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.