13 June 2024
Custodian Property Income REIT plc
(“the Company” or “Custodian Property Income REIT”)
Final results for the year ended 31 March 2024
Custodian Property Income REIT’s 10th annual results marked by strong operational performance driving further growth in fully covered dividend
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 announces its final results for the year ended 31 March 2024.
Commenting on the final results, David MacLellan, Chairman of Custodian Property Income REIT, said: In my first annual results as Chairman, I am very pleased to note the year to March 2024 as a significant milestone for the Company, marking the 10 year anniversary since launch, and that the Company once again performed well. Despite the significant challenges and changes we have all faced over the last decade, politically, economically and in terms of social volatility including COVID, Custodian Property Income REIT has grown successfully and delivered on its objectives with an over sixfold increase in the size of the portfolio, an average annual NAV total return of 5.5%, an annual average fully covered dividend of 5.9p per share and a decreasing ongoing charges ratio.
“This success has been achieved by the Company’s resolute focus on being fully invested in a portfolio of below institutional lot-sized regional properties to capture the income advantages that these types of assets afford, in order to deliver enhanced income-centric total returns to institutional, wealth management and private investors.
“Looking at the year under review, the occupational market has continued to remain robust, with rental growth and falling vacancy reflected in recurring EPRA earnings per share increasing by 3.6%. This increase in earnings allowed the Board to declare a special dividend in March 2024 to take the aggregate dividend for the year to 5.8p, along with announcing a 9% increase in the prospective dividend per share from 5.5p to 6.0p due to an improved outlook.
“The quarter ended 31 March 2024 saw a marginal increase in NAV due to profitable disposals on the back of flat valuations, as rental growth and falling vacancy rates started to have a positive impact. Despite stabilising valuations and the prospect of rental growth, sentiment towards listed UK commercial real estate has caused weakness and volatility in the share price. The prevailing share price implied a dividend yield of 8.3%, compared to 6.3% and 5.8% at 31 March 2023 and 2022 respectively. However, the first move down in interest rates should be the real catalyst for a positive shift in sentiment towards real estate investment, so later in 2024 could be a turning point in the market.
“The Company’s portfolio is well placed to benefit from any upwards rerating in sector valuations as the economy improves. In an inflationary environment and with a lack of supply of modern, smaller regional properties we expect to see continued rental growth over the year ahead and it will be this growth in income that is likely to form the greater component of total return over the next phase of the property market and we believe that Custodian Property Income REIT’s strong income yielding portfolio, supported by higher-than-peer group recurring earnings per share, will continue to underpin shareholder returns”.
Highlights of the year:
- 3.6% growth in EPRA earnings per share to 5.8p (FY23: 5.6p)
- 5.6% growth in like-for-like contracted rental income to £43.1m with a 3.9% increase in rental revenue to £42.2m (FY23: £40.6m)
- Estimated rental value (“ERV”) grew 3.6% with ERV now 15% ahead of passing rent providing a significant opportunity to unlock further rental growth through asset management and at lease events
- 15 rent reviews completed during the year across all sectors at an average 23% ahead of previous passing rent, with 47 new lettings, lease renewals and lease regears completed reflecting the continued strong demand for space in the Company’s portfolio and adding £9.5m to valuation
- Occupancy increased to 91.7% during the year (FY23: 90.3%), with further improvement to c.93% since April 2024
- Valuation of the Company’s portfolio of 155 properties, including assets held-for-sale, remained flat at £589.1m in the final quarter, with a modest 4.0% like-for-like fall over the full year (31 March 23: £613.6m) suggesting that a turning point in sentiment and valuations has been reached
- £19.0m of capital investment during the year into refurbishment and EPC improvement of offices in Leeds and Manchester and Midlands industrial units, including solar panel and electric vehicle charger installations, leading to a 21.7% increase in the ERV of the properties
- £18.2m proceeds from selective disposals achieved at an aggregate 8% premium to last valuation, with a further £11.3m of disposals since year end at an average 49% premium to pre-offer valuation
- Net gearing remains low at 29.2% (31 March 2023: 27.4%) with 78% fixed and no expiries until August 2025
- 5.5% increase in fully covered dividends paid to shareholders during the year comprising 5.5p of ordinary dividends and a 0.3p special dividend
- 9% increase in the prospective dividend announced in May 2024 from 5.5p to 6.0p per share reflecting the Board’s confidence in the Company’s prospects, together with its commitment to a property strategy that supports a relatively high dividend, fully covered by EPRA earnings.
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Custodian Property Income REIT plc Annual Report and Accounts for the year ended 31 March 2024
Custodian Property Income REIT plc (“Custodian Property Income REIT” or “the Company”) is a UK real estate investment trust (“REIT”) which seeks to deliver an enhanced income return by investing in a diversified portfolio of smaller, regional properties with strong income characteristics let to predominantly institutional grade tenants across the UK.
Property highlights
| 2024 £m | Comments |
| | |
Portfolio value[1] | 589.1 | |
Property valuation decreases: | (27.0) | Representing a 4.0% like-for-like decrease, explained further in the Investment Manager’s report |
Occupancy | 91.7% | Occupancy rates have increased from 90.3% to 91.7% by the year end, improving further post year end to c.93%. |
| | |
Capital investment | 19.0 | Primarily comprising: - £6.8m refurbishing four office buildings in Leeds and Manchester
- £3.5m redeveloping an industrial site in Redditch
- £2.2m refurbishing an industrial asset in Ashby-de-la-Zouch
- £1.3m buying the long-leasehold of a unit at a 10-unit industrial asset in Knowsley
- £1.0m reconfiguring retail assets in Shrewsbury and Liverpool
- £2.0m invested in photovoltaics and electric vehicle chargers at various sites
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| | |
Disposal proceeds | 18.2 | At an aggregate 8% premium to valuation (£1.4m profit on disposal) comprising: - £8.0m industrial unit in Milton Keynes
- £6.0m industrial unit in Weybridge
- £1.6m high street retail units in Bury St Edmunds and Cirencester
- £2.0m vacant offices in Derby
- £0.6m children’s day nursery in Chesham
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| | |
Disposal proceeds since the year end | 11.3 | At an aggregate 49% premium to pre-offer valuation comprising: - £9.0m vacant industrial unit in Warrington
- £2.3m vacant former car showroom in Redhill
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Financial highlights and performance summary
| | | |
| 2024 | 2023 | Comments |
Returns | | | |
*EPRA[2] earnings per share[3] | 5.8p | 5.6p | Rental growth and improvement in occupancy have offset administrative cost inflation and higher finance costs |
Basic and diluted earnings per share[4] | (0.3p) | (14.9p) | Loss resulting from a £27.0m valuation decreases |
Loss before tax (£m) | (1.5) | (65.8) |
Dividends per share[5] | 5.8p | 5.5p | Special dividend of 0.3p approved for the year. Target dividend per share for the year ended 31 March 2025 of 6.0p |
*Dividend cover[6] | 100.7% | 102.2% | In line with the Company’s policy of paying fully covered dividends |
*NAV total return per share[7] | (0.4%) | (12.5%) | 5.5% dividends paid (2023: 4.6%) and a 5.9% capital decrease (2023: 17.1% capital decrease) |
*Share price total return[8] | (2.6%) | (7.0%) | Share price decreased from 89.2p to 81.4p during the year |
| | | |
Capital values | | | |
NAV and *EPRA NTA[9] (£m) | 411.8 | 437.6 | Decreased due to £27.0m of valuation decreases |
NAV per share and *NTA per share | 93.4 | 99.3p |
*Net gearing[10] | 29.2% | 27.4% | Further reduced to 27.9% following property disposals since the year-end and broadly in line with the Company’s 25% target |
*Weighted average cost of drawn debt facilities | 4.1% | 3.8% | Base rate (SONIA) increased from 4.2% to 5.2% during the year. Impact mitigated by 78% fixed rate debt. |
| | | |
Costs | | | |
*Ongoing charges ratio[11] (“OCR”) | 2.20% | 1.96% | |
*OCR excluding direct property expenses[12] | 1.24% | 1.23% |
| | | |
Environmental | | | |
*Weighted average energy performance certificate (“EPC”) rating[13] | C (53) | C (58) | EPCs updated across 42 properties demonstrating continuing improvements in the environmental performance of the portfolio |
*Alternative performance measures (“APMs”) - the Company reports APMs to assist stakeholders in assessing performance alongside the Company’s results on a statutory basis, set out above. 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 22.
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 from a portfolio with strong environmental credentials, becoming 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 all 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 strong 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 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[14] is summarised below:
- To invest in a diverse portfolio of UK commercial real estate, principally characterised by smaller, regional, core/core-plus[15] properties that provide enhanced income;
- The property portfolio should be diversified by sector, location, tenant and lease term, with a maximum weighting to any one property sector or geographic region of 50%;
- To acquire modern buildings or those considered fit for purpose by occupiers, focusing on areas with:
- High residual values;
- Strong local economies; and
- An imbalance between supply and demand.
- No one tenant or property should account for more than 10% of the rent roll at the time of purchase, except for:
- Governmental bodies or departments; or
- Single tenants rated by Dun & Bradstreet as having a credit risk score worse than two[16], where exposure may not exceed 5% of the rent roll.
