5 December 2024
Custodian Property Income REIT plc
(“Custodian Property Income REIT” or “the Company”)
Interim Results
Active management of diversified portfolio underpins earnings growth and fully covered dividend
Custodian Property Income REIT (LSE: CREI), which seeks an enhanced income return by investing in a diversified portfolio of smaller, regional properties with strong income characteristics across the UK, today reports its interim results for the six months ended 30 September 2024 (“the Period”).
Commenting on the results, David MacLellan, Chairman of Custodian Property Income REIT, said: “The Company’s diversified strategy and strong focus on income has served to deliver relatively stable returns against a background of improving sentiment towards commercial property investment. For the six months to 30 September 2024 share price total return was 8.8%, although investment company share prices have weakened since the Period end, and NAV total return was 3.6% with a fully covered dividend providing a significant and defensive component of total returns.
“I was pleased to be able to announce that dividends per share of 3.0p (2023: 2.75p) have been declared relating for the six months to 30 September 2024. The Board expects to continue to pay quarterly dividends per share of 1.5p to achieve a fully covered target dividend per share for the year ending 31 March 2025 of no less than 6.0p.
“While the economic and political picture is still uncertain, the outlook for 2025 is very much brighter for real estate than at the same time in both of the last two years. The indicators of an imminent but gradual recovery in capital values strongly outweigh the risks of continued malaise. Valuations have been flat, and slightly up since December 2023, while vacancy rates have continued to fall, and both passing rent as well as estimate rental values have improved, with private equity becoming increasingly active in the sector. Furthermore, The Bank of England has cut interest rates twice and the listed real estate sector has seen ratings improve as share prices narrow the discount to net asset value.
“Against this backdrop, Custodian Property Income REIT continues to provide shareholders with an income focused investment opportunity, with earnings supporting a fully covered dividend, on top of which there is now the real prospect of a recovery in valuations to enhance total return. We continue to look for opportunities to grow the Company through corporate acquisitions while at the same time expect to progress selective and profitable disposals to further reduce our revolving debt.”
Asset management driving income growth
- EPRA earnings per share for the Period increased 3.4% to 3.0p (2023: 2.9p) due to an improvement in occupancy and growth in income generated from PV.
- Target dividend per share for the year ended 31 March 2024 of not less than 6.0p, 100% covered in H1, in line with the Company’s policy of paying fully covered dividends.
- Leasing activity during the Period comprised 29 new lettings, lease renewals and regears across 19 assets. Five rent reviews at an aggregate 43% above previous passing rent added £0.4m of new rent, with eight vacant units let across five assets in the industrial, office and other sectors, in aggregate, in line with ERV, adding £0.7m of new rent.
Robust balance sheet
- Fixed rate agreed debt facilities represent 80% of total drawn debt, significantly mitigating interest rate risk and maintaining a beneficial margin between the 4.0% aggregate cost of debt and the income returns the property portfolio continues to generate.
- NAV per share 93.6p (31 March 2024: 93.4p).
Valuations stable with portfolio management driving long term returns
- Strong occupational demand and asset management improved occupancy and drove a 0.4% like-for-like increase in portfolio valuation to £582.4m (31 March 2024: £589.1m).
- £13.7m of disposal proceeds were generated from the sale of four assets at a 39% premium to pre-offer valuation.
- £4.7m was invested in the refurbishment of existing assets and installation of solar panels which is expected to both enhance the assets’ valuations and environmental credentials and, once let, increase rents, delivering a yield on cost of more than 7%, ahead of the Company’s marginal cost of borrowing.
Further information
Further information regarding the Company can be found at the Company's website www.custodianreit.com or please contact:
Custodian Capital Limited | |
Richard Shepherd-Cross – Managing Director Ed Moore – Finance Director Ian Mattioli MBE DL – Chairman | Tel: +44 (0)116 240 8740 www.custodiancapital.com |
Deutsche Numis | |
Hugh Jonathan/George Shiel | Tel: +44 (0)20 7260 1000 |
| www.numiscorp.com |
Property highlights
| 30 Sept 2024 £m | Comments |
| | |
Portfolio value | 582.4 | 31 March 2024: £589.1m, 30 September 2023: £609.8m |
Property valuation increases: | 1.7 | Representing a 0.4% like-for-like increase, explained further in the Investment Manager’s report |
| | |
Capital investment | 4.7 | Primarily comprising: - £1.7m refurbishing offices in Manchester and Leeds
- £1.2m refurbishing and extending an industrial unit in Livingstone
- £0.6m invested installing solar panels at various sites
- £0.5m refurbishing an industrial unit in Aberdeen
|
| | |
Disposal proceeds | 13.7 | At an aggregate 39% premium to pre-offer valuation comprising: - £9.0m vacant industrial unit in Warrington
- £2.3m vacant former car showroom in Redhill
- £1.8m vacant offices in Castle Donington
- £0.6m industrial unit in Sheffield
|
| | |
Disposal proceeds since the Period[1] end | 1.4 | Vacant offices in Solihull, 33% ahead of pre-offer valuation |
Financial highlights and performance summary
| 6 months ended | 6 months ended | 12 months ended | |
| 30 Sept 2024 | 30 Sept 2023 | 31 Mar 2024 | Comments |
Returns | | | | |
EPRA[2] earnings per share[3] | 3.0p | 2.9p | 5.8p | The impact of improvement in occupancy and increase in income from solar panels have exceeded cost inflation |
Basic and diluted earnings per share[4] | 3.4p | (0.6p) | (0.3p) | Current period profit reflects stable valuations |
Profit/(loss) before tax (£m) | 14.9 | (2.7) | (1.5) |
Dividends per share[5] | 3.0p | 2.75p | 5.8p | Target dividend per share for the year ended 31 March 2025 of not less than 6.0p, in line with the Company’s policy of paying fully covered dividends |
Dividend cover[6] | 100% | 107% | 101% |
NAV total return per share[7] | 3.6% | (0.7%) | (0.4%) | 3.4% dividends paid and a 0.2% capital increase |
Share price total return[8] | 8.8% | (4.4%) | (2.6%) | Share price increased from 81.4p to 85.4p during the Period |
| | | | |
Capital values | | | | |
NAV and EPRA NTA[9] (£m) | 412.7 | 422.8 | 411.8 | NAV increased during the Period due to £1.2m of valuation increases |
NAV per share and NTA per share | 93.6 | 95.9p | 93.4p |
Borrowings | | | | |
Net gearing[10] | 28.5% | 29.6% | 29.2% | Decreased due to disposal proceeds exceeding capital expenditure and valuations increasing during the Period |
Weighted average cost of drawn debt facilities | 4.0% | 4.2% | 4.1% | Majority fixed rate debt insulating the Company from high base rate |
| | | | |
Costs | | | | |
Ongoing charges ratio (“OCR”) excluding direct property expenses[11] | 1.28% | 1.23% | 1.24% | Fixed cost inflation exceeding rate of valuation increases |
| | | | |
Environmental | | | | |
Weighted average energy performance certificate (“EPC”) rating[12] | C (52) | C (56) | C (53) | EPCs updated across 11 properties demonstrating continuing improvements in the environmental performance of the portfolio |
The Company presents alternative performance measures (“APMs”) to assist stakeholders in assessing performance alongside the Company’s results on a statutory basis.
APMs are among the key performance indicators used by the Board to assess the Company’s performance and are used by research analysts covering the Company. The Company uses APMs based upon the EPRA Best Practice Recommendations Reporting Framework which is widely recognised and used by public real estate companies. Certain other APMs may not be directly comparable with other companies’ adjusted measures, and APMs are not intended to be a substitute for, or superior to, any IFRS measures of performance. Supporting calculations for APMs and reconciliations between APMs and their IFRS equivalents are set out in Note 19.
Business model and strategy
Purpose
Custodian Property Income REIT offers investors the opportunity to access a diversified portfolio of UK commercial real estate through a closed-ended fund. The Company seeks to provide investors with an attractive level of income and the potential for capital growth, with a focus on improving the environmental credentials of the portfolio, to become the REIT of choice for private and institutional investors seeking high and stable dividends from well-diversified UK real estate.
Stakeholder interests
The Board recognises the importance of stakeholder interests and keeps these at the forefront of business and strategic decisions, ensuring the Company:
- Understands and meets the needs of its occupiers, owning fit for purpose properties with a focus on environmental credentials in the right locations which comply with safety regulations;
- Protects and improves its stable cash flows with long-term planning and decision making, implementing its policy of paying maintainable dividends fully covered by recurring earnings and securing the Company’s future; and
- Adopts a responsible approach to communities and the environment, actively seeking ways to minimise the Company’s impact on climate change and providing the real estate fabric of the economy, giving employers a place of business.
Investment Policy
The Company’s investment policy[13] is summarised below:
- To invest in a diverse portfolio of UK commercial real estate, principally characterised by smaller, regional, core/core-plus properties that provide enhanced income;
