Custodian REIT PLC (LSE:CREI), the real estate investment company focused on smaller lot-sizes, announced a rise in net asset value for the three-month period to end-December and raised its dividend by 10%.
It said its focus on smaller regional properties makes it “particularly well positioned” to see rental growth.
Net asset value rose to £501.4mln as at 31 December 2021 from £445.9mln at the end of September, due to valuation increases of £36.2mln and the issue of £19.1mln in new equity for the corporate acquisition of DRUM Income Plus REIT PLC.
NAV per share was 7.3% higher at 113.7p.
The company declared a dividend per share of 1.375p, up from 1.25p in the quarter ended on 30 September 2021.
It is targeting a dividend of no less than 5.25p for the year to 31 March 2022 and 5.5p for the year ending 31 March 2023.
READ: Custodian REIT sells retail property for £1.3mln
EPRA earnings per share fell to 1.3p from 1.6p in the period, after a decline in occupancy to 90.9% from 91.6%.
The lower occupancy was primarily due to the acquisition of DRUM REIT, which had an EPRA occupancy rate of 86.1%.
Custodian said 34% of the vacant space is under offer, while 32% is planned vacancy due to redevelopment or refurbishment.
EPRA per share was also impacted by net gearing, at 19.5%, remaining below the 25% target as the company continues to redeploy the proceeds from profitable disposals in September and October last year.
The company said it achieved strong rental growth and valuation increases in its principal investment sectors in 2021.
It noted that the average rent in the industrial and logistics portfolio is below the estimated rental value, suggesting a latent rental uplift of 18%.
In retail warehousing and high street retail, rents appear to be bottoming out and the company said it is seeing some recent demand-led rental growth in these sectors.
Office rents are increasing in select locations, notably prime regional city centres, it said.
Commenting on the impact of the rise in inflation, Custodian noted that investors traditionally “have looked to real estate as a hedge against the negative impact of inflation on investment returns”.
It said the drivers of inflation appear to be supply chain constraints, labour shortages and the aftermath of pandemic restrictions, which are factors that “mitigate against widespread, low cost, speculative development which would otherwise help resolve the demand/supply imbalance that is promoting rental growth”.
In the industrial and logistics sector, which accounts for 50% of the company’s portfolio by value, smaller properties are more expensive to develop, so require higher rents to justify development.
Meanwhile, its retail warehouse portfolio is almost exclusively focused on DIY, homewares, discounters and food, which are best matched with current market demand and so well placed to pick up rental growth, it added.