Strategic Majority-Share Acquisition of £8.5m Family Property Portfolio with Significant Rental Growth Potential

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  • Represents the Company’s third majority-share acquisition this financial year of a highly complementary, diversified, family-owned portfolio, following last year’s Merlin transaction and last month’s Grove Court transaction
  • Portfolio offers significant value creation potential through capturing an expected 43% latent rental growth at review
  • Further demonstration of the appeal to vendors of the Company’s ability to leverage its investment strategy and listed REIT structure to facilitate all-share or majority-share corporate acquisitions of family property companies which offer:
  • Tax efficient solution for the sellers;
  • Share register augmented by the sellers’ desire to retain property investment exposure via ownership interests in the Company;
  • Family office portfolios typically comprise regional properties with lot sizes below £10m that align to the Company’s investment strategy; and
  • Corporate acquisitions incur no SDLT leading to cost savings compared to an equivalent property acquisition.

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, is pleased to announce its third recent corporate acquisition of a family property company with the purchase of Scorpion Properties Limited (“the Transaction”) for £8.5m.

The Transaction provides the Company with another highly complementary portfolio which comprises five single-let industrial properties with 100% occupancy (the “Investment Portfolio”) and further demonstrates Custodian Property Income REIT’s ability to build scale by sourcing and executing acquisitions where it can successfully marry its investment strategy and listed REIT structure to provide an effective tax efficient solution to family property companies.

With an average lot-size of £1.7m, the assets are located in the South Midlands along the M40 corridor.  The Investment Portfolio generates an annual aggregate passing rent of £0.6m, adding c. 1.3% to the Company’s annual rent roll.

The Investment Portfolio comprises four vehicle accident repair centres let to one of the UK’s leading automotive repair businesses, and one unit let to the UK’s largest car-part distributor:

The Investment Portfolio has a net initial yield of c.6.8%, but with a reversionary yield[1] of 9.7%, expected to crystallise over the weighted average unexpired lease term to first break of 2.6 years and, which will increase the Investment Portfolio’s rent roll by 43% from £613k to £874k.

Transaction structure and consideration

On 2 March 2026 the Company acquired the entire issued share capital of Scorpion Properties Limited (“Scorpion”) satisfied through:

  • The issuance of 4.9m shares in the Company on completion (“Initial Consideration”), calculated on an adjusted net asset value (“NAV”) for NAV basis);
  • Settlement of Scorpion’s existing debt facilities totalling £3.4m; and
  • The issuance of a further estimated 0.3m shares on finalisation of completion accounts, expected during the next three months (the “Deferred Consideration”).

Aggregate Initial Consideration and expected Deferred Consideration represents approximately 1.1% of the Company’s current issued share capital (excluding treasury shares).

Commenting on the Transaction, Richard Shepherd-Cross, Managing Director of Custodian Capital Limited “Custodian Capital”), the Company’s Investment Manager, said: “Following so shortly after our recent acquisition of Grove Court, the Transaction is a further statement of our ambition to continue scaling the business using the strong blueprint we set in last year’s Merlin acquisition.  It also provides further evidence of the solution we offer to family offices seeking to exit or simplify the ownership structure of their property holdings by utilising the benefits of our listed REIT status as well as our focus on high quality smaller-lot size investments, which offer an attractive yield premium over larger assets, with little or no more associated risk.  We will continue to progress our pipeline of similar opportunities in line with our growth strategy and against a challenging but improving capital markets backdrop.  Scorpion adds another high quality and complementary portfolio to our asset base and is a further demonstration our commitment to generating shareholder value through disciplined consolidation.

“We believe many other family property companies face similar succession and tax issues in the UK.  The listed REIT structure offers a tax efficient solution for the sellers, extinguishing the latent chargeable gains and potentially deferring the crystallisation of a latent capital gain, whilst obtaining a more liquid and easily tradeable investment.”

David MacLellan, Chairman of Custodian Property Income REIT, added: “The addition of the Investment Portfolio will provide further reversionary potential to drive future earnings.  With three similar all-share or majority-share acquisitions now announced, this innovative strategy targeting family held property holdings is proving its worth as an effective way to achieve scale.

“The c.20% increase in the Company’s share price since October last year makes these types of transactions more appealing.  Long-established family-owned businesses find the Investment Manager’s expertise in property, combined with the attractiveness and simplicity of owning property via listed shares which deliver a high, consistent quarterly dividend, very compelling.”

Gearing

On acquisition GCP had net gearing[2] of c.38%, resulting in combined net gearing of 26%, still broadly in line with the Company’s 25% target.

Directors

On completion of the Transaction, the Scorpion Board resigned as directors with immediate effect.

Rationale

The Custodian Property Income REIT Board believes there is a compelling strategic rationale for the Transaction:

  • Helps the Company progress its growth ambitions with the addition of a portfolio which is complementary, based on its equivalent lot size and current sector and geographical weightings;
  • The Transaction adds further income and strong reversionary potential and is expected to enhance earnings per share and dividend cover as this rental growth is captured, increase tenant diversification and reduce the Company’s ongoing charges ratio.
  • As the Transaction is structured as a corporate acquisition, no SDLT was payable on acquiring the Investment Portfolio, leading to savings of approximately £0.1m (net of stamp duty payable by the Company on the acquisition of the GCP shares) compared to an equivalent property acquisition.

Issue of equity

An application has been made for 4,942,650 New Ordinary Shares in relation to the Initial Consideration to be admitted to the premium segment of the Official List, and to trading on the London Stock Exchange’s Main Market for listed securities (“Admission”).  It is expected that Admission will become effective and dealings in the New Ordinary Shares will commence at 8am on 5 March 2026.  The New Ordinary Shares will rank pari passu with the ordinary shares already in issue.

Following Admission, the Company’s issued share capital (excluding treasury shares) will consist of 488,316,789 ordinary shares.  Therefore, the total number of voting rights of the Company is 488,316,789 and this figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or of a change to their interest in, the Company under the FCA’s Disclosure and Transparency Rules.

[1] Estimated rental value divided by property valuation plus estimated purchaser’s costs.

[2] Bank and Director loans outstanding immediately prior to acquisition, less cash (excluding rent deposits) divided by Investment Portfolio acquisition price.