Custodian Property Income REIT PLC (LSE:CREI) increased its interim dividends 10% in the first half of the year, saying the diversification of its portfolio has mitigated the risks posed by volatility in real estate investment markets during the period.
Dividend payments, which remain fully covered, of 2.75p were made for the six months ended 30 September 2022 and the board said it expects to continue to pay quarterly dividends per share of 1.375p to achieve a target dividend per share for the year ending 31 March 2023 of no less than 5.5p, up from 5.25p last year.
EPRA earnings per share for the period decreased to 2.8p from 3.0p a year ago, which was attributed to the stable rent roll offset by administrative cost inflation, rising interest rates and additional ESG compliance costs.
With £52.7mln invested in seven property acquisitions during the period, the portfolio valuation stood at £685.4mln at the half-year stage, up from £665.2mln at the end of March and £551.9mln at the end of last September.
Partly this was due to an £8.4mln uplift from asset management initiatives and income growth, £47.8mln of asset recycling within the portfolio and capex, and a £36.1mln valuation decrease.
Three properties have been sold in the second half of the year so far for a total of £13.5mln.
Custodian highlighted the improvements made to the environmental performance of the portfolio, with all F and G ratings removed, improved or under redevelopment and the weighted average energy performance certificate (EPC) rating improving to a C (58) from C (61) over the period.
Chairman David Hunter said: “The company’s well-diversified investment portfolio has shown its resilience during the period and this diversification has mitigated the risks posed by volatility in real estate investment markets.”
Hunter also highlighted the company’s conservative balance sheet and its longer-term debt profile, where fixed-rate agreed debt facilities increased from 61% to 74%, which he said, “provided insulation against the challenge of rising interest rates in the short to medium term”.
He added: “Over the last five years, shareholders have received an income return of 29.7p per share, or an annual average of 5.93p per share, always fully covered by earnings, supported by both a diverse, smaller regional property strategy and a conservative gearing policy.
“There is depth in occupational demand and latent rental growth in the portfolio which offers the prospect of growth for existing shareholders, despite the current difficult economic circumstances.”
The board and investment manager, Custodian Capital Ltd, expect to see medium-term acquisition opportunities as increasing debt costs drive market pricing for new investments closer to the REIT’s income return requirements.
“We continue to view income as the key stable component of property returns. In these circumstances we expect investment market sentiment to transition from the relative volatility of single sector investing to a more defensive, diversified, income focused strategy.”