Custodian Property Income REIT plc / GB00BJFLFT45
05.02.2025 - 08:00:14Custodian Property Income REIT plc: Diversified strategy, strong leasing and active asset management continue to drive income growth
| Custodian Property Income REIT plc (CREI) 05-Feb-2025 / 07:00 GMT/BST 5 February 2025 Custodian Property Income REIT plc (“Custodian Property Income REIT” or “the Company”) Diversified strategy, strong leasing and active asset management continue to drive income growth 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 31 December 2024 (“Q3” or the “Quarter”). Commenting on the trading update, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited, said: “This Quarter saw further evidence that the market has bottomed out, with the last 12 months seeing two quarters of broadly flat valuations followed by two quarters of like-for-like valuation growth. These valuation increases add further support to our belief that we are at the start of a gradual upwards trend having delivered like-for-like average rental growth of more than 5.0% per annum over the last 18 months, with proactive asset management being the key driver of returns. We completed 25 plus lettings, lease renewals, re-gears and rent reviews during the Quarter at significant average premiums to ERV and previous rent, as well as continuing to make disposals on terms ahead of valuation. These activities will be supportive of future earnings and our longstanding track record of fully covering our dividend, which now offers investors an attractive c.8% yield.” Highlights Strong leasing activity continues to support rental growth, underpinning fully covered dividend 1.5p dividend per share approved for the Quarter, fully covered by unaudited EPRA earnings per share[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 7.9% yield[2] based on the prevailing 76p share price[3] EPRA earnings per share of 1.5p for the Quarter (Q2: 1.5p) During the Quarter, a 0.9% increase in like-for-like[4] passing rent (FY25 year-to-date (“YTD”): 3.1%) and an increase in like-for-like estimated rental value (“ERV”) of 0.6% (FY25 YTD: 2.1%), driven primarily by 1.0% like-for-like rental growth in the industrial sector (FY25 YTD: 4.7%) Significant potential for further rental growth with the portfolio’s estimate rental value (“ERV”) of £49.5m exceeding the current the passing rent of £44.5m by 11% (30 Sept 2024: 11%). Approximately 35% of this reversion is available from leasing events with the remainder from letting vacant space. Based on our track record and occupier demand for space in our assets we expect to capture this potential rental upside at (typically) five-yearly rent reviews or on re-letting, in addition to continuing to drive passing rent and ERV growth further through asset management initiatives Leasing activity during the Quarter comprised the completion of eight rent reviews at an average 19% increase in annual rent and the letting of eight vacant units which, in aggregate, added £1.0m to the rent roll. 10 lease renewals and regears were also completed in line with ERV and previous passing rent EPRA occupancy[5] was stable at 93.4% (30 Sept 2024: 93.5%). 1.8% of vacant ERV is subject to refurbishment or under offer to let or sell Valuations stable across the Company’s c.£590m portfolio, with a small uptick on a like-for-like basis The value of the Company’s portfolio of 151 assets at the Quarter end was £586.4m (30 Sept 2024: £582.4m), a like-for-like increase of 0.5% during the Quarter (FY25 YTD: 0.8%), net of £1.9m of capital expenditure. Benefitting from a diversified portfolio, in the last 12 months the Company has seen two quarters of stable valuations followed by two quarters of modest like-for-like capital growth across almost all asset classes Q3 net asset value (“NAV”) total return per share[6] of 2.5% NAV per share grew by 0.9% to 94.4p (30 Sept 2024: 93.6p) with a NAV of £416.1m (30 Sept 2024: £412.7m) Asset recycling continues to generate aggregate proceeds in excess of valuation During the Quarter, the Company successfully disposed of a recently vacant office asset in Solihull to a local owner occupier for £1.4m, 33% ahead of the 30 June 2024 valuation. Proceeds have been used to fund earnings accretive capital expenditure. 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 the pre-let extension of an industrial building in Livingston, which will allow the current occupier to expand into the new space to help with its plans for growth. Practical completion is expected in February 2025 During the Quarter, the Company generated £0.1m (Q2: £0.1m) of revenue from its owned solar panel installations across 10 assets, selling the clean electricity generated to tenants and exporting any surplus. New solar arrays were installed in Lincoln and Daventry during the Quarter, with further installations under consideration at 12 sites over the next 12 months Weighted average energy performance certificate rating was C(52) (30 Sept 2024: C(52)) with re-ratings being carried out across three units during the Quarter Prudent debt levels Net gearing[7] was 28.5% loan-to-value at 31 December 2024 (30 Sept 24: 28.5%) £171m (30 Sept 24: £174m) of drawn debt at 31 December 2024 comprising £140m (82%) of fixed rate debt and £31m (18%) drawn under the Company’s variable rate revolving credit facility (“RCF”) Weighted average cost (“WAC”) of aggregate borrowings decreased to 3.9% (30 Sept 24: 4.0%) following the 25bps base rate reduction in November 2024 The Board intends to utilise the Company’s RCF to repay a £20m fixed rate loan with Scottish Widows which is due to expire in August 2025. This refinancing is expected to have a minimal impact on the Company’s WAC, as this loan represents only 12% of drawn debt £120m of longer-term fixed-rate debt facilities have a weighted average term of 6.0 years and a WAC of 3.3%, offering significant medium-term interest rate risk mitigation Dividends The Company paid an interim dividend per share of 1.5p on Friday 29 November 2024 relating to Q2, fully covered by EPRA earnings. The Board has approved a fully covered interim dividend per share of 1.5p for the Quarter payable on 28 February 2025 to shareholders on the register on 7 February 2025, which will be designated as a property income distribution (“PID”). Net asset value The Company’s unaudited NAV at 31 December 2024 was £416.1m, or approximately 94.4p per share:
Asset management Custodian Capital, the Investment Manager, has remained focused on active asset management during the Quarter, completing eight rent reviews at an aggregate 19% increase in annual rent, along with letting eight vacant units and completing 10 further new lettings, lease renewals and lease regears, with rental levels remaining affordable to our occupiers. These initiatives had a positive impact on weighted average unexpired lease term, which only decreased by 0.1 years to 4.8 years during the Quarter (30 Sept 24: 4.9 years). Details of these asset management initiatives are shown below: Rent reviews The following rent reviews were settled in the Quarter, in aggregate increasing rent by 19%, and comprising: Applying fixed rental uplifts across six industrial units let to Menzies Distribution, increasing annual rent by 13% to £1.4m; Increasing the passing rent at an industrial unit in Kettering by 78% from £128k to £227k; and Increasing the passing rent at a retail unit in Dunfermline by 10% from £20k to £22k. Renewals 10 lease renewals/regears across retail, retail warehouse and industrial assets in aggregate maintaining passing rent levels, comprising: Five-year reversionary lease to YESSS Electrical at an industrial unit in Normanton, maintaining annual rent at £449k; Removal of a tenant break option with DS Smith in Redditch, extending the lease by five years in return for six months’ rent free, with annual rent remaining £404k; Two-year reversionary lease to global consumer brands owner URBN at a retail unit in Southampton, maintaining annual rent of £195k; Five-year lease renewal with Magnet at a retail warehouse unit in Gloucester, with annual rent remaining £116k; 10-year new lease to Telefonica (t/a O2) at a retail unit in Shrewsbury, with a tenant break option on the fifth anniversary, increasing annual rent on the unit by 38% to £73k; 10-year lease to RTV Worldnet Shipping at an industrial unit in Aberdeen, with annual rent increasing by 33% to £48k; Five-year lease renewal with Der Touristik at a retail unit in Chester, with annual rent decreasing 42% to £41k line in with ERV; Removal of a tenant break option with Your Phone Care at a retail unit in Portsmouth, extending the lease by five years, with annual rent decreasing 13% to £40k; Five-year lease extension with Mobile Care Services at an industrial unit in Atherstone with annual rent increasing by 69% to £23k; and 10-year lease renewal with Greggs at a retail unit in Birmingham, with a tenant break option on the fifth anniversary, at an annual rent of £19k. Vacant premises £0.7m of new annual rental income was added to the rent roll through letting eight vacant units in line with ERV in aggregate: Five new leases with Elizabeth School of London at a newly refurbished office building in Manchester for a term of 12 years with a year seven tenant only break option, at an aggregate annual rent of £596k; A 10-year lease to Katani & Co at an office suite in Glasgow, with a tenant break option in the fifth year, at an annual rent of £58k; A 10-year lease to MST Invest at a retail unit in Liverpool, with a tenant break option on the fifth anniversary, at an annual rent of £45k; and A five-year lease to Igneus UK at an office unit in Birmingham, with an annual rent of £43k. The impact of this positive letting activity has been tempered since the Quarter end with an industrial asset in Biggleswade and offices in Sheffield falling vacant, in aggregate representing 1.6% (£0.8m) of portfolio ERV. The asset in Biggleswade will now be refurbished with rents expected to increase by c. 40% once re-let. Disposals During the Quarter, a recently vacant office building in Solihull was sold to an owner occupier for £1.4m, 33% ahead of the 30 June 2024 valuation. Circa £8m of office and retail assets are either under offer to sell or being actively marketed, with proceeds expected to be used to pay down the variable rate RCF or fund earnings accretive capital expenditure. Borrowings During the Quarter, the Company and Lloyds Bank plc (“Lloyds”) agreed to extend the term of the RCF by one year to expire in 2027. An option remains in place to extend the term by a further year to 2028, subject to Lloyds’ consent. At 31 December 2024 the Company had £171.0m of debt drawn at an aggregate weighted average cost of 3.9% (30 Sept 24: 4.0%) diversified across a range of lenders. This debt comprised: £31m (18%) at a variable prevailing interest rate of 6.3% and a facility maturity of 2.9 years; and £140m (82%) at a weighted average fixed rate of 3.4% with a weighted average maturity of 5.2 years. At 31 December 2024 the Company’s borrowing facilities were: Variable rate borrowing A £50m RCF with 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 now expiring on 10 November 2027. 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. Upcoming expiry Despite persistent inflationary pressures, multiple UK base rate decreases are expected during 2025[12]. The Board intends to utilise the Company’s RCF to repay the £20m fixed rate loan with SWIP due to expire in August 2025 and will consider longer-term options once debt markets are more stable. Portfolio analysis At 31 December 2024, the portfolio was 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:
[1] Profit after tax excluding net gains or losses on property divided by weighted average number of shares in issue as defined by the European Public Real Estate Association. [2] Prospective target dividend divided by share price. [3] Price on 4 February 2025. Source: London Stock Exchange. [4] Adjusting for property acquisitions, disposals and capital expenditure. [5] ERV of let property divided by total portfolio ERV. [6] NAV per share movement including dividends paid during the Quarter. [7] Gross borrowings less cash (excluding rent deposits) divided by portfolio valuation. [8] Annualised cash rents adjusted for the expiration of lease incentives (rent free periods, discounted rent periods and stepped rents), less estimated non-recoverable property operating expenses, divided by property valuation plus estimated purchaser’s costs. [9] Source: L&G Research. [10] Current yields plus growth expectations less depreciation and gilt yields. [11] Source: FT.com. [13] 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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.: | 374723 |
| EQS News ID: | 2081121 |
| End of Announcement | EQS News Service |
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