Custodian Property Income REIT — Occupier demand continues to drive income

Custodian Property Income REIT (LSE: CREI)

Last close As at 15/06/2024

GBP0.72

−0.30 (−0.41%)

Market capitalisation

GBP320m

More on this equity

Research: Real Estate

Custodian Property Income REIT — Occupier demand continues to drive income

In H124, Custodian Property Income REIT (CREI) continued to benefit from robust occupier demand, underpinning earnings and dividends. Rents continued to grow and occupancy increased, with further near-term progress in sight, reflected in our increased EPRA earnings forecast. Asset management is also supporting capital values, although overall, following market trends, these continue to drift and NAV is modestly lower.

Martyn King

Written by

Martyn King

Director, Financials

Custodian-REIT_resized

Real Estate

Custodian Property Income REIT

Occupier demand continues to drive income

Interim results (H124) update

Real estate

18 December 2023

Price

85p

Market cap

£375m

Estimated net debt (£m) at 30 September 2023

180.2

Net LTV as at 30 September 2023

29.6%

Shares in issue

440.9m

Free float

91.2%

Code

CREI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.3)

4.2

(6.9)

Rel (local)

(7.6)

5.4

(8.7)

52-week high/low

95p

76p

Business description

Custodian Property Income REIT is a London Main Market-listed REIT focused on smaller lot-size commercial properties across the UK regions outside London. It is income focused, with a commitment to pay a high but sustainable and covered dividend, with the potential for capital growth.

Next events

General meeting of shareholders

21 November 2023

Analyst

Martyn King

+44 (0)20 3077 5700

Custodian Property Income REIT is a research client of Edison Investment Research Limited

In H124, Custodian Property Income REIT (CREI) continued to benefit from robust occupier demand, underpinning earnings and dividends. Rents continued to grow and occupancy increased, with further near-term progress in sight, reflected in our increased EPRA earnings forecast. Asset management is also supporting capital values, although overall, following market trends, these continue to drift and NAV is modestly lower.

Year end

Net rental income (£m)

EPRA earnings* (£m)

EPRA
EPS* (p)

NAV**/
share (p)

DPS
(p)

P/NAV**
(x)

Yield
(%)

03/22

35.6

25.3

5.9

119.7

5.25

0.72

6.1

03/23

37.1

24.8

5.6

99.3

5.50

0.87

6.4

03/24e

38.3

24.9

5.6

96.0

5.50

0.88

6.5

03/25e

39.2

25.2

5.7

96.3

5.50

0.88

6.5

Note: *Excludes revaluation gains/losses and other exceptional items. **Defined as EPRA net tangible assets (EPRA NTA) per share.

Well on track for fully covered DPS target

With income benefiting from positive leasing activity, and most borrowing costs fixed (76%), H124 EPRA earnings increased to £13.0m or 2.9p per share (H123: £12.4m/2.8p) covering DPS of 2.75p by 1.07x. CREI says that its leasing pipeline indicates further increases in occupancy, leaving it well on track to deliver its full-year DPS target of at least 5.5p, fully covered. Continuing rental growth and significant reversionary upside in the portfolio are positive indicators for continuing income growth. Our EPRA earnings forecasts for both FY24 and FY25 are increased by a little under 2%. H124 NAV per share was 3.4% lower versus end-FY23 at 95.9p, reflecting property valuation movements (we estimate -2.3% like-for-like) and our forecasts are lowered by c 2%.

Consistent income-driven returns

CREI targets attractive and stable dividend returns from an actively managed, diversified portfolio of UK commercial real estate, differentiated by a focus on properties with smaller individual values (‘lot sizes’), typically from £2m to £15m. These provide a yield premium over larger assets, partly the result of a broader range of potential occupiers and less competition from larger institutional investors. Since the company listed in 2014, the average NAV total return is 4.5% pa, generated by unbroken, fully covered dividend payments. In an inflationary environment and with a lack of supply of modern, smaller regional properties, CREI expects continued rental growth over the year ahead, while there is significant upside potential from letting vacant space. Much of this space is under refurbishment, enhancing its quality, environmental credentials and attraction to tenants, with CREI expecting the investment to be accretive.

Valuation: Fully covered 6.5% yield

The FY24 DPS target represents an attractive yield of 6.5%, with the potential for capital growth, while the discount to H124 NAV is 11%. CREI trades at a premium to peers (average yield 7.0%, discount 28%), which has consistently been the case since listing. Unlike some peers, DPS is fully covered, while a focus on higher yield, smaller lot-size properties has historically supported risk-adjusted income returns.

Leasing progress continuing to drive earnings

As we discussed in our recent detailed report, the continuing strength of the occupational market across most sectors is supporting rental income and earnings, and underpinning dividends, CREI’s focus for delivering shareholder returns. This is in contrast to the property investment market, where investment activity remains subdued, and while some subsectors are showing signs of recovery, taken as a whole, market valuations have continued to drift lower.

For CREI, during H124, portfolio rent roll has increased to £43.2m from £42.0m at end-FY23, and the estimated rental value (ERV) of the portfolio increased to £49.7m from £49.0m, mainly driven by investment in portfolio assets. New leases and lease renewals continue to be agreed at levels that are on average above ERV/passing rents, with Q224 activity accounting for much of the year-to-date growth in rent roll. During H1, a total of 23 new leases/lease renewals were signed, securing £2.8m of annual rent. Seven rent reviews were settled at a weighted average 16% above previous levels.

EPRA occupancy increased to 91.5% compared with 90.3% at end-FY23 and 89.3% at end-H123. The company expects a further increase to 93% by the end of FY24 based on lettings and sales under offer. Closing the £6.5m gap between passing rent and ERV represents a material opportunity for further income growth.

During the period, two properties were sold for £1.6m, in line with valuation, and since the period-end, the sale of a children’s day nursery for £0.6m has completed. Four properties valued at £12.4m are under offer to sell, which the company expects to generate sales proceeds of c £14m. Further disposals are under active consideration and despite an overall subdued property investment market, CREI notes a continuing active owner-occupier market for smaller regional properties. The proceeds from asset sales will provide funding for the company’s remaining pipeline of capital expenditure (capex) and reduce variable rate borrowings. H124 capex amounted to £12.2m, more than the £10m invested in the whole of FY23, with a number of projects reaching or approaching completion. Positively, where investment is required, it is being reflected in greater tenant demand, additional rental growth and, increasingly, in valuations. All ongoing capital works are expected to enhance the assets’ valuations and, once let, increase rents to give a yield on cost of at least 7%, ahead of the company’s marginal cost of borrowing. Current projects accounted for 2.8% of H124 vacancy.

Interim results detail

Rental growth, occupancy improvement and strong rent collection offset inflationary cost pressures and higher financing costs.

Exhibit 1: Summary of H124 financial performance

Year to 31 March (£m unless stated otherwise)

H124

H123

H124/H123

H223

FY23

Gross rental & other income

20.7

19.6

6%

21.0

40.6

Non-rechargeable property costs

(1.3)

(1.1)

(2.4)

(3.5)

Net rental income

19.4

18.5

5%

18.6

37.1

Administrative expenses

(2.7)

(3.1)

-14%

(2.9)

(6.0)

Operating Profit before revaluations

16.7

15.3

9%

15.7

31.0

Net finance expense

(3.7)

(3.0)

26%

(3.3)

(6.3)

EPRA earnings

13.0

12.4

5%

12.4

24.8

Revaluation of investment properties

(15.6)

(27.7)

(63.8)

(91.6)

Costs of acquisitions

0.0

(3.4)

(0.0)

(3.4)

Profit on disposal

(0.0)

4.7

(0.3)

4.4

IFRS earnings

(2.7)

(14.1)

(51.7)

(65.8)

IFRS EPS (p)

(0.6)

(3.2)

(11.7)

(14.9)

EPRA EPS (p)

2.9

2.8

5%

2.8

5.6

DPS (declared) (p)

2.75

2.75

2.75

5.50

EPRA earnings/dividends paid in period (x)

1.07

1.02

1.02

1.02

IFRS NAV & EPRA NTA per share (p)

95.9

113.7

99.3

99.3

Investment portfolio (£000s)

609.8

685.4

613.6

613.6

NAV total return

-0.7%

-2.7%

-10.3%

-12.5%

Net LTV

29.6%

25.5%

27.4%

27.4%

Source: Custodian Income REIT data, Edison Investment Research

In particular we highlight the following, comparing H124 with H123 unless stated otherwise:

Gross rental and other income increased by £1.1m, or 6%, to £20.7m, and was at a similar level to H223.

Net rental income increased by £0.9m to £19.4m and increased by £0.8m versus H223.

H124 non-rechargeable property costs were reduced by a £0.6m write-back of provisions against rent receivable. This contrasted with charges of £0.2m in H123 and £0.3m in H223.

Administrative expenses were 14% lower at £2.7m, primarily the result of lower investment manager fees, linked directly to net asset value.

Net finance expense increased as a result of higher average borrowing (to fund investment) and an increase in average borrowing costs.

EPRA earnings increased 5% to £13.0m or 2.9p per share, covering DPS of 2.75p by 1.07x.

Including property revaluation movements of £15.6m, there was an IFRS loss of £2.7m and NAV per share of 95.9p was 3.4p lower than at end-FY23. Including DPS paid, the NAV total return was -0.7%.

The loan to value ratio (LTV) was 29.6%, a little above the company’s 25% medium-term target.

Capital value movements remain modestly negative

Market-wide property valuations continued to drift lower during the six months to end-September, particularly during the latter three months, as the market consensus for interest rates reflected a view that they would stay higher for longer. For CREI, the impact was softened by portfolio mix and a £6.1m valuation benefit from asset management initiatives.

CREI’s portfolio value declined by 0.6% to £609.8m from £613.6m. Adjusted for capex and disposals, we estimate a like-for-like decline of 2.4%, less than the 2.7% recorded by the MSCI Quarterly UK Property Index. Within the company’s diversified portfolio, the industrial sector (49% portfolio weighting by value) delivered H124 gains, driven by asset management and strong market fundamentals, and office (11% weighting) capital returns were the weakest. Overall, asset management positively contributed £6.5m to valuation, more than offset by general valuation movements amounting to a loss of £22.1m.

Exhibit 2: Portfolio summary

Sector

Portfolio value (£m)

Portfolio allocation (%)

Valuation movement (£m)

Valuation movement (%)

H124

Q124

Q224

Q124

Q224

Industrial

303.2

49%

1.6

(0.2)

1%

-

Retail warehouse

127.6

21%

(1.3)

(3.7)

-1%

-3%

Other*

78.1

13%

0.2

(1.8)

-

-2%

Office

67.5

11%

(3.0)

(5.9)

-4%

-8%

High street retail

33.4

6%

(0.8)

(0.7)

-2%

-2%

Total

609.8

100%

(3.3)

(12.3)

-1%

-2%

Source: Custodian REIT data. Note: *Other comprises drive-through restaurants, car showrooms, trade counters, gymnasiums, restaurants and leisure units.

Income drives returns

While fully covered dividends paid have continued to lead accounting returns, with valuation yields showing significantly greater stability in recent months, property values have been more robust than they were in the second half of CY22.

The H124 NAV total return of -0.7% comprised dividends paid of 2.75p and the 3.4p decline in NAV per share.

Exhibit 3: Quarterly NAV total return

Q123

Q223

Q323

Q423

Q124

Q224

H124

p/share unless stated otherwise

Jun-22

Sep-22

Dec-22

Mar-23

Jun-24

Sep-24

Sep-24

Opening NAV per share

119.7

122.2

113.7

99.8

99.3

98.6

99.3

Closing NAV per share

122.2

113.7

99.8

99.3

98.6

95.9

95.9

Dividends paid per share

1.4

1.4

1.4

1.4

1.4

1.4

2.8

Dividend return

1.1%

1.1%

1.2%

1.4%

1.4%

1.4%

2.8%

Capital return

2.1%

-7.0%

-12.2%

-0.5%

-0.7%

-2.7%

-3.4%

NAV total return

3.2%

-5.8%

-11.0%

0.9%

0.7%

-1.3%

-0.7%

Source: Custodian REIT data, Edison Investment Research

On an annual basis, NAV total return has been positive in each year since the company listed in March 2014, with the exception of FY23. The aggregate return from listing to end-H124 is 52.1%, more than 100% generated by fully covered dividends paid. The average annual return is 4.5%.

Exhibit 4: Return history

Pence per share (p) unless stated otherwise

Mar-15

Mar-16

Mar-17

Mar-18

Mar-19

Mar-20

Mar-21

Mar-22

Mar-23

Sep-23

FY14 to H124

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

H124

Opening NAV per share

98.2

101.3

101.5

103.8

107.3

107.1

101.6

97.6

119.7

99.256

98.2

Closing NAV per share

101.3

101.5

103.8

107.3

107.1

101.6

97.6

119.7

99.3

95.900

95.9

Dividends paid per share

3.750

6.350

6.350

6.425

6.525

6.625

4.913

5.625

5.500

1.375

53.4

Dividend return

3.8%

6.3%

6.3%

6.2%

6.1%

6.2%

4.8%

5.8%

4.6%

1.4%

54.4%

Capital return

3.2%

0.2%

2.2%

3.4%

-0.2%

-5.2%

-4.0%

22.7%

-17.1%

-3.4%

-2.3%

NAV total return

7.0%

6.4%

8.5%

9.6%

5.9%

1.0%

0.9%

28.4%

-12.5%

-2.0%

52.1%

Average annual return

4.5%

Source: Custodian REIT data, Edison Investment Research

Significant interest rate protection

Most (76%) of CREI’s H124 drawn borrowings were fixed rate, providing substantial protection against the further rise in interest rates during the period, with a comfortable margin over the income returns the property portfolio continues to generate. We estimate that a 0.5% increase in the SONIA benchmark rate applied to the drawn revolving credit facility (RCF) would increase the average cost of debt by just 12bp or c £0.22m.

The £140m of fixed rate debt has a blended cost of c 3.4% and a current average term to maturity of more than six years. Including £45m drawn from the shorter-term, floating rate RCF, the total average cost of debt was 4.2%. The RCF (with Lloyds) has been refinanced since end-H124, with an increase in the funds available from £50m to £75m, including a £25m accordion option,1 with an increase in the term to three years, and an option to extend the term by a further two years, subject to the bank’s consent. The cost of the facility is unchanged although the headline rates of annual interest now include a LIBOR transition fee of 12 basis points (0.12%) pa that was previously applied separately. The headline rates are between 1.62% and 1.92% over SONIA, with the level determined by the facility LTV.

  1 The accordion option provides for CREI to increase the existing facility size subject to approval from the lender, Lloyds.

The RCF refinancing provides additional funding headroom and flexibility, including for capital expenditure, although in the near term, the amount drawn on the facility (£45m at end-H124) is more likely to reduce, utilising a part of the proceeds from asset disposals. Total debt facilities, including the RCF accordion option, are now £215m and based on end-H124 borrowings, we estimate an average current term to maturity post the RCF refinancing of a little under six years.

Exhibit 5: Summary of current debt portfolio

Lender

Facility
(£m)

Drawn at end-H124 (£m)

Margin*

Term to maturity (years)***

Maturity date

Scottish Widows

20.0

20.0

3.9%

1.9

Aug-25

Scottish Widows

45.0

45.0

3.0%

4.7

Jun-28

Aviva tranche 1

35.0

35.0

3.0%

8.5

Apr-32

Aviva tranche 2

15.0

15.0

3.3%

9.1

Nov-32

Aviva tranche 3

25.0

25.0

4.1%

9.1

Nov-32

Total fixed rate

140.0

140.0

3.4%

6.3

Lloyds Bank revolving credit facility**

75.0

45.0

SONIA +1.62–1.92%

3.0

Nov-26

Total debt facilities

190.0

185.0

5.7

Source: Custodian REIT data, Edison Investment Research. Note: *Margin data rounded to one decimal point. **Including £25m accordion option. ***As at the date of this report.

The end-H124 net LTV was 29.6% (end-FY23: 27.4%), ahead of the company’s medium-term target of 25%, but with significant headroom against debt covenants and a substantial pool of assets unencumbered by borrowings (£126m at end-H124).

Earnings forecasts

Our forecasts for EPRA earnings increase by almost 2% in each of FY24 and FY25, primarily driven by rental income, and reflecting continued leasing progress.

Including the completed acquisition and properties under offer referred to above, we have assumed £15m of disposals, at an average 10% premium to this book value, and an average net initial yield of 4%. The net initial yield reflects a blend of vacant and income-generating asset disposals. We assume half the proceeds are directed towards debt repayment and the balance to funding CREI’s ongoing capex programme, forecast at £10m pa through to the end of FY25 (H124: £12.2m).

Our NAV forecasts for end-FY24 and FY25 are reduced by c 3%, reflecting the continued drift in property valuations in H124. Looking forward, given the continuing uncertainty regarding market-wide property valuations, we have assumed no change net of capex (such that capex contributes positively to total portfolio valuation).

Exhibit 6: Forecast summary

Forecast

Previous forecast

Difference/change

£m unless stated otherwise

FY24

FY25

FY24

FY25

FY24

FY25

FY24

FY25

Gross rental income

42.0

42.8

41.8

42.4

0.2

0.5

0.4%

1.1%

Non-recoverable property costs

(3.6)

(3.6)

(3.6)

(3.6)

(0.0)

0.0

Net rental income

38.3

39.2

38.2

38.8

0.1

0.5

0.3%

1.2%

Administrative expenses

(5.6)

(5.9)

(5.8)

(5.8)

0.2

(0.1)

-2.8%

1.4%

Net interest

(7.9)

(8.1)

(8.0)

(8.1)

0.1

0.0

-1.3%

0.0%

EPRA earnings

24.9

25.2

24.5

24.8

0.4

0.4

1.6%

1.6%

Realised & unrealised property gain/(losses)

(14.8)

0.0

(3.3)

0.0

(11.5)

0.0

IFRS earnings

10.1

25.2

21.2

24.8

(11.1)

0.4

EPRA EPS (p)

5.6

5.7

5.55

5.62

0.09

0.09

1.6%

1.6%

IFRS EPS (p)

2.3

5.7

4.8

5.6

(2.5)

0.1

DPS declared (p)

5.50

5.50

5.50

5.50

0.0

0.0

0.0%

0.0%

Dividend cover (x)

1.03

1.04

1.01

1.02

EPRA NTA (p)

96.0

96.3

98.6

98.7

(2.5)

(2.4)

-2.6%

-2.5%

EPRA NTA total return

2.3%

5.9%

4.8%

5.7%

LTV

27.8%

29.0%

28.5%

29.6%

Source: Edison Investment Research

Valuation and performance

CREI’s target DPS for FY24 of at least 5.5p represents a prospective yield of 6.5%. Meanwhile, the shares trade at a c 11% discount to the H124 NAV per share of 95.9p.

Exhibit 7: Dividend yield history (%)

Exhibit 8: P/NAV history

Source: Custodian Property Income REIT trailing DPS data, Refinitiv share prices

Source: Custodian Property Income REIT trailing NAV data, Refinitiv share prices

Exhibit 7: Dividend yield history (%)

Source: Custodian Property Income REIT trailing DPS data, Refinitiv share prices

Exhibit 8: P/NAV history

Source: Custodian Property Income REIT trailing NAV data, Refinitiv share prices

In Exhibit 9, we show a summary performance and valuation comparison of CREI and what we consider to be its closest diversified income-oriented peers. The broad UK property sector has strongly underperformed the UK stock market over three years, but has recently shown some recovery with increasing signs that interest rate tightening has peaked.

CREI trades on a higher P/NAV than the average of the group, as it has done for most of the period since IPO and, while its trailing yield is slightly below the average, its dividend is fully covered.2 The company’s focus on smaller lot-size properties with a yield premium has historically supported risk-adjusted income returns.

  2 abrdn Property Income Trust reported cover of 0.81x in the six months to June 2023 and AEW UK REIT reported 0.92x for the three months to September 2023.

Exhibit 9: Peer performance and valuation

Price
(p)

Market cap (£m)

P/NAV
(x)*

Trailing yield (%)**

Share price performance

One month

Three months

One year

Three years

AEW UK REIT

99

157

0.9

8.1

-1%

-1%

1%

32%

Balanced Commercial Property Trust

72

503

0.6

6.7

5%

6%

-20%

-4%

Picton Property Income

69

374

0.7

5.1

1%

4%

-14%

-9%

Schroder REIT

46

226

0.8

7.2

7%

15%

7%

25%

abrdn Property Income Trust

50

191

0.6

8.0

4%

5%

-10%

-11%

UK Commercial Property REIT

60

773

0.7

5.7

3%

12%

3%

-9%

Average

0.72

7.0

3%

7%

-5%

4%

Custodian Property Income REIT

85

375

0.89

6.5

-6%

6%

-6%

-4%

UK property sector index

1,369

6%

16%

5%

-13%

UK equity market index

4,143

1%

0%

3%

12%

Source: Company data, Refinitiv prices at 15 December 2023. Note: *Based on last reported EPRA NAV/NTA. **Based on trailing 12-month DPS declared.

Exhibit 10: Financial summary

Year end 31 March, £m

2021

2022

2023

2024e

2025e

INCOME STATEMENT

Gross rental & other income

38.7

39.0

40.6

42.0

42.8

Non-recoverable property costs

(5.6)

(3.4)

(3.5)

(3.6)

(3.6)

Net rental income

33.1

35.6

37.1

38.3

39.2

Administrative expenses

(4.6)

(5.5)

(6.0)

(5.6)

(5.9)

Operating Profit before revaluations

28.5

30.1

31.0

32.7

33.3

Revaluation of investment properties

(19.6)

94.0

(91.6)

(15.6)

0.0

Costs of acquisitions

(0.7)

(2.3)

(3.4)

0.0

0.0

Profit/(loss) on disposal

0.4

5.4

4.4

0.9

0.0

Operating Profit

8.6

127.2

(59.6)

18.0

33.3

Net Interest

(4.8)

(4.8)

(6.3)

(7.9)

(8.1)

Profit Before Tax

3.7

122.3

(65.8)

10.1

25.2

Taxation

0.0

0.0

0.0

0.0

0.0

Profit After Tax

3.7

122.3

(65.8)

10.1

25.2

Adjust for:

Net revaluation of investment property/costs of acquisition

20.3

(91.7)

95.0

15.6

0.0

Gains/(losses) on disposal

(0.4)

(5.4)

(4.4)

(0.9)

0.0

EPRA earnings

23.7

25.3

24.8

24.9

25.2

Average Number of Shares Outstanding (m)

420.1

428.7

440.9

440.9

440.9

IFRS EPS (p)

0.9

28.5

(14.9)

2.3

5.7

EPRA EPS (p)

5.6

5.9

5.6

5.6

5.7

Dividend per share (p)

5.00

5.25

5.50

5.50

5.50

Dividend cover (x)*

1.13

1.10

1.02

1.03

1.04

Ongoing charges ratio (excluding property expenses)

1.12%

1.20%

1.23%

1.24%

1.33%

NAV total return

0.9%

28.4%

-12.5%

2.3%

5.9%

BALANCE SHEET

Non-current assets

551.9

665.2

614.7

602.2

613.8

Investment properties

551.9

665.2

613.6

600.6

612.2

Other non-current assets

0.0

0.0

1.1

1.7

1.7

Current assets

9.9

16.8

10.6

24.0

13.8

Debtors

6.0

5.2

3.7

4.4

4.5

Cash

3.9

11.6

6.9

19.6

9.3

Current liabilities

(12.8)

(39.9)

(15.1)

(18.4)

(18.5)

Creditors/Deferred income

(12.8)

(17.2)

(15.1)

(18.4)

(18.5)

Short term borrowings

0.0

(22.7)

0.0

0.0

0.0

Non-current liabilities

(139.2)

(114.5)

(172.7)

(184.4)

(184.7)

Long term borrowings

(138.6)

(113.9)

(172.1)

(183.8)

(184.1)

Other long term liabilities

(0.6)

(0.6)

(0.6)

(0.6)

(0.6)

Net assets

409.9

527.6

437.6

423.4

424.4

NAV/share (p)

97.6

119.7

99.3

96.0

96.3

EPRA NTA/share (p)

97.6

119.7

99.3

96.0

96.3

NAV total return

0.9%

28.4%

-12.5%

2.3%

5.9%

CASH FLOW

Operating Cash Flow

23.8

32.6

30.3

33.4

31.8

Net Interest

(4.5)

(4.5)

(6.1)

(7.6)

(7.8)

Tax

0.0

0.0

0.0

0.0

0.0

Net additions to investment property (inc property, plant & equipment

(10.1)

26.6

(40.1)

(0.3)

(10.0)

Ordinary dividends paid

(20.6)

(24.2)

(24.3)

(24.2)

(24.2)

Debt drawn/(repaid)

(10.1)

(25.1)

35.3

11.5

0.0

Proceeds from shares issued (net of costs)

0.0

0.5

0.0

0.0

0.0

Other cash flow from financing activities

0.0

1.7

0.0

0.0

0.0

Net Cash Flow

(21.5)

7.7

(4.7)

12.8

(10.3)

Opening cash

25.4

3.9

11.6

6.9

19.7

Closing cash

3.9

11.6

6.9

19.7

9.3

Debt as per balance sheet

(138.6)

(136.6)

(172.1)

(183.8)

(184.1)

Unamortised loan arrangement fees

(1.4)

(1.1)

(1.4)

(1.2)

(0.9)

Total debt

(140.0)

(137.8)

(173.5)

(185.0)

(185.0)

Restricted cash

(1.2)

(1.1)

(1.6)

(1.8)

(1.8)

Closing net debt

(137.3)

(127.3)

(168.2)

(167.1)

(177.5)

Net LTV

24.9%

19.1%

27.4%

27.8%

29.0%

Source: Custodian REIT historical data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Custodian Property Income REIT and prepared and issued by Edison, in consideration of a fee payable by Custodian Property Income REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Custodian Property Income REIT and prepared and issued by Edison, in consideration of a fee payable by Custodian Property Income REIT. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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