3 Adjusting for property acquisitions, disposals and capital
expenditure.
18 4 ERV of let property divided by total portfolio ERV.
19 5 NAV per share movement including dividends paid during the Quarter.
20 6 Gross borrowings less cash (excluding rent deposits) divided by
portfolio valuation.
21 7 Comprises drive-through restaurants, car showrooms, trade counters,
gymnasiums, restaurants and leisure units.
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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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