Custodian Property Income REIT has bought an £11 million portfolio of eight retail and industrial properties, mainly in the East Midlands, England, using mostly new shares rather than cash. The U.K. property investor disclosed the transaction on November 9, after paying the cash portion and agreeing to issue the shares on November 5.
The deal brings fully occupied properties generating £788,000 in annual passing rent into the listed trust. It also gives investors in eight private property syndicates a different form of ownership: shares they can trade in a listed company instead of interests tied to individual private property vehicles.
According to the company’s regulatory announcement, the consideration comprises £400,000 in cash and 10,553,474 new ordinary shares. The shares represent approximately 2.2% of its current issued capital, excluding treasury shares. The exchange was calculated on an adjusted net-asset-value-for-net-asset-value basis.
That structure limits the immediate cash needed for the purchase, but it also expands the share count. The commercial test is whether the rent and any future improvements in income support returns across that larger number of shares. Management expects the deal to improve earnings per share and dividend cover as rental opportunities are captured; those are expected benefits, not results already delivered.
The portfolio has a net initial yield of about 6.7%, a weighted average remaining lease term of six years and an average occupier tenure of nine years. Net initial yield relates annualised cash rents, adjusted for lease incentives, to the purchase price including typical buyer’s costs. It is not a promised return on the REIT’s shares.
The largest source of rent is National Co-op, at £402,000 a year, or 51% of the portfolio total. Home Bargains accounts for £154,000 and Costa Coffee for £73,000. Other retail and local occupiers contribute £85,000, with local industrial occupiers contributing £74,000. The current 100% occupancy provides an income starting point, not a guarantee against later vacancies or changes in rent.
Custodian’s investment manager has identified opportunities to raise rental income at upcoming lease events. The release puts the portfolio’s reversionary yield at 7.2%, reflecting the rental changes contemplated in that measure. It does not say that the higher income has already been collected or disclose a property-by-property schedule for achieving it.
The assets came from eight syndicated investment vehicles managed by Lincoln Property Syndicates. The sellers’ manager described succession and investor liquidity as reasons for the transaction. In this model, former syndicate investors retain exposure to commercial property through a larger managed portfolio rather than having to end their investment with a cash sale.
The acquired portfolio carries no debt, Custodian said. The company estimates that the transaction reduces its net gearing by about 0.2% and helps keep it around the board’s 25% target. That is a separate measure from the issue of new equity and does not remove the operating risks of owning rental property.
Admission of the new shares to the London Stock Exchange’s main market is expected before November 30, but the announcement does not confirm that it has occurred. Custodian did not identify the eight properties or give individual purchase values, so their locations and lease prospects cannot be assessed asset by asset from this disclosure. The disclosed transaction is another use of the trust’s share-based acquisition strategy, with future rent growth still to be earned.
JBizNews Desk | East Midlands, England
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