Custodian Property Income REIT has acquired an £11m portfolio of eight retail and industrial properties from investors in eight syndicated property investment vehicles managed by Lincoln Property Syndicates.
Richard Shepherd-Cross, managing director of Custodian Capital
The portfolio, primarily located in the East Midlands, is fully occupied and generates an annual rental income of £800,000, reflecting a net initial yield of 6.7% and a reversionary yield of 7.2%.
The deal was funded through the issue of 10.6 million new shares, worth around 2.2% of the REIT’s existing share capital, and £400,000 in cash.
The assets have an average lot size of £1.4m, average occupier tenure of nine years and a weighted average unexpired lease term of six years.
Richard Shepherd-Cross, managing director of Custodian Capital, the company’s investment manager, said the deal demonstrated “how our listed status and smaller-lot-size investment focus enable us to offer a genuine structural solution to syndicated property investors or owners of family portfolios seeking liquidity or simplification of their holdings”.
He added: “The transaction delivers a high-quality, complementary portfolio that will grow earnings per share and improve dividend cover as the portfolio reversion is captured, while keeping net gearing within our target range.
“We believe many UK property syndicates face the same structural challenges – liquidity, succession and the growing burden of compliance – and that the listed REIT structure offers the most effective solution to retain their investment exposure to UK property.”
The ungeared portfolio will reduce Custodian’s net gearing by around 0.2 percentage points, keeping it close to its 25% target.
The REIT’s latest trading update reported that the group delivered a 1.5p dividend per share for the quarter to the end of June, fully covered by EPRA earnings per share, representing a 7.4% dividend yield.
Andy Dyson, director of Lincoln Property Syndicates, said: “This portfolio has been curated and managed under private ownership for over 10 years, and as syndicate managers, we had started to contemplate succession, acknowledging that many of our investors require greater liquidity.
“It has become increasingly difficult to manage the portfolio within a syndicate structure as our investor base matures and next-generation engagement is, by its nature, different and a growing concern.
“This transaction with Custodian Property Income REIT has provided us with precisely the solution our investors needed. It addresses succession challenges for everyone, removes the operational and compliance burden of managing property in a syndicated structure and gives our investors liquid shareholdings they can increase or reduce to suit their own circumstances.”