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 first quarter ended 30 June 2023 (“Q1” or the “Quarter”).
Strong leasing activity continues to support rental growth and underpin fully covered dividends
- 1.375p dividend per share approved for the Quarter fully covered by unaudited EPRA earnings
- Target dividends per share of no less than 5.5p for the year ending 31 March 2024, representing a 6.4% yield based on the prevailing 86p share price
- EPRA earnings per share of 1.5p for the Quarter (FY23 Q4: 1.4p, Q3: 1.5p)
- £2.2m of annual rental income secured, in aggregate in line with ERV, which added £2.0m in property capital value during the Quarter through leasing, renewals and rental uplifts, comprising:
- 14 new leases signed across a range of property sectors at an average 5% ahead of ERV, adding £1.1m of annual rent for a weighted average of 4.9 years to first break; and
- 15% (£0.1m) aggregate annual rental increase across six rent reviews settled during the Quarter
- Like-for-like ERV has increased by 1.2% since 31 March 2023, driven primarily by capital expenditure in refurbishing industrial assets successfully. Portfolio ERV (£49.0m) now exceeds passing rent (£42.1m) by 17% (31 March 2023: 16%) demonstrating the portfolio’s significant reversionary potential
- EPRA occupancy maintained at 90% (31 March 2023: 90%). 3.7% of vacant ERV is subject to refurbishment or redevelopment with 3.9% under offer to let or sell.
Stable valuations
- The valuation of the Company’s diversified portfolio of 159 assets remained broadly flat at £614.3m, reflecting a marginal like-for-like decrease of 0.5% or £3.3m, net of a £2.0m valuation increase from active asset management activity (FY23 Q4: £2.6m increase from asset management)
- Q1 net asset value (“NAV”) total return per share of 0.7%
- NAV per share of 98.6p (31 March 2023: 99.3p) with a NAV of £434.9m (31 March 2023: £437.6m)
£5.3m invested in the redevelopment and refurbishment of existing assets
- During the Quarter:
- £5.3m of capital expenditure was undertaken primarily on completing the redevelopment of an industrial unit in Redditch (£2.7m) and the refurbishment of: offices in Manchester and Leeds (£1.4m); retail assets in Shrewsbury and Liverpool (£0.6m); and an industrial unit in Winsford (£0.4m)
- All ongoing capital works are 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. The redevelopment in Redditch is nearing completion and based on potential letting demand ERV of the asset has increased by 122% from £298k pa to £660k pa
- High street retail units in Bury St Edmunds and Cirencester were sold at auction for an aggregate £1.6m, in line with valuation
- Weighted average energy performance certificate rating remains C (58) with ongoing capital expenditure initiatives expected to drive improvements in subsequent quarters
Gearing remains broadly in line with target, with significant borrowing covenant headroom
- Net gearing was 28.0% loan-to-value as of 30 June 2023 (31 March 2023: 27.4%), broadly in line with the Company’s 25% target
- £178.0m of drawn debt comprising £140m (79%) of fixed rate debt and £38m (21%) drawn under the Company’s revolving credit facility (“RCF”)
- Aggregate borrowings have a weighted average cost of 4.0%
- Fixed rate debt facilities have a weighted average term of 6.8 years and a weighted average cost of 3.4% offering significant medium-term interest rate risk mitigation
- £10m of properties are under offer to sell, expected to generate proceeds in excess of valuation, which will be invested in the Company’s remaining pipeline of profitable capital expenditure. Further potential sales have been identified with proceeds expected to be used to reduce borrowings
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