Custodian Property Income REIT plc (CREI) Custodian Property
Income REIT plc: Fourth quarter trading update shows strong leasing
momentum driving income and supporting fully covered dividend as
well as value stabilisation 10-May-2023 / 07:00 GMT/BST
-----------------------------------------------------------------------------------------------------------------------
10 May 2023
Custodian Property Income REIT plc
("Custodian Property Income REIT" or "the Company")
Fourth quarter trading update shows strong leasing momentum
driving income and supporting fully covered dividend as well as
value stabilisation
Custodian Property Income REIT (LSE: CREI), which seeks to
deliver a strong income return by investing in a diversified
portfolio of smaller regional properties across the UK, today
provides a trading update for the fourth quarter ended 31 March
2023 ("Q4" or the "Quarter") and the year ended 31 March 2023
("FY23").
Strong leasing activity continues to support rental growth and
underpin fully covered dividends
-- 1.375p dividend per share approved for the Quarter achieving
aggregate FY23 dividends per share of 5.5p,in line with target,
102% covered by unaudited EPRA earnings
-- Target dividends per share of no less than 5.5p for the year
ending 31 March 2024
-- EPRA earnings per share[1] of 1.4p for Q4 (Q3: 1.5p) and 5.6p
for FY23 (FY22: 5.9p) with the impact ofpositive asset management
outcomes offset by increases in interest rates and Q3 disposals
-- GBP2.5m of new rental income secured during the Quarter
through leasing, renewals and rental upliftsreflecting a 5%
aggregate premium to ERV and comprising:
-- Six new leases and two agreements for lease signed across a
range of property sectors at an aggregate 5%ahead of ERV, adding
GBP2.4m of annual rent for a weighted average of 9.5 years to first
break (Q3: 10 new leasesadding GBP1.2m of annual rent for 7.3
years)
-- 24% (GBP0.1m) aggregate rental increase across three open
market rent reviews settled during the Quarter,at an aggregate 5%
ahead of ERV
-- 1.4% increase in like-for-like[2] ERV since 31 December 2022.
ERV now exceeds passing rent by 16%
-- EPRA occupancy[3] improved to 90.3% (31 December 2022: 89.9%)
primarily due to letting a vacant leisureunit in Milton Keynes on a
25 year lease at an annual rent of GBP320k during the Quarter,
which had been vacant since2019
-- 84% of current vacancy is subject to refurbishment or
redevelopment (57%) or is under offer to let (27%)
Valuation movements
-- GBP2.2m (-0.7% like-for-like) valuation decrease, net of a
GBP2.6m (0.4%) valuation increase from activeasset management
activity (Q3: GBP3.0m increase from asset management), moves the
Company's diversified portfolio of161 assets to GBP613.6m
-- Q4 net asset value ("NAV") total return per share[4] of
0.9%
-- NAV per share of 99.3p (31 December 2022: 99.8p) with a NAV
of GBP437.6m (31 December 2022: GBP440.0m)
Sales continued at above book value while GBP5.8m was invested
in the development and refurbishment of existing assets
-- During the Quarter:
-- A high street retail unit in Bury St Edmunds was sold at
auction in January 2023 for GBP0.54m, GBP0.14m (35%)ahead of
valuation
-- GBP5.8m of capital expenditure was undertaken, primarily on
the redevelopment of an industrial unit inRedditch and the
refurbishment, including improving the environmental credentials,
of an industrial unit inWinsford and offices in Manchester, which
are expected to enhance valuation, and rents once complete and
let
Gearing remains low and in line with target, with significant
borrowing headroom
-- Net gearing[5] remains low at 27.4% loan-to-value as of 31
March 2023 (31 December 2022: 27.1%), broadlyin line with the
Company's 25% target
-- GBP173.5m of drawn debt with an aggregate weighted average
cost of 3.8% and of which 81% is at a fixed rateof interest
-- Fixed rate debt facilities have a weighted average term of
7.0 years and a weighted average cost of 3.4%offering significant
medium-term interest rate risk mitigation
-- The Company's GBP50m variable rate revolving credit facility,
of which GBP33.5m is drawn, expires inSeptember 2024 and
discussions are underway regarding an extension to the facility
Richard Shepherd-Cross, Managing Director of Custodian Capital
Limited, said: "We are beginning to see some optimism returning to
real estate markets following six months of economic turbulence,
which had a direct impact on real estate values. Property pricing
has reacted quickly to the new interest rate environment allowing
the market to continue to function despite transaction levels
remaining low. As a result, and assisted by our asset management
initiatives, valuations have largely stabilised during the Quarter
allowing delivery of a positive quarterly NAV total return.
"Much of the optimism in real estate is due to the prospect of
rental growth which is the key component of anticipated total
returns. In an inflationary environment, real returns from real
assets can be achieved when rents are growing. The Company's
portfolio has an EPRA net initial yield[6] of 5.8% and an
equivalent yield[7] of 7.3%, demonstrating the reversionary
potential of the Company's properties, which we continue to
capture.
"Our asset management of the portfolio and the types of assets
we own are focused on where occupational demand is strongest,
allowing us to lease vacant space across all sectors and deliver
rental growth. This has supported EPRA earnings per share and
underpins the Company's long term track record of paying a fully
covered dividend.
"Custodian Property Income REIT's balance sheet resilience, with
low gearing and a longer-term fixed rate debt profile, has left the
Company well insulated from the negative impact of interest rate
rises. Rental growth feeding into the portfolio will create
headroom for eventual refinancing.
"As energy performance certificate ("EPC") requirements of the
Minimum Energy Efficiency Standards ("MEES") tighten we expect to
maintain a compliant portfolio of properties. With energy
efficiency a core tenet of the Company's asset management strategy
and with tenant requirements aligning with our energy efficiency
goals we see the advance of MEES as an opportunity to secure
greater tenant engagement and higher rents.
"We remain confident that our ongoing intensive asset management
of the portfolio, which still offers a number of wide-ranging
opportunities to add value, will maintain cash flow and support
consistent returns. Coupled with the strength of the Company's
balance sheet, this will continue to support our high income return
strategy."
Net asset value
The Company's unaudited NAV at 31 March 2023 was GBP437.6m, or
approximately 99.3p per share, a marginal decrease of 0.5p (-0.5%)
since 31 December 2022:
Pence per share GBPm
NAV at 31 December 2022 99.8 440.0
Valuation movements relating to:
- Asset management activity 0.6 2.6
- General valuation decreases (1.1) (4.8)
Net valuation movement (0.5) (2.2)
Profit on disposal[8] 0.0 (0.2)
(0.5) (2.4)
EPRA earnings for the Quarter 1.4 6.1
Interim dividend paid[9] during the Quarter (1.4) (6.1)
NAV at 31 March 2023 99.3 437.6
The NAV attributable to the ordinary shares of the Company is
calculated under International Financial Reporting Standards and
incorporates the independent portfolio valuation at 31 March 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 does not include any provision for the approved
dividend of 1.375p per share for the Quarter to be paid on 31 May
2023.
Investment Manager's commentary
UK property market
In the 12 months to 31 March 2023 the UK commercial property
market saw valuations decline by 17% with the bulk of the rerating
in the quarter to December 2023. The Company's portfolio
experienced a more muted fall of only 11.8% like-for-like and we
believe this lower volatility is primarily due to Custodian
Property Income REIT's smaller regional property strategy and focus
on income returns. Firstly, the Company's valuations did not
'overheat' during mid-2022 to the same extent as, say, prime
logistics. Secondly, the diversified strategy provided a softer
landing as sub-sectors such as high street retail, drive through
restaurants and car showrooms saw much less pricing volatility than
logistics. With valuations appearing to have stabilised it is
possible to see the rapid correction due to the new interest rate
environment as strongly positive for the market, maintaining
liquidity and providing future acquisition opportunities.
The table below shows the reversionary potential of the
portfolio by sector once asset management initiatives are complete,
by comparing EPRA net initial yields to the equivalent yield, which
factors in expected rental growth and the letting of vacant units.
Across the whole portfolio, valuers' estimated rental values are
16% ahead of passing rent and while part of the reversionary
potential is due to vacancy, the balance is this latent rental
growth which will be unlocked at rent review and lease renewal.
EPRA Topped-up NIY[11]
Equivalent yield[10]
31 Mar 2023 EPRA NIY[12]
31 Mar 2023
Sector 31 Mar 2023
Industrial 6.6% 5.1% 4.9%
Retail warehouse 7.3% 7.2% 6.7%
Other 8.0% 6.8% 6.3%
Office 8.9% 6.4% 5.4%
High street retail 8.6% 9.6% 9.4%
Portfolio total 7.3% 6.2% 5.8%
Retail warehousing has been a key sector for acquisitions for
some time and it demonstrated extraordinary resilience through the
pandemic, particularly in our favoured sub-sectors of food,
homewares, DIY and the discounters. Vacancy rates are very low and
future rental growth appears affordable for occupiers.
In the office sector, a much clearer picture is emerging of how
tenants will use and occupy offices in the new world of hybrid
working. Occupiers are demanding much higher levels of amenity both
from their offices and from their office locations. This favours
modern, flexible office space in city centre locations with strong
transport links and high environmental credentials. Where this
space can be provided there appears to be meaningful rental growth,
but conversely office space that cannot meet these criteria risks
becoming obsolete and will need to be re-purposed. In our portfolio
we have seen strong rental growth in Oxford and central Manchester
where we are currently refurbishing offices to meet the new market
demand.
Rental growth remains strong in the industrial and logistics
sector which accounts for 40% of the Company's rent roll and 48% of
the portfolio by value. Lack of supply, limited development of
smaller and mid-box industrial units and construction cost
inflation have all combined to heighten occupational demand and
produce low vacancy rates, driving rental growth for new-build
regional industrial units and well specified, refurbished
space.
Asset management
The Investment Manager has remained focused on active asset
management during the Quarter, completing leasing initiatives, with
a weighted average unexpired term to first break or expiry
("WAULT") of 9.5 years, increasing the portfolio total to 5.0
years:
-- A five year reversionary lease to B&M on a retail
warehouse unit in Ashton Under Lyme at an annual rentof GBP421k,
increasing valuation by GBP0.7m (13%);
-- A 25 year lease with a 15 year tenant break option to Ten Pin
Bowling on a leisure unit in Milton Keyneswhich had been vacant
since July 2019 at an annual rent of GBP320k, increasing valuation
by GBP0.7m (22%);
-- A 10 year lease to CB Printforce on an industrial unit in
Biggleswade with annual rent increasing fromGBP330k to GBP400k,
increasing valuation by GBP0.6m (13%);
-- A five year lease to Intelligent Facility Solutions on an
industrial unit in Sheffield at an annual rentof GBP35k, increasing
valuation by GBP0.1m;
-- A five year lease renewal with a year three break to
Portakabin on an industrial unit in Knowsley at anannual rent of
GBP64k, increasing valuation by GBP0.1m;
-- A five year lease renewal with a year three break to Lush on
a retail unit in Colchester at an annualrent of GBP36k with no
impact on valuation; and
-- Exchanging agreements for lease with First Title Limited (t/a
Enact Conveyancing) on two office buildingsin Leeds. The
transaction will see CREIT fund the comprehensive refurbishment of
both buildings to achieve A ratedEPCs at a total cost of circa
GBP3.9m, with the tenant taking on new 10 year leases without break
on completion.Following completion of the refurbishment the
aggregate annual passing rent is set to increase from GBP649k to
GBP942k,a 45% increase, with an expected increase in valuation of
c. GBP1m above expenditure once completed.
During the Quarter rent reviews were settled with:
-- Synertec at an industrial unit in Warrington with annual rent
increasing by 62% to GBP190k, increasingvaluation by GBP0.4m
(5%);
-- Edmundson Electrical at a trade counter unit in Crewe with
annual rent increasing by 11% to GBP31k, with noimpact on
valuation; and
-- Pendragon at a car dealership unit in York with annual rent
increasing by 6% to GBP255k, with no impact onvaluation.
The positive impact of letting vacant space has increased EPRA
occupancy to 90.3% (31 December 2022: 89.9%). Of the Company's
remaining vacant space 57% is subject to refurbishment or
redevelopment and 27% is under offer to let.
The weighted average EPC score of the portfolio has improved
during the last 12 months from 61 (C) at 31 March 2022 to 58 (C) at
the Quarter end.
Fully covered dividend
The Company paid an interim dividend of 1.375p per share on 28
February 2023 relating to the quarter ended 31 December 2022. The
Board has approved another interim dividend per share of 1.375p for
the Quarter, fully covered by EPRA earnings, payable on 31 May
2023. The Board is targeting aggregate dividends per share[13] 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.
Additional details on disposals
During the Quarter the Company sold a high street retail unit in
Bury St Edmunds at auction for GBP0.54m, GBP0.14m (35%) ahead of
valuation. The lease term had been recently increased by five years
but with annual rent decreasing from GBP53k to GBP40k, and rents
were not anticipated to recover in the short-medium term.
Borrowings
At 31 March 2023 the Company had GBP173.5m of debt drawn at an
aggregate weighted average cost of 3.8% with no expiries until
September 2024. This debt comprised:
-- GBP33.5m (19%) at a variable prevailing interest rate of
5.83% and a facility maturity of 1.5 years; and
-- GBP140m (81%) at a weighted average fixed rate of 3.4% with a
weighted average maturity of 7.0 years.
The Company's borrowing facilities are:
Variable rate borrowing
-- A GBP40m RCF with Lloyds Bank plc expiring on 17 September
2024 with interest of between 1.5% and 1.8%above SONIA determined
by reference to the prevailing LTV ratio of a discrete security
pool. At 31 March 2023GBP33.5m was drawn under the revolving credit
facility ("RCF"). The RCF limit can be increased to GBP50m with
Lloyds'consent. Discussions are underway regarding an extension to
the facility. Fixed rate borrowing
-- A GBP20m term loan with Scottish Widows plc ("SWIP")
repayable on 13 August 2025 with interest fixed at3.935%;
-- A GBP45m term loan with SWIP repayable on 5 June 2028 with
interest fixed at 2.987%; and
-- A GBP75m term loan with Aviva comprising:? A GBP35m tranche
repayable on 6 April 2032 with fixed annual interest of 3.02%; ? A
GBP25m tranche repayable on 3 November 2032 with fixed annual
interest of 4.10%; and ? A GBP15m 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 pool is between 45%
and 50%, with an overarching covenant on theproperty portfolio of a
maximum 35% LTV; and
-- Historical interest cover, requiring net rental receipts from
each discrete security pool, over thepreceding three months, to
exceed 250% of the facility's quarterly interest liability.
Portfolio analysis
At 31 March 2023 the property portfolio comprised 161 assets.
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:
Valuation
Quarter valuation
31 Mar movement
2023 Weighting by value 31 Quarter valuation Weighting by value 31
Mar 2023 GBPm movement Dec 2022
GBPm
Sector
Industrial 295.1 48% 1.4 1% 48%
Retail 131.8 21% (0.3) - 22%
warehouse
Other[14] 78.6 13% 0.9 1% 12%
Office 71.7 12% (3.3) (4%) 12%
High street 36.4 6% (0.9) (3%) 6%
retail
Total 613.6 100% (2.2) - 100%
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:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Mattioli MBE Tel: +44 (0)116 240 8740
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 / Andrew Davis Tel: +44 (0)20 3727 1000
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 on long leases
throughout the UK and is principally characterised by properties
with individual values of less than GBP15m at acquisition.
The Company offers investors the opportunity to access a
diversified portfolio of UK commercial real estate through a
closed-ended fund. By principally targeting sub GBP15m, regional
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] Adjusting for property acquisitions, disposals and capital
expenditure.
[3] Estimated rental value ("ERV") of let property divided by
total portfolio ERV.
[4] NAV per share movement including dividends paid during the
Quarter.
[5] Gross borrowings less cash (excluding rent deposits) divided
by portfolio valuation.
[6] Annualised cash rents at the Quarter-end, less estimated
non-recoverable property operating expenses, divided by the gross
property valuation plus estimated purchaser's costs.
[7] Weighted average of annualised cash rents at the Quarter-end
date and ERV, less estimated non-recoverable property operating
expenses, divided by property valuation plus estimated purchaser's
costs.
[8] Net of GBP0.3m movements in prior period disposal cost and
rent top-up accruals.
[9] An interim dividend of 1.375p per share relating to the
quarter ended 31 December 2022 was paid on 28 February 2023.
[10] Weighted average of annualised cash rents at the
Quarter-end date and ERV, less estimated non-recoverable property
operating expenses, divided by property valuation plus estimated
purchaser's costs.
[11] Annualised cash rents at the Quarter-end date, adjusted for
the expiration of lease incentives, less estimated non-recoverable
property operating expenses, divided by property valuation plus
estimated purchaser's costs.
[12] Annualised cash rents at the Quarter-end, less estimated
non-recoverable property operating expenses, divided by the
property valuation plus estimated purchaser's costs.
[13] 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.
[14] 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.: 242493
EQS News ID: 1628513
End of Announcement EQS News Service
=------------------------------------------------------------------------------------
Image link:
https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=show_t_gif&application_id=1628513&application_name=news
(END) Dow Jones Newswires
May 10, 2023 02:00 ET (06:00 GMT)
Custodian Property Incom... (LSE:CREI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Custodian Property Incom... (LSE:CREI)
Historical Stock Chart
From Jul 2023 to Jul 2024
