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GBP412m
Research: Real Estate
Custodian Property Income REIT (CREI) has published results for the year ended 31 March 2024 (FY24). As previously indicated in the Q424 update, set against a challenging market environment, FY24 performance was strong. Underpinned by leasing progress and rental growth, EPRA EPS increased 3.6% to 5.8p, fully covering the targeted recurring DPS of 5.5p and the 0.3p special dividend. The FY25 annual DPS target is 6.0p (+9%), underpinned by the robust occupier market and CREI’s increasing confidence in unlocking the significant value embedded in its portfolio.
Custodian Property Income REIT |
Organic earnings and dividend growth |
Publication of FY24 results |
Real estate |
14 June 2024 |
Share price performance
Business description
Analyst
Custodian Property Income REIT is a research client of Edison Investment Research Limited |
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Custodian Property Income REIT (CREI) has published results for the year ended 31 March 2024 (FY24). As previously indicated in the Q424 update, set against a challenging market environment, FY24 performance was strong. Underpinned by leasing progress and rental growth, EPRA EPS increased 3.6% to 5.8p, fully covering the targeted recurring DPS of 5.5p and the 0.3p special dividend. The FY25 annual DPS target is 6.0p (+9%), underpinned by the robust occupier market and CREI’s increasing confidence in unlocking the significant value embedded in its portfolio.
Year end |
Net rental income (£m) |
EPRA earnings* (£m) |
EPRA |
NAV/** |
DPS |
P/NAV** |
Yield |
|
03/23 |
37.1 |
24.8 |
5.6 |
99.3 |
5.50 |
0.78 |
7.1 |
|
03/24 |
38.4 |
25.7 |
5.8 |
93.4 |
5.80 |
0.82 |
7.5 |
|
03/25e |
40.9 |
27.5 |
6.2 |
94.4 |
6.00 |
0.82 |
7.8 |
|
03/26e |
42.0 |
28.9 |
6.6 |
98.3 |
6.12 |
0.78 |
7.9 |
|
Note: *Excludes revaluation gains/losses and other exceptional items. **Defined as EPRA net tangible assets (EPRA NTA) per share.
The increase in FY24 recurring earnings demonstrates the robustness of CREI’s diverse property portfolio, mitigating property and sector specific risk, while still delivering dividends that are fully covered by recurring earnings. FY24 earnings growth was driven by rental growth and increased occupancy, offsetting administrative cost inflation and higher finance costs. Rental growth continued through Q424, with like-for-like passing rent up 1.7% (+5.6% for the year), driven primarily by the industrial portfolio (49% of the portfolio by value and 40% by income). Q424 estimated rental value (ERV) was up 0.8% (+3.6% for the year) and is 15% above passing rent, representing a significant opportunity for further income growth through asset management and lease events. Further highlighting the opportunity, end-FY24 occupancy was 91.7% (up from 90.3% at the beginning of the year) and has since increased to c 93%.
Selective property disposals, especially vacant properties, are accretive to earnings and NAV, with proceeds supporting investment in the portfolio and debt reduction. During FY24, the company sold properties with an aggregate consideration of £18.2m, at an average premium of 12% to the start-year valuations, and invested £19m in enhancing existing assets. Subsequently, a vacant industrial unit in Warrington and a vacant former car showroom in Redhill have been sold for a combined £11.3m, 49% above the December (end-Q3) valuation and broadly in line with that at year-end.
During the year, property values fell by 4% on a like-for-like basis, directionally in line with the market, but stabilised in Q4. CREI expects further valuation support from the widely expected decline in interest rates in coming months. Over the year, NAV total return was slightly negative (-0.4%) with EPRA NTA per share declining 6% to 93.4p, but the Q4 total return was a positive 1.6%. In the 10 years since CREI was launched, NAV total return has been 5.5% including reinvestment of dividends.
While it acknowledges the potential for sector consolidation to generate economies of scale and further enhance diversification, CREI’s main focus remains on exploiting its organic growth opportunity.
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