Custodian Property Income REIT (LSE: CREI), which seeks to deliver a strong income return by investing in a diversified portfolio of smaller regional properties across the UK, today provides a trading update for the fourth quarter ended 31 March 2023 (“Q4” or the “Quarter”) and the year ended 31 March 2023 (“FY23”).
Richard Shepherd-Cross, Managing Director of Custodian Capital Limited, said: “We are beginning to see some optimism returning to real estate markets following six months of economic turbulence, which had a direct impact on real estate values. Property pricing has reacted quickly to the new interest rate environment allowing the market to continue to function despite transaction levels remaining low. As a result, and assisted by our asset management initiatives, valuations have largely stabilised during the Quarter allowing delivery of a positive quarterly NAV total return.
“Much of the optimism in real estate is due to the prospect of rental growth which is the key component of anticipated total returns. In an inflationary environment, real returns from real assets can be achieved when rents are growing. The Company’s portfolio has an EPRA net initial yield[6] of 5.8% and an equivalent yield[7] of 7.3%, demonstrating the reversionary potential of the Company’s properties, which we continue to capture.
“Our asset management of the portfolio and the types of assets we own are focused on where occupational demand is strongest, allowing us to lease vacant space across all sectors and deliver rental growth. This has supported EPRA earnings per share and underpins the Company’s long term track record of paying a fully covered dividend.
“Custodian Property Income REIT’s balance sheet resilience, with low gearing and a longer-term fixed rate debt profile, has left the Company well insulated from the negative impact of interest rate rises. Rental growth feeding into the portfolio will create headroom for eventual refinancing.
“As energy performance certificate (“EPC”) requirements of the Minimum Energy Efficiency Standards (“MEES”) tighten we expect to maintain a compliant portfolio of properties. With energy efficiency a core tenet of the Company’s asset management strategy and with tenant requirements aligning with our energy efficiency goals we see the advance of MEES as an opportunity to secure greater tenant engagement and higher rents.
“We remain confident that our ongoing intensive asset management of the portfolio, which still offers a number of wide-ranging opportunities to add value, will maintain cash flow and support consistent returns. Coupled with the strength of the Company’s balance sheet, this will continue to support our high income return strategy.”
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[6] Annualised cash rents at the Quarter-end, less estimated non-recoverable property operating expenses, divided by the gross property valuation plus estimated purchaser’s costs.
[7] Weighted average of annualised cash rents at the Quarter-end date and ERV, less estimated non-recoverable property operating expenses, divided by property valuation plus estimated purchaser’s costs.
