Custodian Property Income REIT has published results for the year ended 31 March 2023. Its NAV (or net tangible assets, NTA in this sector) fell to 99.3p from 119.7p, contributing to an NAV total return of -12.5%. The NAV fall reflects a £91.6m writedown in the value of the portfolio, reversing gains of £94m recognised in the prior year.
The dividend was upped to 5.5p from 5.25p and this was covered 1.02x by EPRA earnings per share of 5.6p, down fom 5.9p last year. The return to shareholders was -7.0%.
In the face of falling asset values, the gearing rose to 27.4% from 19.1%. The cost of this debt was 3.8% on average.
The chairman notes that valuations appear to have largely stabilised and the company saw a return to a positive quarterly NAV total return per share in its fourth quarter (Q1 2023). He says: “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 of 5.8% and an equivalent yield of 7.3%, demonstrating the reversionary potential of the company’s properties.”
More deals to come?
The chairman also says: “We continue to believe that there is a strong case for consolidation amongst the subscale listed REITs, with much of the market trading at persistently high discounts to NAV. In this respect, and given our low discount to NAV relative to much of the listed REIT sector, we intend to seek opportunities to purchase complementary portfolios via mergers or corporate acquisitions, similar to our acquisition of Drum Income Plus REIT plc (“DRUM”) in 2021.”
Extra fee
In light of additional work required to achieve the company’s environmental objectives the board has agreed, with effect from 1 April 2022, to amend the rates applicable in calculating administrative fees payable to the investment manager. A rate increase for NAV between £200m and £500m has resulted in administrative fees increasing by £95k for the year with a projected additional annual fee of £83k based on the year-end NAV of £437.6m. However, rate decreases applicable to NAV in excess of £500m mean that this fee differential decreases with growth in NAV beyond £500m and the rate changes, in aggregate, will decrease the overall administrative fee if NAV exceeds £950m. The board believes this fee change is in the long-term interest of shareholders.
CREI : Custodian REIT highlights consolidation opportunity in sector