Continued strong leasing supporting a c. 8% dividend yield

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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 June 2024 (“Q1” or the “Quarter”).

Strong leasing activity continues to support rental growth and underpins fully covered dividend

  • 1.5p dividend per share approved for the Quarter, fully covered by unaudited European Public Real Estate Association (“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 7.7% yield based on the prevailing 78p share price[2]
  • EPRA earnings per share of 1.5p for the Quarter (FY24 Q4: 1.5p)
  • During the Quarter, 1.2% increase in like-for-like[3] passing rent and 1.0% increase in like-for-like estimated rental value (“ERV”), driven by rental growth in the industrial sector, with all other sectors showing stable ERVs
  • Portfolio ERV (£49.4m) exceeds passing rent (£43.6m) by 13% (31 Mar 2024: 15%) reflecting the reversion captured and sales undertaken during the Quarter.  There remains significant potential to grow rental income by capturing reversion typically at five-yearly rent reviews or on re-letting, in addition to continuing to drive rental growth through asset management
  • Leasing activity during the Quarter added £0.7m of new annual rent, comprising:
    • Three rent reviews on industrial assets at an aggregate 11% ahead of ERV and 41% above previous passing rent;
    • Two renewals agreed in aggregate in line with previous passing rent and at a 6% premium to ERV; and
    • Seven new leases across various sectors adding £0.3m of new rent, in line with ERV.
  • EPRA occupancy[4] has remained stable at 92% (31 Mar 2024: 92%) and is expected to rise towards 95% when vacant property currently under offer to let or sell is excluded.  A further 1% of ERV is vacant but subject to refurbishment
  • Asset management initiatives completed during the Quarter increased property capital values by £0.8m

Valuations now stabilised across the Company’s c.£580m portfolio

  • The valuation of the Company’s portfolio of 153 assets of £579.6m remained flat on a like-for-like basis during the Quarter, net of a £0.8m valuation increase from active asset management activity (FY24 Q4: £2.0m increase from asset management) and £1.9m of capital expenditure
  • Q1 net asset value (“NAV”) total return per share[5] of 1.6%
  • NAV per share of 93.1p (31 Mar 2024: 93.4p) with a NAV of £410.3m (31 Mar 2024: £411.8m)

Asset recycling continues to generate aggregate proceeds in excess of valuation

  • During the Quarter a former car showroom in Redhill and an industrial property in Warrington were sold for £11.3m, an aggregate 49% ahead of their 31 December 2023 valuations
  • Proceeds from disposals have been used to reduce variable rate borrowings

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 office refurbishments in Leeds and Manchester, 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
  • During the Quarter the Company generated £0.1m of revenue from its owned solar panel arrays, selling the clean electricity generated to tenants and exporting any surplus.  During the Quarter new solar arrays in Swansea and Warrington were brought into use with further installations planned during the remainder of the financial year
  • Weighted average energy performance certificate rating has remained at C(53) with re-ratings being carried out across six assets during the Quarter

Prudent debt levels

  • Net gearing[6] was 28.8% loan-to-value as of 30 June 2024 (31 Mar 24: 29.2%) with property disposals during the Quarter drawing the LTV closer to the Company’s 25% medium-term target
  • £168.0m of drawn debt comprising £140m (83%) of fixed rate debt and £28m (17%) drawn under the Company’s available revolving credit facility (“RCF”)
  • Weighted average cost of aggregate borrowings has decreased to 3.9% (31 Mar 24: 4.1%) due to proceeds from the disposal of properties being used to repay the RCF
  • Fixed rate debt facilities have a weighted average term of 5.8 years and a weighted average cost of 3.4% offering significant medium-term interest rate risk mitigation

Dividends

The Company paid total dividends per share of 1.675p on 31 May 2024, comprising the FY24 Q4 target dividend of 1.375p and a fifth interim (special) dividend of 0.3p, resulting in aggregate dividends relating to the year ended 31 March 2024 of 5.8p, fully covered by EPRA earnings.

The Board has approved a fully covered interim dividend per share of 1.5p for the Quarter payable on Friday 30 August 2024 to shareholders on the register on 12 July 2024, which will be designated as a property income distribution (“PID”).

You can read the full update here.