Custodian Property Income REIT (LSE: CREI), which seeks an enhanced income return by investing in a diversified portfolio of smaller, regional properties with strong income characteristics across the UK, today reports its interim results for the six months ended 30 September 2024 (“the Period”).

Commenting on the results, David MacLellan, Chairman of Custodian Property Income REIT, said: “The Company’s diversified strategy and strong focus on income has served to deliver relatively stable returns against a background of improving sentiment towards commercial property investment. For the six months to 30 September 2024 share price total return was 8.8%, although investment company share prices have weakened since the Period end, and NAV total return was 3.6% with a fully covered dividend providing a significant and defensive component of total returns.

“I was pleased to be able to announce that dividends per share of 3.0p (2023: 2.75p) have been declared relating for the six months to 30 September 2024. The Board expects to continue to pay quarterly dividends per share of 1.5p to achieve a fully covered target dividend per share for the year ending 31 March 2025 of no less than 6.0p.

“While the economic and political picture is still uncertain, the outlook for 2025 is very much brighter for real estate than at the same time in both of the last two years. The indicators of an imminent but gradual recovery in capital values strongly outweigh the risks of continued malaise. Valuations have been flat, and slightly up since December 2023, while vacancy rates have continued to fall, and both passing rent as well as estimate rental values have improved, with private equity becoming increasingly active in the sector. Furthermore, The Bank of England has cut interest rates twice and the listed real estate sector has seen ratings improve as share prices narrow the discount to net asset value.

“Against this backdrop, Custodian Property Income REIT continues to provide shareholders with an income focused investment opportunity, with earnings supporting a fully covered dividend, on top of which there is now the real prospect of a recovery in valuations to enhance total return. We continue to look for opportunities to grow the Company through corporate acquisitions while at the same time expect to progress selective and profitable disposals to further reduce our revolving debt.”

Asset management driving income growth

• EPRA earnings per share for the Period increased 3.4% to 3.0p (2023: 2.9p) due to an improvement in occupancy and growth in income generated from PV
• Target dividend per share for the year ended 31 March 2024 of not less than 6.0p, 100% covered in H1, in line with the Company’s policy of paying fully covered dividends.
• Leasing activity during the Period comprised 29 new lettings, lease renewals and regears across 19 assets. Five rent reviews at an aggregate 43% above previous passing rent added £0.4m of new rent, with eight vacant units let across five assets in the industrial, office and other sectors, in aggregate, in line with ERV, adding £0.7m of new rent.

Robust balance sheet

• Fixed rate agreed debt facilities represent 80% of total drawn debt, significantly mitigating interest rate risk and maintaining a beneficial margin between the 4.0% aggregate cost of debt and the income returns the property portfolio continues to generate.
• NAV per share 93.6p (31 March 2024: 93.4p).

Valuations stable with portfolio management driving long term returns

• Strong occupational demand and asset management improved occupancy and drove a 0.4% like-for-like increase in portfolio valuation to £582.4m (31 March 2024: £589.1m).
• £13.7m of disposal proceeds were generated from the sale of four assets at a 39% premium to pre-offer valuation.
• £4.7m was invested in the refurbishment of existing assets and installation of solar panels which is expected to both enhance the assets’ valuations and environmental credentials and, once let, increase rents, delivering a yield on cost of more than 7%, ahead of the Company’s marginal cost of borrowing.

You can read the full results here.