Custodian Property Income REIT plc: Second quarter trading update shows rental growth supporting fully covered dividends and stable values
Custodian Property Income REIT plc (CREI)
31 October 2023
Custodian Property Income REIT plc
(“Custodian Property Income REIT” or “the Company”)
Second quarter trading update shows rental growth supporting fully covered dividends and stable values
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 September 2023 (“Q2” or the “Quarter”).
Strong leasing activity continues to support rental growth and underpin fully covered dividends
Redevelopment and refurbishment of existing assets continues to be accretive with an expected yield on cost above average cost of borrowing
Prudent debt levels mean gearing remains broadly in line with target, with significant borrowing covenant headroom
Net asset value
In line with the portfolio valuation, the Company’s unaudited NAV at 30 September 2023 decreased to £422.8m, or approximately 95.9p per share, a decrease of 2.7p (-2.7%) since 30 June 2023:
The NAV attributable to the ordinary shares of the Company is calculated under International Financial Reporting Standards and incorporates the independent portfolio valuation at 30 September 2023 and net income for the Quarter. The movement in NAV reflects the payment of an interim dividend of 1.375p per share during the Quarter, but as usual this does not include any provision for the approved dividend of 1.375p per share for the Quarter to be paid on 30 November 2023.
Investment Manager’s commentary
UK property market
The disconnect between the occupational and investment markets in UK real estate continues to persist. While the impacts of high inflation and interest rates appear to weigh heavily on investor sentiment, perhaps the greater influence has been the marked re-rating of valuations in the final quarter of 2022, which still seems to colour investors’ attitude to real estate investment. However, since the start of 2023 valuations have been reasonably stable across the market, with some sub-sectors showing signs of recovery while others continue to drift. The outcome for the NAV of Custodian Property Income REIT has been a marginal decrease of 3.9% over the past three quarters.
By contrast, occupational demand has been consistently strong which has led to a reduced vacancy rate and increase in the portfolio rent roll. We experienced a post lockdown increase in vacancy to c.10%, but this has steadily improved and based on lettings under offer, vacancy is expected to reach c.7% by 31 December 2023.
Similarly, the portfolio rent roll has grown 2.9% from £42.0m at the start of the financial year to £43.2m at the end of the Quarter, through both reduced vacancy and rental growth. During the Quarter, letting vacant units added £1.0m (2.3%) to the rent roll.
It is the strength of the occupational market driving rental growth and low vacancy that will ultimately support fully covered dividends and earnings growth. Income/earnings remain a central focus for Custodian Property Income REIT, and it is income that will deliver positive total returns for shareholders. On this basis we remain cautiously optimistic.
The Investment Manager has remained focused on active asset management during the Quarter, completing nine new leases adding £1.0m of new annual rent through letting vacant assets and secured a further £0.7m of existing annual rent roll, increasing property capital value by £4.5m. These new leases had a weighted average unexpired term to first break or expiry (“WAULT”) of 5.5 years, with the overall portfolio WAULT remaining at 4.8 years. These asset management initiatives included completing:
During the Quarter the Company also settled an open market rent review with Charles Stanley at Willow Court, Oxford at £111k, a 43% increase on the previous passing level, and completed the following capital initiatives:
The impact of these positive outcomes was partially offset by the Administration of Wilko, which exited the Company’s retail unit in Taunton, decreasing the Company’s annual rent roll by £0.1m.
Post Quarter end we exchanged contracts for the disposal of an out-of-town office property on Pride Park, Derby for £2.05m. A deposit of £0.2m was received with completion expected in December 2023.
Fully covered dividend
The Company paid an interim dividend of 1.375p per share on 31 August 2023 relating to the quarter ended 30 June 2023. The Board has approved an interim dividend per share of 1.375p for the Quarter, fully covered by EPRA earnings, payable on 30 November 2023. The Board is targeting aggregate dividends per share of at least 5.5p for the year ending 31 March 2024. The Board’s objective is to grow the dividend on a sustainable basis, at a rate which is fully covered by net rental income and does not inhibit the flexibility of the Company’s investment strategy.
At 30 September 2023 the Company had £185.0m of debt drawn at an aggregate weighted average cost of 4.2% with no expiries until September 2024 and diversified across a range of lenders. This debt comprised:
At 30 September 2023 the Company’s borrowing facilities are:
Variable rate borrowing
The Company expects to complete an extension of the Lloyds RCF during November 2023, increasing the total funds available from £50m to £75m for a term of three years, with an option to extend the term by a further two years subject to Lloyds’ approval.
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:
At 30 September 2023 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 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.
 Price on 30 October 2023. Source: London Stock Exchange.
 Profit after tax excluding net gains or losses on investment property divided by weighted average number of shares in issue.
 Estimated rental value (“ERV”) of let property divided by total portfolio ERV.
 Adjusting for capital expenditure.
 NAV per share movement including dividends paid during the Quarter.
 Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation.
 An interim dividend of 1.375p per share relating to the quarter ended 30 June 2023 was paid on 31 August 2023.
 This is a target only and not a profit forecast. There can be no assurance that the target can or will be met and it should not be taken as an indication of the Company’s expected or actual future results. Accordingly, shareholders or potential investors in the Company should not place any reliance on this target in deciding whether or not to invest in the Company or assume that the Company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable.
 Comprises drive-through restaurants, car showrooms, trade counters, gymnasiums, restaurants and leisure units.
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