REG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Second quarter trading update shows rental growth supporting fully covered dividends and stable values
31/10/2023 07:15
============
Custodian Property Income REIT plc (CREI)
Custodian Property Income REIT plc: Second quarter trading update shows
rental growth supporting fully covered dividends and stable values
31-Oct-2023 / 07:00 GMT/BST
══════════════════════════════════════════════════════════════════════════
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
• 1.375p dividend per share approved for the Quarter, fully covered by
unaudited EPRA earnings, in line with target of no less than 5.5p for
the year ending 31 March 2024, representing a 6.8% yield based on the
prevailing 81p share price 1 1
• EPRA earnings per share 2 2 of 1.4p for the Quarter (FY24 Q1: 1.5p,
FY23 Q4: 1.4p)
• Nine new leases signed and one rent review settled during the Quarter
across a range of property sectors, on average, in line with ERV and
24% above previous passing rent. These initiatives added £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
• ERV has increased by 0.7% since 30 June 2023, driven primarily by
capital expenditure. Portfolio ERV (£49.7m) now exceeds passing rent
(£43.2m) by 15% (30 June 2023: 17%) demonstrating the portfolio’s
significant reversionary potential
• EPRA occupancy 3 3 increased to 91% (30 June 2023: 90%). 2.8% of
ERV is vacant subject to refurbishment or redevelopment with 2.2% of
ERV vacant but under offer to let or sell
Valuations remain stable
• The valuation of the Company’s diversified portfolio of 159 assets
decreased like-for-like 4 4 by 1.8% (£12.3m) to £609.8m, net of a
£4.5m valuation increase from active asset management activity (FY24
Q1: £2.0m increase from asset management)
• Q2 net asset value (“NAV”) total return per share 5 5 of -1.4%
• NAV per share of 95.9p (30 June 2023: 98.6p) with a NAV of £422.8m (30
June 2023: £434.9m)
Redevelopment and refurbishment of existing assets continues to be
accretive with an expected yield on cost above average cost of borrowing
• £6.9m of capital expenditure undertaken during the Quarter, including
buying the long-leasehold of a unit at a 10-unit industrial asset in
Knowsley (£1.3m) and the refurbishment of: offices in Manchester and
Leeds (£2.7m); an industrial unit in Ashby-de-la-Zouch (£1.1m) and
retail assets in Shrewsbury and Liverpool (£0.6m)
• All ongoing capital works are 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
• Weighted average energy performance certificate rating has improved to
C(56) (30 June 2023: C(58)) due to re-ratings being carried out at
three assets following refurbishment (Redditch, Winsford and
Liverpool) and one following a new letting (Grantham), with ongoing
capital expenditure initiatives expected to drive further improvements
in subsequent quarters
Prudent debt levels mean gearing remains broadly in line with target, with
significant borrowing covenant headroom
• Net gearing 6 6 was 29.6% loan-to-value as of 30 September 2023 (30
June 2023: 28.0%), broadly in line with the Company’s 25% target
• £185.0m of drawn debt comprising £140m (76%) of fixed rate debt and
£45m (24%) drawn under the Company’s revolving credit facility
(“RCF”). We expect that sales proceeds from the disposal of
properties under offer will reduce drawn debt over the remainder of
the financial year
• Aggregate borrowings have a weighted average cost of 4.2%
• Fixed rate debt facilities have a weighted average term of 6.5 years
and a weighted average cost of 3.4% offering significant medium-term
interest rate risk mitigation
Asset recycling continues to generate proceeds in excess of valuation
• At 30 September 2023 five properties were under offer to sell valued
at c.£19m which are expected, in aggregate, to generate proceeds more
than 10% in excess of valuation. Proceeds are expected to be invested
in the Company’s remaining pipeline of profitable capital expenditure
and to reduce variable rate borrowings
• Of these properties under offer, we have exchanged contracts to sell a
children’s day nursery in Chesham for £0.55m and out-of-town offices
on Pride Park, Derby for £2.05m (including receipt of a £0.2m deposit)
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:
Pence per share £m
NAV at 30 June 2023 98.6 434.9
Valuation movements relating to:
- Asset management activity 1.0 4.5
- General valuation decreases (3.7) (16.8)
Net valuation movement (2.7) (12.3)
EPRA earnings for the Quarter 1.4 6.3
Interim dividend paid 7 7 during the Quarter (1.4) (6.1)
NAV at 30 September 2023 95.9 422.8
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.
Asset management
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:
• A 10 year lease with fifth year break option to Zavvigroup on a
vacant, comprehensively refurbished industrial unit in Winsford at
annual rent of £741k, a 75% increase on the previous passing rent,
increasing valuation by £2.2m (24%);
• A 10 year lease renewal with fifth year break option on an industrial
unit in Hamilton let to Ichor Systems at an annual rent of £295k, a
29% increase on the previous passing rent, increasing valuation by
£0.8m (27%);
• A 15 year lease with tenth year break option to JD Gyms on a vacant
retail warehouse unit in Swindon at an annual rent of £150k, in line
with ERV, increasing valuation by £0.7m (12%);
• A 15 year lease with tenth year break to Farmfoods at a vacant retail
warehouse unit in Grantham at an annual rental of £100k, in line with
ERV, increasing valuation by £0.5m (22%);
• A five year lease renewal with Next on a retail warehouse unit in
Evesham, at an annual rent of £128k, in line with ERV;
• A 10 year lease with fifth year break to Aubin & Wills on a retail
unit in Edinburgh at an annual rent of £95k, in line with ERV,
increasing valuation by £0.3m (31%);
• A five year lease renewal with third year break option to Halfords on
a retail warehouse unit in Weymouth at an annual rental of £71k, in
line with ERV;
• A five year lease to Blue Cross on a retail unit in Shrewsbury at an
annual rental of £33k, in line with ERV; and
• A three year lease to Community 360 at a retail unit in Colchester at
an annual rental of £24k.
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:
• Purchased the long leasehold interest of a unit at a 10-unit
industrial asset in Knowsley for £1.25m; and
• Achieved practical completion of a £7m redevelopment of an industrial
unit in Redditch.
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 8 8 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.
Borrowings
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:
• £45m (24%) at a variable prevailing interest rate of 6.84% and a
facility maturity of 1.0 years; and
• £140m (76%) at a weighted average fixed rate of 3.4% with a weighted
average maturity of 6.5 years.
At 30 September 2023 the Company’s borrowing facilities are:
Variable rate borrowing
• £45m drawn under the Lloyds RCF.
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
• 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% 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 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:
Valuation
Quarter
30 Sept valuation
2023 Weighting by value movement Quarter Weighting
30 Sept 2023 valuation by value 30
£m £m movement Jun 2023
Sector
Industrial 303.2 50% (0.2) - 49%
Retail 127.6 21% (3.7) (3%) 21%
warehouse
Other 9 9 78.1 13% (1.8) (2%) 13%
Office 67.5 11% (5.9) (8%) 11%
High street 33.4 5% (0.7) (2%) 6%
retail
Total 609.8 (12.3) (2%) 100%
For details of all properties in the portfolio please see
10 custodianreit.com/property-portfolio.
- Ends -
Further information:
Further information regarding the Company can be found at the Company's
website 11 custodianreit.com or please contact:
Custodian Capital Limited
Richard Shepherd-Cross / Ed Moore / Ian Tel: +44 (0)116 240 8740
Mattioli MBE
12 www.custodiancapital.com
Numis Securities Limited
Hugh Jonathan / Nathan Brown Tel: +44 (0)20 7260 1000
www.numis.com/funds
FTI Consulting
Richard Sunderland / Andrew Davis / Tel: +44 (0)20 3727 1000
Oliver Parsons
13 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 14 custodianreit.com and
15 custodiancapital.com.
══════════════════════════════════════════════════════════════════════════
16 1 Price on 30 October 2023. Source: London Stock Exchange.
17 2 Profit after tax excluding net gains or losses on investment
property divided by weighted average number of shares in issue.
18 3 Estimated rental value (“ERV”) of let property divided by total
portfolio ERV.
19 4 Adjusting for capital expenditure.
20 5 NAV per share movement including dividends paid during the
Quarter.
21 6 Gross borrowings less cash (excluding rent deposits) divided by
portfolio valuation.
22 7 An interim dividend of 1.375p per share relating to the quarter
ended 30 June 2023 was paid on 31 August 2023.
23 8 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.
24 9 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.: 281485
EQS News ID: 1760901
End of Announcement EQS News Service
══════════════════════════════════════════════════════════════════════════
25 fncls.ssp?fn=show_t_gif&application_id=1760901&application_name=news&site_id=refinitiv2
References
Visible links
1. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn1
2. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn2
3. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn3
4. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn4
5. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn5
6. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn6
7. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn7
8. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn8
9. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftn9
10. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=be531edfb7113375e33d32944df93de5&application_id=1760901&site_id=refinitiv2&application_name=news
11. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=1760901&site_id=refinitiv2&application_name=news
12. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=c24dec6d0ea6c746569ddd52de0eca8d&application_id=1760901&site_id=refinitiv2&application_name=news
13. mailto:custodianreit@fticonsulting.com
14. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=44eae66ce326b2005a19503bbab5faed&application_id=1760901&site_id=refinitiv2&application_name=news
15. https://eqs-cockpit.com/cgi-bin/fncls.ssp?fn=redirect&url=c24dec6d0ea6c746569ddd52de0eca8d&application_id=1760901&site_id=refinitiv2&application_name=news
16. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref1
17. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref2
18. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref3
19. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref4
20. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref5
21. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref6
22. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref7
23. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref8
24. file:///data/ucdp/tmp/xhtmlconvert_parsn_eqs_HIUWgluz.html#_ftnref9
============Recent news on Custodian Property Income Reit
See all newsREG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Disposal of Properties at or above book value
AnnouncementREG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Active asset management continues to drive income and valuation growth, underpinning fully covered dividend
AnnouncementRCS - Custodian Property - QuotedData's In The HotSeat Special
AnnouncementREG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Interim dividend
AnnouncementREG-Custodian Property Income REIT plc Custodian Property Income REIT plc: Block Listing interim review
Announcement