Custodian Property Income REIT plc: Final res...

About this update from Custodian Property Income Reit Plc

[{"type":"text","content":"\n \n \n \n\n\t\n\n\n\n\n\n\n\n\n \n \n\nCustodian Property Income REIT plc (CREI)\n\n\n\n \n\n\nCustodian Property Income REIT plc: Final results for the year ended 31 March 2025 12-Jun-2025 / 07:00 GMT/BST \n\n \n   \n\n   \n\n   \n\n 12 June 2025 \n\n Custodian Property Income REIT plc \n\n (“the Company” or “Custodian Property Income REIT”) \n\n   \n\n Final results for the year ended 31 March 2025 \n\n   \n\n Strong operational performance driving earnings growth and portfolio valuation uplift \n\n   \n\n Custodian Property Income REIT (LSE: CREI), which seeks to deliver an enhanced income return by investing in a diversified portfolio of smaller regional properties with strong income characteristics across the UK, today announces its final results for the year ended 31 March 2025. \n\n   \n\n Commenting on the final results, Richard Shepherd-Cross, Managing Director of the Investment Manager, said : “The Company has delivered another strong year of operational performance. Our strategy of investing in smaller lot sized properties leased to institutional quality and household name occupiers has again led to our diversified portfolio delivering the income growth it is designed to achieve.   Against challenging market conditions, we have delivered an average 29% rental increase at review, helping drive growth in like-for-like rent of 2.3%. This has led to a 4.9% increase in earnings per share and underpinned our fully covered dividend which offered an attractive yield of 7.9% at 31 March 2025.   With the portfolio’s estimated rental value 14% ahead of its current passing rent, there remains a clear opportunity to continue to grow income. \n\n   \n\n “Throughout the year we continued to make disposals, achieving an average 5% premium to the most recent valuation and 38% ahead of the assets’ pre-offer valuation, which both supports the portfolio valuation and allows us to continue to recycle capital and increase NAV.”   \n\n   \n\n Commenting on the final results, David MacLellan, Chairman of the Company, said : \n\n   \n\n “Custodian Property Income REIT remains one of only a few active and genuinely diversified property investment companies, and the Company’s differentiated property strategy positions it well to continue to deliver for long-term investors seeking an income focused opportunity. \n\n   \n\n “We have continued to look for ways to grow the portfolio in an environment where raising capital via the stock exchange remains challenging and last week were pleased to announce the acquisition of a meaningful commercial property portfolio that is highly complementary to our own, both in terms of geographical spread and sector diversity. The share based and net asset value (“NAV”)-for-NAV nature of this transaction allowed the vendor to resolve a succession issue and a potentially significant capital gains tax liability and, we believe, has provided a blueprint for other high net worth and family offices to follow, while helping the Company achieve its ambitions for growth. \n\n   \n\n “As short-term interest rates fall and investors reconnect with real estate investment for its attractive income credentials, the Company’s share price is well-placed to re-rate back towards NAV and enhance total returns. In addition, with asset prices showing signs of recovery and following the recent announcement of an all-share portfolio acquisition, the Board looks to the future with confidence.” \n\n   \n\n Highlights of the year: \n\n   \n\n 4.9% growth in EPRA earnings per share to 6.1p (FY24: 5.8p) with a 3.5% increase in fully covered dividend per share to 6.0p reflecting a 7.9% dividend yield at 31 March 2025 (2024: 5.8p dividend, 7.2% yield) \n IFRS profit after tax increased to £38.2m (2024: £1.5m loss) \n 2.3% growth in like-for-like contractual rent to £43.9m \n Estimated rental value (“ERV”) grew 2.4%, with ERV 14% ahead of passing rent, providing a significant opportunity to unlock further rental growth through asset management and at lease events \n 15 rent reviews completed during the year across all sectors at an average 29% ahead of previous passing rent, with 64 new lettings, lease renewals and lease regears completed reflecting continued occupier demand \n Occupancy marginally decreased by 0.6% to 91.1% during the year (31 March 2024: 91.7%) but with lettings since the year end adding 0.4% \n Like-for-like valuation of the Company’s portfolio of 151 properties increased by 2.2% to £594.4m supporting a 2.9% NAV increase and contributing to a 9.5% NAV total return (2024: -0.4%). Encouragingly valuations have improved at an accelerating rate, quarter-on-quarter, as decreasing interest rates and real estate market sentiment started to be reflected \n £8.2m of capital investment during the year into the refurbishment of offices in Leeds and Manchester and industrial units in Livingston, Plymouth and Aberdeen, and solar panel installations \n £15.1m proceeds from selective disposals achieved at an aggregate 38% premium to pre-offer valuation, with a further £6.9m of disposals since year end at an aggregate 12% premium to pre-offer valuation \n Net gearing remains low at 27.9% (31 March 2024: 29.2%) with 80% at a fixed rate of interest.   Since the year end the Company’s RCF limit has been increased from £50m to £60m to maintain headroom following expected repayment of a £20m loan expiring in August 2025 \n Post year end, the Company completed the purchase of a £22.1m portfolio via the all-share acquisition of a family property company.   The ‘Merlin’ acquisition provides the Company with a £19.4m portfolio of 28 smaller lot-size regional UK investment properties which are highly complementary to the Company’s existing assets, as well as c. £2.7m of newly built housing stock, the ongoing sale of which is expected to conclude in the next few months, generating additional cash for the Company. \n   \n\n Further information: \n\n   \n\n Further information regarding the Company can be found at the Company's website custodianreit.com or please contact: \n\n   \n\n \n Custodian Capital Limited \n \n \n   \n \n \n Richard Shepherd-Cross – Managing Director \n\n Ed Moore – Finance Director \n\n Ian Mattioli   MBE DL – Chairman \n \n \n Tel: +44 (0)116 240 8740 \n \n \n   \n \n \n www.custodiancapital.com \n \n   \n\n \n Numis Securities Limited \n \n \n   \n \n \n Hugh Jonathan / George Shiel \n \n \n Tel: +44 (0)20 7260 1000 \n \n \n   \n \n \n www.numis.com/funds \n \n   \n\n \n FTI Consulting \n \n \n   \n \n \n Richard Sunderland / Ellie Sweeney / Andrew Davis / Oliver Parsons \n \n \n Tel: +44 (0)20 3727 1000 \n \n \n   \n \n \n [email protected] \n \n Custodian Property Income REIT plc Annual Report and Accounts for the year ended 31 March 2025 \n\n   \n\n Custodian Property Income REIT is a UK real estate investment trust (“REIT”) which seeks to deliver an enhanced income return by investing in a diversified portfolio of smaller, regional properties with strong income characteristics let to predominantly institutional grade tenants across the UK. \n\n   \n\n Property highlights \n\n \n   \n \n \n 2025 \n\n £m \n \n \n   \n\n Comments \n \n \n   \n \n \n   \n \n \n   \n \n \n Portfolio value \n \n \n 594.4 \n \n \n   \n \n \n Valuation increases [1] : \n \n \n 11.9 \n \n \n Investment property - £11.2m, representing a 2.2% like-for-like increase, explained further in the Investment Manager’s report \n Property, plant and equipment - £0.7m, relating to solar panels \n \n \n Occupancy \n \n \n 91.1% \n \n \n Occupancy rates have decreased from 91.7% to 91.1% due to lease expiries in Q4 but partially mitigated by new lettings since the year end \n \n \n Capital investment \n \n \n 8.2 \n \n \n Primarily comprising: \n\n £2.6m extending and refurbishing an industrial unit in Livingston \n £1.8m completing refurbishment works at three office buildings in Leeds and Manchester \n £1.1m refurbishing industrial assets in Plymouth and Aberdeen \n £1.3m invested in solar panels across nine assets \n \n \n Disposal proceeds \n \n \n 15.1 \n \n \n At an aggregate 38% premium to pre-offer valuation [2] comprising: \n\n £9.0m vacant industrial unit in Warrington \n £2.3m vacant former car showroom in Redhill \n £1.8m vacant offices in Castle Donington \n £0.6m industrial unit in Sheffield \n £1.4m vacant offices in Solihull \n \n \n   \n \n \n   \n \n \n   \n \n \n Disposal proceeds since the year end \n \n \n 6.9 \n \n \n At an aggregate 12% premium to pre-offer valuation comprising: \n\n £4.0m part-let offices in Cheadle \n £2.9m fully-let offices in Cheadle \n   \n \n \n Acquisitions since the year end \n \n \n 22.1 \n \n \n A portfolio of 28 smaller lot-sized investment properties through the corporate acquisition of Merlin Properties Limited (“Merlin”) \n \n   \n\n Financial highlights and performance summary \n\n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n 2025 \n \n \n 2024 \n \n \n Comments \n \n \n Returns \n \n \n   \n \n \n   \n \n \n   \n \n \n *EPRA [3] earnings per share [4] \n \n \n 6.1p \n \n \n 5.8p \n \n \n Increased by 4.9% due to rental growth and financing costs decreasing due to base rate reductions and property disposals \n \n \n Basic and diluted earnings per share [5] \n \n \n 8.7p \n \n \n (0.3p) \n \n \n Profit resulting from a £11.2m investment property valuation increase (2024: £27.0m valuation loss) \n \n \n Profit/(loss) before tax (£m) \n \n \n 38.2 \n \n \n (1.5) \n \n \n Dividends per share [6] \n \n \n 6.0p \n \n \n 5.8p \n \n \n Target dividend per share for the year ended 31 March 2026 of 6.0p \n \n \n *Dividend cover [7] \n \n \n 101.3% \n \n \n 100.7% \n \n \n In line with the Company’s policy of paying fully covered dividends \n \n \n *NAV total return per share [8] \n \n \n 9.5% \n \n \n (0.4%) \n \n \n 6.6% dividends paid (2024: 5.5%) and a 2.9% capital increase (2024: 5.9% capital decrease) \n \n \n *Share price total return [9] \n \n \n 1.2% \n \n \n (2.6%) \n \n \n Share price decreased from 81.4p to 76.2p during the year.   Since the year-end share price has increased to 84p \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Capital values \n \n \n   \n \n \n   \n \n \n   \n \n \n NAV and *EPRA NTA [10] (£m) \n \n \n 423.5 \n \n \n 411.8 \n \n \n Increased due to £11.9m of valuation gains \n \n \n NAV per share and *NTA per share \n \n \n 96.1 \n \n \n 93.4 \n \n \n *Net gearing [11] \n \n \n 27.9% \n \n \n 29.2% \n \n \n Reduced to 25.8% on a pro-forma basis following acquisitions and disposals since the year-end, broadly in line with the Company’s 25% target \n \n \n *Weighted average cost of drawn debt facilities \n \n \n 3.9% \n \n \n 4.1% \n \n \n Base rate (SONIA) decreased from 5.2% to 4.5% during the year.   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Costs \n \n \n   \n \n \n   \n \n \n   \n \n \n *Ongoing charges ratio [12] (“OCR”) \n \n \n 2.48% \n \n \n 2.20% \n \n \n Average quarterly NAV has decreased from £423.6m in FY24 to £414.8m in FY25 \n \n \n *OCR excluding direct property expenses [13] \n \n \n 1.30% \n \n \n 1.24% \n \n   \n\n \n Environmental \n \n \n   \n \n \n   \n \n \n   \n \n \n *Weighted average energy performance certificate (“EPC”) rating [14] \n \n \n C (51) \n \n \n C (53) \n \n \n EPCs updated at certain units across 24 properties demonstrating continuing improvements in the environmental performance of the portfolio \n \n   \n\n *Alternative performance measures (“APMs”) - the Company reports APMs to assist stakeholders in assessing performance alongside the Company’s results on a statutory basis, set out above.   APMs are among the key performance indicators used by the Board to assess the Company’s performance and are used by research analysts covering the Company.   The Company uses APMs based upon the EPRA Best Practice Recommendations Reporting Framework which is widely recognised and used by public real estate companies.   Certain other APMs may not be directly comparable with other companies’ adjusted measures and APMs are not intended to be a substitute for, or superior to, any IFRS measures of performance.   Supporting calculations for APMs and reconciliations between APMs and their IFRS equivalents are set out in Note   22. \n\n Business model and strategy \n\n   \n\n Purpose \n\n   \n\n Custodian Property Income REIT offers investors access to a diversified portfolio of UK commercial real estate through a closed-ended fund.   The Company seeks to provide investors with an attractive level of income and the potential for capital growth from a portfolio with strong environmental credentials, becoming the REIT of choice for private and institutional investors seeking high and stable dividends from well-diversified UK real estate. \n\n   \n\n Stakeholder interests \n\n   \n\n The Board recognises the importance of all stakeholder interests, not just those of investors, and keeps these at the forefront of business and strategic decisions, ensuring the Company: \n\n   \n\n Understands and meets the needs of its occupiers, owning fit for purpose properties with strong environmental credentials in the right locations which comply with regulations; \n Protects and improves its stable cash flows with long-term planning and decision making, implementing its policy of paying dividends fully covered by recurring earnings and securing the Company’s future; and \n Adopts a responsible approach to communities and the environment, actively seeking ways to minimise the Company’s impact on climate change and providing the real estate fabric of the economy, giving employers a place of business. \n   \n\n Investment Policy summary \n\n   \n\n The Company’s investment policy [15] is summarised below: \n\n   \n\n To invest in a diverse portfolio of UK commercial real estate, principally characterised by smaller, regional, core/core-plus [16] properties that provide enhanced income; \n The property portfolio should be diversified by sector, location, tenant and lease term, with a maximum weighting by income to any one property sector or geographic region of 50%; \n To acquire modern buildings or those considered fit for purpose by occupiers, focusing on areas with: \n High residual values; \n Strong local economies; and \n An imbalance between supply and demand. \n No one tenant or property should account for more than 10% of the rent roll at the time of purchase, except for: \n Governmental bodies or departments; or \n Single tenants rated by Dun & Bradstreet as having a credit risk score worse than two [17] , where exposure may not exceed 5% of the rent roll. \n Not to undertake speculative development, except for the refurbishment or redevelopment of existing holdings; \n To seek further growth, which may involve strategic property portfolio acquisitions and corporate consolidation; and \n The Company may use gearing provided that the maximum loan-to-value (“LTV”) shall not exceed 35%, with a medium-term net gearing target of 25% LTV. \n   \n\n The Board reviews the Company’s investment objectives at least annually to ensure they remain appropriate to the market in which the Company operates and in the best interests of shareholders. \n\n   \n\n Differentiated property strategy \n\n   \n\n The Company’s portfolio is focused on smaller, regional assets which helps achieve our target of high and stable dividends from well-diversified real estate by offering: \n\n   \n\n An enhanced yield on acquisition – with no need to sacrifice quality of property, location, tenant or environmental performance for income and with a greater share of value in ‘bricks and mortar’ rather than the lease; \n Greater diversification – spreading risk across more assets, locations and tenants and offering more stable cash flows; and \n A higher income component of total return – driving out-performance with forecastable and predictable returns. \n   \n\n Success in achieving the Company’s performance and sustainability objectives is primarily measured by performance against key performance indicators set out in detail in the Financial review and ESG Committee reports respectively.   The Principal risks and uncertainties section of the Strategic Report sets out potential risks in achieving the Company’s objectives. \n\n   \n\n Richard Shepherd-Cross, Managing Director of the Investment Manager, commented : \"Our smaller-lot specialism has consistently delivered significantly higher yields with lower volatility without exposing shareholders to additional risk”. \n\n   \n\n Growth strategy \n\n   \n\n The Board is committed to seeking further growth in the Company to increase the liquidity of its shares and reduce ongoing charges.   Our growth strategy involves: \n\n   \n\n Strategic property portfolio acquisitions and corporate consolidation, in particular identifying portfolios held by family offices seeking a solution to succession and latent tax issues; \n Organic growth through share issuance at a premium to NAV; \n Broadening the Company’s shareholder base, particularly through further penetration into online platforms; \n Becoming the natural choice for private clients and wealth managers seeking to invest in UK real estate; and \n Taking investor market share from open-ended funds and peer group companies being wound down. \n   \n\n The Board ensures that property fundamentals are central to all decisions. \n\n   \n\n Diverse portfolio with institutional grade tenants \n\n \n \n   \n\n   \n\n   \n\n Sector \n \n \n Weighting by income 31 March 2025 \n \n \n   \n \n \n   \n \n \n Industrial \n \n \n 42% \n \n \n Retail warehouse \n \n \n 22% \n \n \n Office \n \n \n 16% \n \n \n Other \n \n \n 13% \n \n \n High street retail \n \n \n 7% \n \n   \n \n \n \n   \n\n Location \n \n \n Weighting by income 31 March 2025 \n \n \n   \n \n \n   \n \n \n West Midlands \n \n \n 20% \n \n \n North-West \n \n \n 19% \n \n \n East Midlands \n \n \n 13% \n \n \n Scotland \n \n \n 13% \n \n \n South-East \n \n \n 11% \n \n \n South-West \n \n \n 10% \n \n \n North-East \n \n \n 9% \n \n \n Eastern \n \n \n 4% \n \n \n Wales \n \n \n 1% \n \n   \n \n   \n\n \n   \n\n   \n\n Top 10 tenants \n \n \n   \n\n   \n\n Asset locations \n \n \n Annual passing rent \n\n (£m) \n \n \n % portfolio income \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Menzies Distribution \n \n \n Aberdeen, Edinburgh, Glasgow, Ipswich, Norwich, Dundee, Swansea, York \n \n \n 1.7 \n \n \n 3.9% \n \n \n Wickes Building Supplies \n \n \n Winnersh, Burton upon Trent, Southport, Nottingham, Leighton Buzzard \n \n \n 1.5 \n \n \n 3.5% \n \n \n B&M Retail \n \n \n Swindon, Ashton-under-Lyne, Plymouth, Carlisle \n \n \n 1.4 \n \n \n 3.1% \n \n \n B&Q \n \n \n Banbury, Weymouth \n \n \n 1.0 \n \n \n 2.3% \n \n \n Matalan \n \n \n Leicester, Nottingham \n \n \n 1.0 \n \n \n 2.2% \n \n \n First Title (t/a Enact Conveyancing) \n \n \n Leeds \n \n \n 0.9 \n \n \n 2.1% \n \n \n DFS \n \n \n Droitwich, Measham \n \n \n 0.9 \n \n \n 2.0% \n \n \n Zavvi \n \n \n Winsford \n \n \n 0.7 \n \n \n 1.7% \n \n \n Next \n \n \n Evesham, Motherwell \n \n \n 0.7 \n \n \n 1.6% \n \n \n Nicwood Logistics \n \n \n Burton upon Trent \n \n \n 0.6 \n \n \n 1.5% \n \n   \n\n   \n\n \n   \n \n \n Experian tenant risk rating \n \n \n   \n\n Sector \n \n \n 31 March 2025 \n \n \n 31 March 2024 \n \n \n   \n \n \n   \n \n \n   \n \n \n Government \n \n \n 1% \n \n \n 2% \n \n \n Very low risk \n \n \n 62% \n \n \n 57% \n \n \n Low risk \n \n \n 11% \n \n \n 8% \n \n \n Below average risk \n \n \n 11% \n \n \n 13% \n \n \n Above average risk \n \n \n 5% \n \n \n 8% \n \n \n High risk \n \n \n 1% \n \n \n 2% \n \n \n Other \n \n \n 9% \n \n \n 10% \n \n   \n\n Our environmental, social and governance (“ESG”) objectives \n\n   \n\n Improving the energy performance of our buildings - investing in carbon-reducing technology, infrastructure and onsite renewables and ensuring redevelopments are completed to high environmental standards which are essential to the future leasing prospects and valuation of each property \n Reducing energy usage and emissions - liaising closely with our tenants to gather and analyse data on the environmental performance of our properties to identify areas for improvement \n Achieving positive social outcomes and supporting local communities - engaging constructively with tenants and local government to ensure we support the wider community through local economic and environmental plans and strategies and playing our part in providing the real estate fabric of the economy, giving employers safe places of business that promote tenant well-being \n Understanding environmental risks and opportunities - allowing the Board to maintain appropriate governance structures to ensure the Investment Manager is appropriately mitigating risks and maximising opportunities \n Complying with all requirements and reporting in line with best practice where appropriate - exposing the Company to public scrutiny and communicating our targets, activities and initiatives to stakeholders \n Governance - maintaining high standards of corporate governance and disclosure to ensure the effective operation of the Company and instil confidence amongst our stakeholders.   We aim to continually improve our levels of governance and disclosure to achieve industry best practice \n   \n\n   \n\n Investment Manager \n\n   \n\n Custodian Capital Limited (“the Investment Manager”) is appointed under an investment management agreement (“IMA”) to provide property management and administrative services to the Company.   Richard Shepherd-Cross is Managing Director of the Investment Manager.   Richard has 30 years’ experience in commercial property, qualifying as a Chartered Surveyor in 1996 and until 2008 worked for JLL, latterly running its national portfolio investment team. \n\n   \n\n Richard established Custodian Capital Limited as the Property Fund Management subsidiary of Mattioli Woods Limited (“Mattioli Woods”) and in 2014 was instrumental in the launch of Custodian   Property Income REIT from Mattioli Woods ’ syndicated property portfolio and its 1,200 investors.   Following the successful IPO of the Company, Richard has overseen the growth of the Company to its current property portfolio of c. £600m. \n\n   \n\n Richard is supported by the Investment Manager’s other key personnel: Ed Moore - Finance Director and Alex Nix - Assistant Investment Manager, along with a team of five other surveyors and five accountants. \n  \n\n Chairman’s statement \n\n   \n\n A changing and more challenging global political landscape during the year has resulted in tensions and uncertainty running high in parts of the world.   In the UK, it is still early days for the new Labour government but uncertainty is never good for any economy, including the real estate sector. \n\n   \n\n While commercial property in the UK is showing signs of recovering value on the back of increased occupier activity and growing rents, the share prices of listed real estate companies do not yet reflect this recovery with many shares in these companies continuing to trade at discounts to net asset values.   As a result of these, in some cases, quite wide discounts there has been increased corporate activity in the listed real estate sector with mergers, take-privates and managed wind downs a feature of the last twelve months following the arrival of more activist shareholders. \n\n   \n\n In my Chairman’s statement last year, I reflected that the Company could soon be one of only a few active and genuinely diversified property investment companies available to investors in the listed sector.   It would appear that this reflection has proved prescient, however, as I note in the following paragraphs, the Company is well positioned with a diversified portfolio of performing real estate assets which are providing a strong yield from a fully covered dividend. \n\n   \n\n Performance \n\n   \n\n Custodian Property Income REIT’s strategy is to invest in a diversified portfolio which, at 31 March 2025, comprised 151 properties geographically spread throughout the UK and across a diverse range of sectors.   The year-end portfolio valuation reflected a net yield (“NIY”) of 6.6% [18] (31 March 2024: 6.6%).   With an average property value of c.£4m and no one tenant or property accounting for more than 3.9% or 1.75% of the Company’s rent roll respectively, property specific risk and tenant default risk are significantly mitigated. \n\n   \n\n The Company’s NAV increased by 2.9% during the year, contributing to a 9.5% NAV total return, and at an accelerating rate, quarter-on-quarter, as the impact of decreasing interest rates and real estate market sentiment started to be reflected in valuations.   However, this positive underlying property portfolio performance does not yet appear to be reflected in the share price performance and it is disappointing that the share price total return for the year is only 1.2% which lags the NAV total return of 9.5% (2.9% capital growth and 6.6% income). \n\n   \n\n One of the challenges of the performance for listed real estate over the last 12 months has been the rise in the 10-year gilt yield, which has always been correlated to listed real estate ratings.   The 10-year gilt yield rose from 4.0% in March 2024, to 4.9% in January 2025, and was 4.6% at the year end.   This historically high and volatile rate has had a direct impact on ratings, but set against Custodian Property Income REIT’s dividend yield as at 31 March 2025 of 7.9%, fully covered by earnings and supported by rental growth and a falling cost of variable rate debt, this appears to be a generous margin. \n\n   \n\n Custodian Property Income REIT employs sector expertise, with high quality asset management, covenant management and portfolio construction, to provide an institutional offering to shareholders in a diversified regional portfolio, that generates a superior income return.   Notwithstanding recent volatility in pricing and acknowledging that 2024 witnessed the bottom of a property valuation cycle, the Company can still look back over an average annual NAV total return of 5.6% in the 11 years since IPO , driven by strong recurring earnings with fully covered dividends. \n\n   \n\n The NAV of the Company at 31 March 2025 was £423.5m, approximately 96.1p per share: \n\n   \n\n \n   \n \n \n Pence per share \n \n \n £m \n \n \n   \n \n \n   \n \n \n   \n \n \n NAV at 31 March 2024 \n \n \n 93.4 \n \n \n 411.8 \n \n \n   \n \n \n   \n \n \n   \n \n \n Valuation increases and depreciation \n \n \n 2.7 \n \n \n 11.7 \n \n \n Profit on disposal of investment property \n \n \n 0.1 \n \n \n 0.4 \n \n \n Net gain on property portfolio \n \n \n 2.8 \n \n \n 12.1 \n \n \n   \n \n \n   \n \n \n   \n \n \n EPRA earnings \n \n \n 6.1 \n \n \n 26.8 \n \n \n Quarterly dividends paid during the year [19] \n \n \n (5.9) \n \n \n (25.9) \n \n \n   \n \n \n 0.2 \n \n \n 0.9 \n \n \n   \n \n \n   \n \n \n   \n \n \n Special dividend paid during the year relating to FY24 \n \n \n (0.3) \n \n \n (1.3) \n \n \n   \n \n \n   \n \n \n   \n \n \n NAV at 31 March 2025 \n \n \n 96.1 \n \n \n 423.5 \n \n   \n\n Investment property and PPE valuations increased by £11.9m during the year, of which £10.4m was delivered in the second half, demonstrating the current upward trajectory and returning the Company a positive NAV total return per share of 9.5%.   A detailed property valuation commentary is given in the Investment Manager’s report.   The movement in NAV also reflects the payment of interim dividends during the year, but does not include any provision for the approved dividend of 1.5p per share relating to Q4 which was paid on Friday 30 May 2025. \n\n   \n\n Dividends \n\n   \n\n The Company’s commitment to a property strategy that supports a relatively high dividend, fully covered by EPRA earnings, remains a defining characteristic and in May 2024 the Board announced a 9% increase in the annual target dividend per share from 5.5p to 6.0p.   This dividend increase reflected the improving earnings characteristics of the Company’s portfolio through asset management initiatives crystallising rental growth and the profitable disposal of vacant properties increasing occupancy.   \n\n   \n\n Our Investment Manager continues to keep a tight control on costs, while the Company’s substantially fixed-rate debt profile is keeping borrowing costs below the current market rate.   Based on the current forward interest rate curve the Board expects that the ongoing cost of the Company’s revolving credit facility will fall during the next 12 months, tempering the impact of expiry of a £20m fixed-rate loan in August 2025.   \n\n   \n\n The Board’s objective remains to continue to grow the dividend at a rate which is fully covered by net rental income and does not inhibit the flexibility of the Company’s investment strategy. \n\n   \n\n Borrowings \n\n   \n\n The Company’s net gearing decreased from 29.2% LTV at 31 March 2024 to 27.9% during the year.   Property disposals and the acquisition of Merlin since the year end have reduced pro-forma net gearing to 25.8%, drawing the LTV closer to the Company’s 25% medium-term target. \n\n   \n\n The proportion of the Company’s drawn debt facilities with a fixed rate of interest was 80% at 31 March 2025 (2024: 78%), significantly mitigating interest rate risk for the Company and maintaining the accretive margin between the Company’s 3.9% (2024: 4.1%) weighted average cost of debt and property portfolio EPRA topped-up NIY [20] of 6.6% (2024: 6.6%).   \n\n   \n\n The Company’s debt is summarised in Note 16. \n\n   \n\n Acquisitions \n\n   \n\n On 30 May 2025 the Company acquired 100% of the ordinary share capital of Merlin Properties Limited for an initial consideration of 22.9m new ordinary shares in the Company (“the Transaction”).   A second tranche of consideration, expected to comprise c. 1.7m shares, will be payable within the next six months following approval of completion accounts drawn up to the acquisition date.   Aggregate consideration will be calculated on an ‘adjusted NAV-for-NAV basis’, with each company’s NAV being adjusted for respective acquisition costs and Merlin’s investment property portfolio valuation adjusted to the agreed purchase price of £19.4m.   \n\n   \n\n Merlin’s property portfolio is summarised below: \n\n   \n\n Investment property portfolio value of £19.4m comprising 28 regional commercial properties, primarily located in the East Midlands, with sector splits by passing rent set out below: \n   \n\n \n Merlin portfolio sector splits \n \n \n   \n \n \n Industrial \n \n \n 47% \n \n \n Retail warehouse \n \n \n 19% \n \n \n Office \n \n \n 17% \n \n \n High street retail \n \n \n 13% \n \n \n Other \n \n \n 4% \n \n \n   \n \n \n 100% \n \n   \n\n 10 newly built residential properties largely under offer to sell valued at c. £2.7m \n 74% of passing rent is generated from the 10 largest assets, with Halfords representing the largest tenant (5% of the £1.7m rent roll) \n   \n\n The Transaction provides us with a portfolio that is both a strong fit with our income-focused strategy and highly complementary to our existing property portfolio, augmenting our regional, industrial bias and adding further diversification by tenant.   The Merlin portfolio has a topped-up NIY of 8.1%, ahead of the Company’s equivalent of 6.6%, making it immediately earnings-accretive, and is ungeared so reduces the Company’s pro-forma net gearing by c. 1%. \n\n   \n\n Hubert Lynch, Founder Director of Merlin Properties Limited, said : “Operating the Merlin portfolio, which our family has compiled and managed over the last 40 years, had become increasingly demanding in today’s complex environment. We have undertaken the Transaction in a tax efficient manner to ensure our family’s continued exposure to property investment both currently and for future generations through a professionally managed fund with a strong track record.   As already significant, supportive shareholders of Custodian Property Income REIT we have a strong relationship with the Investment Management team which we look forward to continuing for many years.” \n\n   \n\n Custodian Property Income REIT remains committed to growth and over the first 11 years of trading the Company has grown, largely organically, but also via corporate acquisitions, with an over six-fold increase in the size of the portfolio from £90m of property assets at IPO to a pro-forma c. £610m following the Merlin acquisition and disposals since the year end.   This growth has improved shareholder liquidity and increased diversification, mitigating property specific and tenant risk while stabilising earnings. \n\n   \n\n Following the Merlin acquisition, the Board of Custodian Property Income REIT and the Investment Manager are actively exploring further opportunities to purchase complementary portfolios via mergers or corporate acquisitions. \n\n   \n\n Sustainability \n\n   \n\n The Company has made further progress in implementing its environmental policy during the year, improving its weighted average EPC score from C (53) to C (51) following further refurbishments within the portfolio.   The Company’s Asset Management and Sustainability report is available at:   \n\n   \n\n custodianreit.com/environmental-social-and-governance-esg/ \n\n   \n\n This report contains details of the Company’s asset management initiatives with a clear focus on their impact on ESG, including case studies of recent positive steps taken to improve the environmental performance of the portfolio. \n\n   \n\n Cost disclosure exemption \n\n   \n\n We welcome the Financial Conduct Authority’s exemption of investment companies (including REITs) from the Packaged Retail and Insurance-based Investment Products (“PRIIPs”) and Markets in Financial Instruments Directive II (“MiFID II”) regulation.   Since 2018 this regulation has obliged wealth managers and platforms to make cost disclosures to clients that were ‘fundamentally misleading’ [21] by being presented as being borne by investors despite actually being incurred by the Company and included within reported investment performance [22] . \n\n   \n\n Exacerbated by more recent Consumer Duty regulations these cost disclosures, which also result in investment companies’ management costs appearing spuriously more expensive than alternative structures, are likely to have curtailed investment demand for the Company’s shares over the last six years.   \n\n   \n\n As the investment industry gradually adjusts to this change, we expect the Company’s competitive cost structure and high returns to be very attractive to new investors seeking strong returns from UK real estate. \n  \n\n Investment Manager \n\n   \n\n The performance of the Investment Manager is reviewed each year by the Management Engagement Committee.   During the year the fees charged by the Investment Manager were £3.9m (2024: £4.0m) in respect of annual management and administrative transaction fees, resulting in an ongoing charges ratio excluding direct property expenses of 1.30% (2024: 1.24%), which compares favourably to the peer group.   Further details of fees payable to the Investment Manager are set out in Note 19. \n\n   \n\n The Board continues to be pleased with the performance of the Investment Manager, noting particularly the successful acquisition of Merlin, continued positive asset management initiatives and capital improvements to the Company’s portfolio, with resulting valuation increases, enhanced environmental performance and maintained occupancy and income.   As a result the Board supports the continued appointment of the Investment Manager. \n\n   \n\n On 3 September 2024, 100% of the ordinary share capital of Mattioli Woods, the Investment Manager’s parent company, was acquired by Tiger Bidco Limited, a wholly-owned subsidiary of investment vehicles advised and managed by Pollen Street Capital Limited.   The Board is not expecting any operational changes to result from this transaction. \n\n   \n\n Board \n\n   \n\n On 6 November 2024 Ian Mattioli MBE DL stepped down from the Board to focus on capitalising on the market opportunity in UK wealth management in his role as Chief Executive Officer of Mattioli Woods, following its transition to private ownership.   On behalf of the Board and our shareholders I thank Ian for his invaluable support and contribution as Founder Director of the Company since IPO in 2014.   Ian and his family are expected to remain major, long-term shareholders in the Company and he will continue to serve a valuable role for the Company in his capacity as chair of the Investment Manager and as a member of its Investment Committee. \n\n   \n\n Also on 6 November 2024 Nathan Imlach, who is currently Chief Strategic Adviser to Mattioli Woods focusing on acquisitions and contributing to its future direction, was appointed to the Board for a transition period up until no later than the end of 2025.   Following that transition period the Company’s Board will become fully independent from the Company’s Investment Manager. \n\n   \n\n The Board is conscious of the importance stakeholders place on diversity and understands a diverse Board brings constructive challenge and fresh perspectives to discussions. The Company follows the AIC Corporate Governance Code and our policy on board diversity is summarised in the Nominations Committee report.   From the start of 2026, the Board expects to meet the FCA’s target for 40% female Board representation.   Custodian Property Income REIT is an investment company with no Executive Directors and a small Board compared to equivalent size listed trading companies. The Board welcomes the gender and ethnic diversity offered by the Investment Management team working with the Company. \n\n   \n\n At the Company’s AGM on 8 August 2024 the resolution to re-elect Elizabeth McMeikan as a Director of the Company (“the Resolution”) received votes against of 24.7% (2023: 23.7%), which comprised 6.8% (2023: 5.8%) of total shareholders.   Feedback from shareholders indicates that votes against the Resolution were primarily a result of perceived ‘over-boarding’, due to Elizabeth’s roles as Chair of Nichols plc and Non-Executive Director of Dalata Hotel Group plc and McBride plc.   These Directorships are within the number of ‘mandates’ permitted by Institutional Shareholder Services (“ISS”), a leading provider of corporate governance and responsible investment solutions to leading institutional investors, which supported the Resolution.   Votes against the Resolution were primarily from institutional shareholders applying stricter internal voting policies than ISS by allowing fewer ‘mandates’, and their voting policies do not acknowledge the generally lower time commitments as Directors of investment companies or companies of a relatively small size. \n\n   \n\n I believe additional roles offer Directors helpful insight and experience which benefits the Boards on which they sit and I do not intend to ask any fellow Directors to reduce their additional roles.   Along with all of the Directors, Elizabeth is a diligent and important member of the Board and I am grateful to all of them for their contributions and support. \n\n   \n\n Outlook \n\n   \n\n The Board appreciates the support of its wide range of shareholders with the majority classified as private client or discretionary wealth management investors.   Custodian Property Income REIT’s investment and dividend strategy, and diversified portfolio are well suited to investors looking for a close proxy to direct real estate investment but in a managed and liquid structure.   \n\n   \n\n The Board believes strongly in the benefits of diversification in mitigating property and sector specific risk, while delivering dividends that are fully covered by recurring earnings and generally higher than sector specialists.   The Board also remains firm in its belief that this strategy is well suited to long-term investors in real estate, allowing for the timely execution of acquisitions and disposals without the constraints of sector specificity, while setting the Company apart from the single sector, often higher risk funds. \n\n   \n\n The Company’s Investment Manager has curated a portfolio that focuses on long-term income and income growth, through careful stock selection and a balance between the main commercial property sectors, weighted to those that should offer the greatest rental growth potential.   This portfolio has supported growing earnings, fully covered by growing dividends, with 101.3% dividend cover for the year (2024: 100.7%).   Income and income growth are likely to form the greater component of total return over the next phase of the property cycle if long-term interest rates continue to stay high with persistent inflation. \n\n   \n\n However, as short-term interest rates fall and investors re-connect with real estate investment for its attractive income credentials, Custodian Property Income REIT’s share price is well-placed to re-rate and trend back towards NAV, enhancing the total return for all of our shareholders.   In addition, with asset prices showing signs of recovery and the recent announcement of the Merlin portfolio acquisition, the Board looks to the future with cautious confidence. \n\n   \n\n   \n\n David MacLellan \n\n Chairman \n\n 11 June 2025 \n\n   \n\n Investment Manager’s report \n\n   \n\n The UK property market \n\n   \n\n At a property market level, it is encouraging that the evidence is once again supportive of a recovery in the fortunes of UK commercial real estate.   Transaction volumes have been increasing, albeit there has been a slight hiatus as the world reacts to US trade policy.   Of note is the increased investment in the office sector, with a focus on grade A city centre buildings.   The industrial and logistics sector continues to be popular and there is renewed focus on out-of-town retail/retail warehousing.   Since the middle of last year, we have seen a further stabilisation of valuations as well as some increases during recent quarters, driven mainly by rental growth but also through emerging yield compression. \n\n   \n\n The consistent thread in the story of UK commercial real estate is positive occupier activity, with declining vacancy rates in prime locations and increased leasing activity, particularly in the office sector, as companies finalise their return-to-office strategies.   While there is evidence of developments restarting and new planning applications increasing, the lack of development over the last two/three years is maintaining pressure on supply and supporting rental growth. \n\n   \n\n Post year-end, Custodian Property Income REIT’s share price experienced volatility in line with the wider stock market, but perhaps this reaction will settle into a more considered position for real estate.   It would not be unreasonable to expect that during periods of trade uncertainty, UK real estate can be seen as a safe haven, as investors seek stable income, with asset backing in established and secure jurisdictions.   This should be particularly true for the Company’s investment strategy that generally targets sub £10m, regional, UK assets, that principally serve a local and/or domestic market.   \n\n   \n\n The fully covered dividend per share for the year of 6.0p offered a dividend yield of 7.9% at the year end (2024: 5.8p dividend, 7.2% yield), as weak economic confidence pushed the share price to a discount to NAV of c.19%.   While we believe this fundamentally undervalues the security and quality of income offered through our fully covered dividend, and despite the fact that we continually demonstrate our ability to realise sales at premiums to book value, the discount remains less than the UK listed real estate market average discount of c. 28%.   This suggests that while investors value the income, they also still overplay the risk in UK real estate which should be set against a backdrop of falling interest rates, rising property prices, growing rents and falling vacancy rates which are normally associated with a reduction in risk. \n\n   \n\n No commentary on UK listed real estate would be complete without considering the corporate activity that has swept through the sector.   Comprising mergers, acquisitions, wind downs, strategic reviews and take-privates, the common theme is that private equity is seeing value in the sector.   Against the average market discount to NAV of c.28%, most corporate activity is pricing transactions at between a 0% and 12% discount to NAV, which highlights the disparity in perceptions of value. \n\n   \n\n As these perceptions of value merge, we should expect to see a recovery in ratings across the sector, which adds further support to our view that the sector is currently under-valued. \n\n   \n\n On a sectoral basis there has been positive news for all the main commercial property sectors.   Industrial and logistics continue to lead the way on rental growth, but we have also recorded rental growth in retail warehousing, offices and high street retail. \n\n   \n\n The table below shows the reversionary potential of the portfolio by sector, by comparing EPRA topped-up NIY to the equivalent yield, which factors in expected rental growth and the letting of vacant units.   Across the whole portfolio, valuers’ ERV are 14% (2024: 15%) ahead of passing rent and while part of the reversionary potential is due to vacancy, the balance is this latent rental growth which will be unlocked at rent review and lease renewal. \n\n \n   \n\n   \n\n   \n\n Sector \n \n \n EPRA topped-up NIY \n\n 31 March 2025 \n \n \n   \n\n Equivalent yield [23] \n\n   31 March 2025 \n \n \n EPRA topped-up NIY \n\n 31 March 2024 \n \n \n Equivalent yield \n\n   31 March 2024 \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Industrial \n \n \n 5.5% \n \n \n 6.9% \n \n \n 5.4% \n \n \n 6.7% \n \n \n Retail warehouse \n \n \n 7.5% \n \n \n 7.6% \n \n \n 8.0% \n \n \n 7.4% \n \n \n Other \n \n \n 7.7% \n \n \n 8.4% \n \n \n 7.1% \n \n \n 8.0% \n \n \n Office \n \n \n 8.1% \n \n \n 11.1% \n \n \n 7.1% \n \n \n 9.8% \n \n \n High street retail \n \n \n 9.4% \n \n \n 8.4% \n \n \n 9.9% \n \n \n 8.1% \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n 6.6% \n \n \n 7.8% \n \n \n 6.6% \n \n \n 7.5% \n \n   \n\n Prevailing property investment approach \n\n   \n\n Based on our assessment of the current market, our strategy to maintain a regionally focused diversified portfolio, as set out below, has proven resilient.   We expect to reinvest the proceeds from selective disposals in funding capital expenditure to improve the environmental credentials of the portfolio and to pay down variable rate debt.   Over the long-term we intend to focus on: \n\n   \n\n Maintaining weighting to industrial and logistics – assets in this sector still have latent rental growth and strong occupier demand for small/’mid-box’ units; \n Retail warehousing let off low rents which are starting to show rental growth and supply side restrictions; \n Selective regional offices with a focus on strong city centre locations instead of out-of-town business parks; \n Drive-through expansion involving acquisition and development where rental growth is anticipated; \n Selective high street retail assets in the country’s strongest locations where rents have stabilised and there is potential for growth; and \n Refurbishment of existing property, maximising all opportunities to invest in the quality of our assets and support our ESG goals. \n   \n\n Sectoral view \n\n   \n\n Industrial and logistics \n\n   \n\n Rental growth remains strongest in the industrial and logistics sector which accounts for the largest share of the Company’s rent roll.   Lack of supply, and in some urban areas reducing supply, limited development of smaller and ‘mid-box’ industrial units and construction cost inflation have all combined to focus occupational demand and create low vacancy rates, driving rental growth for new-build regional industrial units and well specified, refurbished space.   The industrial sector is also providing the greatest opportunity for solar panels, generally referred to as photovoltaic (“PV”) installations, which is not only delivering on our environmental commitments but also growing revenue through the sale of the electricity generated to tenants via a power purchase agreement.   In the three months to 31 March 2025 the Company recorded income of £0.1m from 10 PV installations currently operational at industrial sites.   12 new installations are currently under consideration. \n\n   \n\n In summary: \n\n   \n\n Occupational demand is robust \n Limited supply of modern, ‘low carbon’, buildings \n Latent rental growth potential \n Target sector for well-priced opportunities \n   \n\n Retail warehouse \n\n   \n\n Retail warehousing is the sector which the Investment Property Forum Consensus Forecast expects to record the highest total return, showing some rental growth but with strong capital performance.   Our preferred sub-sectors are food, homewares, DIY and the discounters.   Vacancy rates are very low and future rental growth appears affordable for occupiers.   \n\n   \n\n The combination of convenience, lower costs per square foot and the complementary offer to online retail has kept these assets trading strongly.   As the second largest sector in the Custodian Property Income REIT portfolio, the recovery in market sentiment towards out-of-town retail is positive and vacancy rates remain low. \n\n   \n\n In summary: \n\n   \n\n Units let off low rents \n Lower costs of occupation \n Complementary to online \n   \n\n Offices \n\n   \n\n In the office sector, we have pursued a strategy of reducing exposure to business park assets, where we believe tenant demand is weaker and rental growth prospects are much more limited.   While only a small percentage of the portfolio, where we have retained offices, they have been city centre buildings that can be or have been brought up to modern occupier requirements and have low environmental impact standards. \n\n   \n\n In summary: \n\n   \n\n Occupier demand is stronger in city centre locations \n Strong rental growth in select locations \n Valuations have stabilised \n   \n\n High street retail \n\n   \n\n We continue to see low vacancy rates in prime locations and occupier demand, from both retail and leisure operators, should be supportive of future rental growth. \n\n   \n\n In summary: \n\n   \n\n Low vacancy rates in prime locations \n Rents are starting to show growth \n Rental yields support dividends \n   \n\n   \n\n Other \n\n   \n\n \n   \n\n   \n\n Sub-sector of ‘Other’ sector assets \n \n \n Weighting by income 31 March 2025 \n \n \n Weighting by income 31 March 2024 \n \n \n   \n \n \n   \n \n \n   \n \n \n Gym \n \n \n 20% \n \n \n 18% \n \n \n Drive-through \n \n \n 17% \n \n \n 17% \n \n \n Motor trade \n \n \n 16% \n \n \n 17% \n \n \n Pub and restaurant \n \n \n 15% \n \n \n 15% \n \n \n Other, including day nursery and hotel \n \n \n 13% \n \n \n 13% \n \n \n Leisure \n \n \n 12% \n \n \n 13% \n \n \n Trade counter \n \n \n 7% \n \n \n 7% \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n 100% \n \n \n 100% \n \n   \n\n Property portfolio balance \n\n   \n\n Property portfolio summary \n\n \n   \n \n \n 2025 \n \n \n 2024 \n \n \n Property portfolio value [24] \n \n \n £594.4m \n \n \n £589.1m \n \n \n Separate tenancies \n \n \n 349 \n \n \n 335 \n \n \n EPRA vacancy rate \n \n \n 8.9% \n \n \n 8.3% \n \n \n Assets \n \n \n 151 \n \n \n 155 \n \n \n Weighted average unexpired lease term to first break of expiry (“WAULT”) \n \n \n 5.0 years \n \n \n 4.9 years \n \n \n EPRA topped-up NIY \n \n \n 6.6% \n \n \n 6.6% \n \n \n Weighted average EPC rating \n \n \n C (51) \n \n \n C (53) \n \n   \n\n The property portfolio is split between the main commercial property sectors in line with the Company’s objective to maintain a suitably balanced investment portfolio.   The Company’s strategy since IPO has been a relatively low exposure to office and high street retail combined with a relatively high weighting to the industrial and alternative sectors, often referred to as ‘other’ in property market analysis.   \n\n The current sector weightings are: \n\n \n   \n\n   \n\n   \n\n   \n\n Sector \n \n \n Valuation \n\n 31 March 2025 \n\n   £m \n \n \n Weighting by income [25] \n\n 31 March \n\n 2025 \n \n \n Valuation \n\n 31 March 2024 \n\n   £m \n \n \n Weighting by income \n\n 31 March \n\n 2024 \n \n \n Valuation movement \n\n £m \n \n \n   \n\n   \n\n Weighting by value 31 March 2025 \n \n \n   \n\n   \n\n Weighting by value 31 March 2024 \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Industrial \n \n \n 298.3 \n \n \n 42% \n \n \n 291.4 \n \n \n 40% \n \n \n 11.6 \n \n \n 50% \n \n \n 49% \n \n \n Retail warehouse \n \n \n 127.3 \n \n \n 22% \n \n \n 122.7 \n \n \n 23% \n \n \n 4.4 \n \n \n 21% \n \n \n 21% \n \n \n Other \n \n \n 78.2 \n \n \n 13% \n \n \n 78.8 \n \n \n 13% \n \n \n 0.5 \n \n \n 13% \n \n \n 13% \n \n \n Office \n \n \n 57.7 \n \n \n 16% \n \n \n 63.9 \n \n \n 16% \n \n \n (5.7) \n \n \n 10% \n \n \n 11% \n \n \n High street retail \n \n \n 32.9 \n \n \n 7% \n \n \n 32.3 \n \n \n 8% \n \n \n 0.4 \n \n \n 6% \n \n \n 6% \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n   \n \n \n Total \n \n \n 594.4 \n \n \n 100% \n \n \n 589.1 \n \n \n 100% \n \n \n 11.2 \n \n \n 100% \n \n \n 100% \n \n   \n\n For details of all properties in the portfolio please see custodianreit.com/property/portfolio . \n\n   \n\n Disposals \n\n   \n\n Owning the right properties at the right time is a key element of effective property portfolio management, which necessarily involves periodically selling properties to balance the property portfolio.   Custodian Property Income REIT is not a trading company but identifying opportunities to dispose of assets significantly ahead of valuation or that no longer fit within the Company’s investment strategy is important. \n\n   \n\n The Company sold the following properties during the year for an aggregate £15.1m, 5% ahead of the most recent valuation and 38% ahead of their pre-offer valuation : \n\n   \n\n A vacant industrial unit in Warrington for £9.0m to a developer; \n A vacant former car showroom in Redhill for £2.35m to a developer; \n Vacant offices in Castle Donington for £1.75m to a flexible office provider; \n Vacant offices in Solihull for £1.4m to an owner-occupier; and \n One unit of a two-unit industrial asset in Sheffield to an owner-occupier for £0.55m. \n   \n\n Since the year end the Company has sold: \n\n   \n\n Part-let offices in Cheadle for £4.0m; and \n Fully-let offices in Cheadle for £2.9m. \n   \n\n Asset management \n\n   \n\n During the year we have remained focused on active asset management, completing 15 rent reviews at an aggregate 29% increase in annual rent from £2.5m to £3.2m, along with 64 new lettings, lease renewals and lease regears, with rental levels remaining affordable to our occupiers.   \n\n   \n\n During the year we deployed £8.2m on property refurbishments including £1.3m installing solar panels.   £2.6m of this capital expenditure related to the pre-let extension of an industrial building in Livingston, allowing the occupier to expand and achieve its plans for growth.   The extension achieved practical completion in May 2025, increasing annual rent by c.£0.2m. \n\n   \n\n ESG \n\n   \n\n The sustainability credentials of both the building and the location have become ever more important for occupiers and investors.   As Investment Manager we are absolutely committed to achieving the Company’s challenging goals in relation to ESG and believe the real estate sector should be a leader in this field. \n\n   \n\n The weighted average EPC across the portfolio is following a positive trajectory towards an average B rating (equivalent to a score of between 25 and 50).   With energy efficiency a core tenet of the Company’s asset management strategy and with tenant requirements aligning with our energy efficiency goals we see this as an opportunity to secure greater tenant engagement and higher rents.   \n\n   \n\n During the year the Company has updated EPCs at 35 units across 24 properties where existing EPCs had expired or where works had been completed, improving the weighted average EPC rating from C (53) at 31 March 2024 to C (51).   \n\n   \n\n   \n\n Richard Shepherd-Cross \n\n Managing Director \n\n for and on behalf of Custodian Capital Limited \n\n Investment Manager \n\n 11 June 2025 \n\n   \n\n Financial review \n\n   \n\n A summary of the Company’s financial performance for the year is shown below: \n\n   \n\n \n \n Financial summary \n \n \n Year ended 31 March 2025 £000 \n \n \n Year ended 31 March 2024 \n\n £000 \n \n \n Rental revenue \n \n \n 42,828 \n \n \n 42,194 \n \n \n Other income \n \n \n 476 \n \n \n 195 \n \n \n Expenses and net tenant recharges \n \n \n (9,159) \n \n \n (8,599) \n \n \n Net finance costs \n \n \n (7,359) \n \n \n (8,048) \n \n \n EPRA profits \n \n \n 26,786 \n \n \n 25,742 \n \n \n Abortive acquisition costs \n \n \n - \n \n \n (1,557) \n \n \n Net gain/(loss) on investment property and depreciation \n \n \n 11,369 \n \n \n (25,687) \n \n \n Profit/(loss) before tax \n \n \n 38,155 \n \n \n (1,502) \n \n \n   \n \n \n   \n \n \n   \n \n \n EPRA EPS (p) \n \n \n 6.1 \n \n \n 5.8 \n \n \n Dividend cover \n \n \n 101.3% \n \n \n 100.7% \n \n \n OCR excluding direct property costs \n \n \n 1.30% \n \n \n 1.24% \n \n \n   \n \n \n   \n \n \n   \n \n \n Borrowings \n \n \n   \n \n \n   \n \n \n Net gearing \n \n \n 27.9% \n \n \n 29.2% \n \n \n Weighted average debt maturity \n \n \n 4.5 years \n \n \n 5.3 years \n \n \n Weighted average cost of drawn debt \n \n \n 3.9% \n \n \n 4.1% \n \n \n\n   \n\n Revenue \n\n   \n\n Rental revenue increased by 1.5% compared to the year ended 31 March 2024 with year-end contractual passing rent increasing by 1.9% from £43.1m to £43.9m during the year (a 2.3% like-for-like increase).   The £0.4m impact on year-end passing rent from an overall 0.6% decrease in occupancy was more than offset by annual rental growth of £1.2m, of which £1.1m was from the industrial sector. \n\n   \n\n During the year we deployed £1.3m on PV installations at nine assets (2024: £2.1m) and associated ‘other’ revenues have increased by 144% as a result.   We expect PV revenues to continue to grow as recent installations go live and we continue to roll-out PV via our pipeline of anticipated refurbishments. \n\n   \n\n Finance costs \n\n   \n\n During the year we deployed £8.2m (2024: £19.0m) of variable rate debt on property refurbishments and installing solar panels.   This capital expenditure was funded by £15.1m of disposal proceeds with the balance used to pay down the Company’s variable rate revolving credit facility (“RCF”) facility.   With a net decrease in the drawn RCF balance and base rate (SONIA) decreasing from c.5.2% to c.4.5% during the year, net finance costs decreased by £0.7m. \n\n   \n\n Earnings \n\n   \n\n These positive movements in rent and finance costs increased EPRA earnings per share to 6.1p (2024: 5.8p).   This increase in recurring earnings demonstrates the robust nature of the Company’s diverse property portfolio. \n\n   \n\n During the year sentiment towards real estate improved despite concerns over high long-term gilt rates and the outlook for medium-term earnings.   Like-for-like valuation increases were 2.2% following two years of previous decreases and over the year these outlook improvements resulted in an £11.2m valuation increase (2024: £27.0m decrease) and an associated profit before tax of £38.2m (2024: £1.5m loss). \n\n   \n\n Dividends \n\n   \n\n The Board acknowledges the importance of income for shareholders and during the year its policy was to pay dividends at a rate fully covered by net rental income which does not inhibit the flexibility of the Company’s investment strategy. \n\n   \n\n The Company paid dividends totalling 6.175p per share during the year (£27.2m) comprising a fourth interim dividend relating to the year ended 31 March 2024 of 1.375p, a special dividend relating to FY24 of 0.3p, and three quarterly interim dividends of 1.5p per share relating to the year ended 31 March 2025. \n\n   \n\n On Friday 30   May 2025 the Company paid a fourth quarterly interim dividend per share of 1.5p for the quarter ended 31   March   2025 of £6.6m.   Dividends relating to the year ended 31   March   2025 of 6.0p (2024: 5.8p) were 101.3% (2024: 100.7%) covered by EPRA earnings of £26.8m (2024: £25.7m), as calculated in Note 22. \n\n   \n\n Debt financing \n\n   \n\n The Company operates with a conservative level of net gearing, with target borrowings over the medium-term of 25% of the aggregate market value of all properties at the time of drawdown.   The Company’s net gearing decreased from 29.2% LTV last year to 27.9% at the year-end primarily due to £11.9m of valuation increases and a net £6.9m receipt from disposals and capital deployment. \n\n   \n\n On 23 January 2025 the Company and Lloyds Bank plc (“Lloyds”) agreed to extend the term of the RCF by one year to expire on 10 November 2027.   An option remains in place to extend the term by a further year to 2028, subject to Lloyds’ consent.   The RCF includes an ‘accordion’ option, with the facility limit increased from £50m to £60m since the year end, which can be increased up to £75m subject to Lloyds’ agreement.   \n\n   \n\n At the year end the Company had the following facilities available: \n\n   \n\n A £50m RCF with Lloyds with interest of between 1.62% and 1.92% above SONIA, determined by reference to the prevailing LTV ratio of a discrete security pool of assets, and expiring on 10 November 2027 (with an extension option to 2028).   The facility limit can be increased to £75m with Lloyds’ approval; \n A £20m term loan facility with Scottish Widows Limited (“SWIP”) repayable in August 2025, with fixed annual interest of 3.935%; \n A £45m term loan facility with SWIP repayable in June 2028, with fixed annual interest of 2.987%; and \n A £75m term loan facility with Aviva Real Estate Investors (“Aviva”) comprising: \n A £35m tranche repayable on 6 April 2032, with fixed annual interest of 3.02%; \n A £15m tranche repayable on 3 November 2032 with fixed annual interest of 3.26%; and \n A £25m tranche repayable on 3 November 2032 with fixed annual interest of 4.10%. \n   \n\n Each facility has a discrete security pool, comprising a number of the Company’s individual properties, over which the relevant lender has security and the following covenants: \n\n   \n\n The maximum LTV of each discrete security pool is either 45% or 50%, with an overarching covenant on the Company’s property portfolio of a maximum of either 35% or 40% LTV; and \n Historical interest cover, requiring net rental income from each discrete security pool, over the preceding three months, to exceed either 200% or 250% of the facility’s quarterly interest liability. \n   \n\n At the year end the Company had £103.5m (17% of the property portfolio) of unencumbered assets which could be charged to the security pools to enhance the LTV on the individual loans.    A £1.9m unencumbered industrial asset in Dundee is in the process of being charged to the Aviva loan pool. \n\n   \n\n The weighted average cost of the Company’s drawn debt facilities at 31   March   2025 was 3.9% (2024:   4.1%), with a weighted average maturity of 4.5 years (2024: 5.3 years).   At 31 March 2025 the Company had £35.0m (2024: £39.0m) drawn under its Lloyds RCF, meaning 80% (2024: 78%) of the Company’s drawn debt facilities were at fixed rates of interest.   \n\n   \n\n This high proportion of fixed rate debt significantly mitigates long-term interest rate risk for the Company and provides shareholders with a beneficial margin between the fixed cost of debt and income returns from the property portfolio. \n\n   \n\n The Board intends to utilise the Company’s variable rate RCF to repay the £20m fixed rate loan with SWIP due to expire in August 2025 and since the year end has increased the RCF facility limit from £50m to £60m to provide headroom.   The Board intends to consider longer-term options once financial markets are more stable. \n\n   \n\n Key performance indicators \n\n   \n\n The Board reviews the Company’s quarterly performance against a number of key financial and non-financial measures: \n\n   \n\n EPS and EPRA EPS – reflect the Company’s ability to generate recurring earnings from the property portfolio which underpin dividends; \n Dividends per share and dividend cover - to provide an attractive level of income to shareholders, fully covered from net rental income.   The Board reviews target dividends in conjunction with detailed financial forecasts to ensure that target dividends are being met and are maintainable; \n Target dividend per share – an expectation of the Company’s ability to deliver an income stream to shareholders for the forthcoming year; \n NAV per share total return – reflects both the NAV growth of the Company and dividends payable to shareholders.   The Board assesses NAV per share total return over various time periods and compares the Company's returns to those of its peer group of listed, closed-ended property investment funds; \n Share price total return – reflects the movement in share price and dividends payable to shareholders, giving returns that were available to shareholders during the year; \n NAV/NTA per share, share price and market capitalisation – reflect various measures of shareholder value at a point in time; \n Net gearing – measures the Company’s borrowings as a proportion of its investment property, balancing the additional returns available from utilising debt with the need to effectively manage risk; \n Weighted average cost of debt – measures the cost of the Company’s borrowings based on amounts drawn and base rate at the year end; \n OCR – measures the annual running costs of the Company and indicates the Board’s ability to operate the Company efficiently, keeping costs low to maximise earnings from which to pay fully covered dividends; and \n Weighted average EPC rating – measures the overall environmental performance of the Company’s property portfolio. \n   \n\n The Board considers the key performance measures over various time periods and against similar funds.   A record of these measures is disclosed in the Financial highlights and performance summary, the Chairman's statement and the Investment Manager's report. \n\n   \n\n EPRA performance measures \n\n   \n\n EPRA Best Practice Recommendations, which are APMs, have been disclosed to facilitate comparison with the Company’s peers through consistent reporting of key real estate specific performance measures. \n\n \n   \n \n \n 2025 \n \n \n 2024 \n \n \n   \n \n \n   \n \n \n   \n \n \n EPRA EPS (p) \n \n \n 6.1 \n \n \n 5.8 \n \n \n EPRA Net Tangible Assets (“NTA”) and Net Reinstatement Value (“NRV”) per share (p) \n \n \n 96.1 \n \n \n 93.4 \n \n \n EPRA Net Disposal Value (“NDV”) per share (p) \n \n \n 99.9 \n \n \n 97.3 \n \n \n EPRA NIY \n \n \n 6.2% \n \n \n 6.3% \n \n \n EPRA ‘topped-up’ NIY \n \n \n 6.6% \n \n \n 6.6% \n \n \n EPRA vacancy rate \n \n \n 8.9% \n \n \n 8.3% \n \n \n EPRA cost ratio (including direct vacancy costs) \n \n \n 24.0% \n \n \n 22.0% \n \n \n EPRA cost ratio (excluding direct vacancy costs) \n \n \n 19.7% \n \n \n 17.7% \n \n \n EPRA LTV \n \n \n 28.7% \n \n \n 29.6% \n \n \n EPRA capital expenditure (£m) \n \n \n 6.8 \n \n \n 17.0 \n \n \n EPRA like-for-like annual rent (£m) \n \n \n 42.3 \n \n \n 41.0 \n \n   \n\n EPRA EPS – a key measure of the Company’s underlying operating results and an indication of the extent to which current dividend payments are supported by earnings \n EPRA NAV per share metrics – make adjustments to the NAV per the IFRS financial statements to provide stakeholders with information on the fair value of the assets and liabilities of a real estate investment company, under different scenarios.   EPRA NTA - assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. EPRA NDV – includes an adjustment for the fair value of fixed rate debt. \n EPRA NIY and ‘topped-up’ NIY – alternative measures of property portfolio valuation based on cash passing rents at the reporting date and once lease incentive periods have expired, net of vacant property operating costs \n EPRA vacancy rate – expected rental value (“ERV”) of vacant space as a percentage of the ERV of the whole property portfolio and offers insight into the additional rent generating capacity of the portfolio. \n EPRA cost ratios – alternative measures of ongoing charges based on expenses, excluding operating expenses of rental property recharged to tenants, but including increases in the doubtful debt provision, compared to gross rental income \n EPRA LTV – a measure of gearing including all payables and receivables \n EPRA capital expenditure - capital expenditure incurred on the Company’s property portfolio during the year \n EPRA like-for-like rental growth - a measure of passing rent of the property portfolio, excluding acquisitions and disposals \n EPRA Sustainability Best Practice Recommendations – environmental performance measures focusing on emissions and resource consumption which create transparency to potential investors by enabling a comparison against peers and set a direction towards improving the integration of ESG into the management of the Company’s property portfolio. \n   \n\n Outlook \n\n   \n\n The Company’s business model has remained resilient during the year and we have further mitigated against refinancing risk by renewing the Company’s RCF.   We have a scalable cost structure and flexible capital structure to be on the front foot when opportunities present themselves to raise new equity and exploit acquisition opportunities.   \n\n   \n\n   \n\n Ed Moore \n\n Finance Director \n\n for and on behalf of Custodian Capital Limited \n\n Investment Manager \n\n 11 June 2025 \n  \n\n Principal risks and uncertainties \n\n   \n\n The Board has overall responsibility for reviewing the effectiveness of the system of risk management and internal control which is operated by the Investment Manager.   During the year the Board has performed a robust assessment of the principal and emerging risks facing the Company through a periodic review of, and updates to, its risk register.   The Company’s risk management process is designed to identify, evaluate and mitigate the significant risks the Company faces in line with its risk appetite.   At least annually, the Board undertakes a risk review, with the assistance of the Audit and Risk Committee, to assess the effectiveness of the Investment Manager’s risk management and internal control systems.   During this review, no significant failings or weaknesses were identified in respect of risk management, internal control and related financial and business reporting.   Further information on the risk governance and risk management processes are included in the Internal control and risk management section of the Governance report. \n\n   \n\n The Company holds a portfolio of high quality property let predominantly to institutional grade tenants and is primarily financed by fixed rate debt.   It does not undertake speculative development. \n\n   \n\n There are a number of potential risks and uncertainties which could have a material impact on the Company's performance over the forthcoming financial year and could cause actual results to differ materially from expected and historical results.   The Directors have assessed the risks facing the Company, including risks that would threaten the business model, future performance, solvency or liquidity.   The table below outlines the principal risks identified, but does not purport to be exhaustive as there may be additional risks that materialise over time that the Company has not yet identified or has deemed not likely to have a potentially material adverse effect on the business. \n \n \n\n \n   \n\n \n Risk on business and causes \n \n \n Likelihood and impact \n \n \n Overall change in risk from last year \n \n \n Mitigating factors \n \n \n Appetite \n \n \n Loss of revenue \n\n An increasing number of tenants exercising contractual breaks or not renewing at lease expiry \n Unable to re-let void units promptly \n Tenant default due to a cessation or curtailment of trade \n Enforced reduction in contractual rents through CVAs \n Property environmental performance insufficient to attract tenants or maintain rents \n More frequent and longer periods of property refurbishment delaying re-letting   \n Decreases in rental rates due to general economic conditions or sector/property specific factors \n Expiries or breaks concentrated in a specific year \n Low UK economic growth impacting the occupational property market \n   \n \n \n Likelihood: Moderate \n\n   \n\n Impact: High \n\n   \n\n Loss of revenue has an immediate impact on earnings and dividend capacity.   There is also an increased risk of breaching interest cover covenants on borrowings, detailed in Note 16, which could ultimately lead to default.   \n \n \n No change \n\n   \n\n Discussed further in the Investment Manager’s report \n \n \n Diverse property portfolio covering all key sectors and geographical areas \n The Company has over 300 individual tenancies with the largest tenant accounting for 3.9% of the rent roll \n Investment policy limits the Company’s rent roll to no more than 10% from a single tenant and 50% from a single sector \n Primarily institutional grade tenants \n Focused on established business locations for investment \n Active management of lease expiry profile considered in forming acquisition and disposal decisions \n Building specifications typically not tailored to one user \n Strong tenant relationships \n Significant focus and proactive investment in asset-by-asset environmental performance to maintain or improve rental levels \n   \n \n \n The Board relies on the Investment Manager’s processes regarding due diligence on lettings.   A degree of tenant covenant risk and short WAULTs are accepted due to the nature of the business \n\n   \n\n   \n \n \n Decreases in property portfolio valuation \n\n Reduced property market sentiment and investor demand affecting market pricing \n Decreases in sector-specific ERVs \n Change in demand for space \n Property environmental performance insufficient to attract tenants \n Property obsolescence requiring increasing levels of capital expenditure to maintain rental tone \n Refurbishment or repair work cost over-runs not reflected in valuations \n Properties concentrated in a specific geographical location or sector \n Lack of transactional evidence \n Decreases in occupancy \n   \n \n \n Likelihood: Low \n\n   \n\n Impact: Moderate \n\n   \n\n Valuation decreases increase the risks of: \n\n   \n\n Non-compliance with LTV covenants on borrowings, detailed in Note 16, which could ultimately lead to default; and \n The Company realising its investments at lower values. \n   \n\n The Company’s sensitivity to valuation decreases is considered further in Going concern and longer-term viability below \n\n   \n \n \n Decreased –valuations have stabilised during the year due to decreasing interest rates and continued robust occupational demand \n\n   \n\n Discussed further in the Chairman’s statement and Investment Manager’s report \n \n \n Occupational demand has been resilient during the year despite economic headwinds \n Active property portfolio diversification between office, industrial (distribution, manufacturing and warehousing), retail warehousing, high street retail and other \n Investment policy limits the Company’s property portfolio to no more than 50% in any specific sector or geographical region \n Smaller lot-size business model limits exposure to individual asset values \n High quality assets in good locations should remain popular with investors \n Significant focus on asset-by-asset ESG performance and proactively investing in environmental performance to maintain or improve demand \n \n \n There is no certainty that \n\n property values will be realised. \n\n This is an inherent risk of property investment. \n\n The Investment Manager aims to minimise this risk through its asset selection \n\n and active asset management initiatives. \n \n \n Reduced availability or increased cost of debt financing \n\n Breach of financial and non-financial borrowing covenants \n Over-reliance on an individual lender \n Significant increases in interest rates \n LTV increasing above target \n Refinancing risk from upcoming expiries \n \n \n Likelihood: Low \n\n   \n\n Impact: High \n\n   \n\n Increases in interest rates in the short-term reduce earnings and dividend capacity to the extent the Company has drawn balances on its variable rate RCF.   Lack of availability of financing would have a significant impact on property strategy if properties needed to be sold to repay loans. \n\n   \n\n   \n \n \n Decreased – valuations have stabilised during the year and are starting to increase, with variable interest rates decreasing \n \n \n The Company has three lenders \n The Company’s weighted average maturity on its debt is c. five years \n Target net gearing of 25% LTV on property portfolio \n 80% of drawn debt facilities at the year end at a fixed rate of interest \n Significant unencumbered properties available to cure any potential breaches of LTV covenants \n Ongoing monitoring and management of the forecast liquidity and covenant position \n RCF limit increased from £50m to £60m since the year end to provide RCF headroom ahead of repaying the £20m SWIP loan expiring in August 2025 \n \n \n The Board and Investment Manager focus \n\n on having funding in place to take advantage of opportunities as they arise. \n\n The Board’s aim is to minimise this risk to the extent possible through arranging longer-term facilities. \n \n \n Inadequate operational performance \n\n Inadequate performance, controls or systems operated by the Investment Manager \n Over-reliance on key investment manager personnel or other third party service providers \n   \n \n \n Likelihood: Moderate \n\n   \n\n Impact: High \n\n   \n\n Increased risk of sub-optimal returns impacting earnings and dividend capacity, ineffective risk or threat management or decisions made on inaccurate information. \n\n Inability to retain or recruit staff of an appropriate calibre \n \n \n Increased – a member of key Investment Manager personnel left during the year \n\n   \n \n \n Ongoing review of key service provider performance by the Management Engagement Committee \n Outsourced internal audit function reporting directly to the Audit and Risk Committee \n External depositary with responsibility for safeguarding assets and performing cash monitoring \n The Investment Management Agreement contains key personnel provisions designed to mitigate the potential impact of key individuals leaving \n A satisfactory appointment has been made by the Investment Manager to replace its key member of personnel who left during the year \n   \n \n \n The Board relies on the Investment Manager’s processes. Its appetite for such \n\n risk is low \n\n   \n \n \n Regulatory, legal and governance \n\n Adverse impact of new or revised legislation or regulations, or by changes in the interpretation or enforcement of existing government policy, laws and regulations \n Non-compliance with the REIT regime [26] or changes to the Company’s tax status \n Properties aren’t compliant with prevailing fire safety legislation \n Conflicts of interest with the Investment Manager \n Non-compliance with the Company’s Articles of Association \n   \n \n \n Likelihood: Low \n\n   \n\n Impact: High \n\n   \n\n Reputational damage could impact demand for shares.   \n Earnings and dividend capacity would decrease with penalties/fines for non-compliance or through an increased tax charge \n Remedial costs or claims for non-compliance could be substantial \n Conflicts of interest could lead to operational issues or reputational damage \n   \n \n \n No change \n \n \n Strong compliance culture, with an independent Management Engagement Committee overseeing the Investment Manager relationship \n External professional advisers are engaged to review and advise upon control environment, ensure regulatory compliance and advise on the impact of changes \n Business model and culture embraces FCA principles \n REIT regime compliance is considered by the Board in assessing the Company’s financial position and setting dividends and by the Investment Manager in making operational decisions \n Fire safety policy goes over and above minimum requirements \n \n \n The Board has no appetite for non-compliance \n\n   \n\n   \n \n \n Business interruption \n\n Cyber-attack results in the Investment Manager being unable to use its IT systems and/or losing data \n Terrorism or pandemics interrupt the Company’s operations through impact on either the Investment Manager or the Company’s assets or tenants \n   \n \n \n Likelihood: Moderate \n\n   \n\n Impact: High \n\n   \n\n Reputational damage from not being able to communicate with shareholders on a timely and accurate basis.   Loss of earnings and dividend capacity if contractual rents not invoiced. Fines and penalties from non-compliance with reporting requirements. \n \n \n No change \n\n   \n \n \n   \n\n Data is regularly backed up and replicated and the Investment Manager’s IT systems are protected by anti-virus software and firewalls that are regularly updated \n Fire protection and access/security procedures are in place at all of the Company’s managed properties \n Comprehensive property damage and business interruption insurance is held, including three years’ lost rent and terrorism \n At least annually, a fire risk assessment and health and safety inspection is performed for each property in the Company’s managed portfolio \n   \n \n \n The Board relies on the Investment Manager’s processes.   It has no appetite for such risk \n\n   \n \n \n Environmental \n\n Failure to appropriately manage the environmental performance of the property portfolio, resulting in it not meeting the required standards of environmental legislation and making properties unlettable or unsellable \n ESG policies and targets being insufficient to meet the required standards of stakeholders \n Non-compliance with environmental reporting requirements \n Insufficient electricity supply to maintain tenant requirements for clean energy due to inadequate infrastructure \n Unsuccessful investment in new technology \n Physical risk to properties due to environmental factors and extreme weather \n   \n \n \n Likelihood: Moderate \n\n   \n\n Impact: Moderate \n\n   \n\n Risk of reputational damage, suboptimal returns for shareholders, decreased asset liquidity, reduced access to debt and capital markets and poor relationships with stakeholders \n\n   \n \n \n No change \n\n   \n\n Discussed further in the ESG Committee report \n \n \n The Company has engaged specialist environmental consultants to advise the Board on compliance with requirements and adopting best practice where possible \n The Company has a published ESG policy which seeks to improve energy efficiency and reduce emissions \n The ESG Committee ensures compliance with environmental requirements, the ESG policy and environmental KPIs \n At a property level an environmental assessment is undertaken which influences decisions regarding acquisitions, refurbishments and asset management initiatives \n Upgrading power supplies where availability permits \n All investments are scrutinised by the Investment Manager’s Investment Committee.   Investment Committee reports include a dedicated ESG rationale. Carbon reducing technology is a key part of the carbon-reduction strategy but is not invested in speculatively and only established products are considered.   \n \n \n The Board is averse to non-compliance risk, in particular when it may adversely impact reputation, stakeholder sentiment or asset liquidity. \n \n \n Acquisition due diligence \n\n Unidentified risk and liabilities associated with the acquisition of new properties (whether acquired directly or via a corporate structure) \n   \n \n \n Likelihood: Low \n\n   \n\n Impact: Moderate \n\n   \n\n Decrease in profitability or NAV and loss of shareholder value \n \n \n No change \n\n   \n \n \n   \n\n Comprehensive due diligence is undertaken in conjunction with professional advisers and the provision of insured warranties and indemnities are sought from vendors where appropriate \n Acquired companies’ trade and assets are hived-up into Custodian Property Income REIT plc and the acquired entities are subsequently liquidated \n \n \n The Board accepts risk with such transactions with the mitigations opposite used to manage risk where possible \n \n \n \n\n \n Emerging risks \n\n   \n\n The following risks have been added to the Company’s risk register during the year: \n\n   \n\n Increases in yields of long-term fixed-rate government bonds impacting demand for the Company’s shares; and \n Shareholder activists in the Investment Company sector not acting in the best interests of all shareholders. \n   \n\n The Company’s share price has been materially impacted by increases in gilt yields during the year, and since the year end by the escalating global impact of US trade policy.   The Board accepts inherent risk associated with operating a closed-ended investment structure. The Investment Manager and the Company’s broker and Distribution Agent maintain strong lines of communication with shareholders \n\n   \n\n The impact of geo-political risk relating to the ongoing conflicts in Ukraine and Gaza, tensions between the USA and its trading partners and its volatile political climate, and UK specific factors including apparent declining health of public markets and a ‘cost of living crisis’ also add to uncertainty over the prevailing macroeconomic outlook.   However, these factors are not considered direct emerging risks because of the Company’s diverse property portfolio covering all sectors and geographical areas in the UK with over 300 individual tenancies. \n\n   \n\n Going concern and longer-term viability \n\n   \n\n The Board assesses the Company’s prospects over the long-term, taking into account rental growth expectations, climate related risks, longer-term debt strategy, expectations around capital investment in the portfolio and the UK’s long-term economic outlook.   At quarterly Board meetings, the Board reviews summaries of the Company ’ s liquidity position and compliance with loan covenants, as well as forecast financial performance and cash flows. \n\n   \n\n Forecast \n\n   \n\n The Investment Manager maintains a detailed forecast model projecting the financial performance of the Company over a period of three years, which provides a reasonable level of accuracy regarding projected lease renewals, asset-by-asset capital expenditure, property acquisitions and disposals, rental growth, interest rate changes, cost inflation and refinancing of the Company’s debt facilities ahead of expiry.   The detailed forecast model allows robust sensitivity analysis to be conducted and over the three year forecast period included the following assumptions: \n\n   \n\n 1% annual loss of contractual revenue through CVA or tenant default; \n 70% tenant retention rate at lease break or expiry with vacated assets followed by an appropriate period of void; \n Rental growth, captured at the earlier of rent review or lease expiry, based on current ERVs adjusted for consensus forecast changes; \n Portfolio valuation movements based on consensus forecast changes; \n Completing a programme of asset disposals; \n The Company’s capital expenditure programme to invest in its existing assets continues as expected; \n The £20m SWIP loan is repaid using the RCF on its expiry in August 2025; and \n Interest rates follow the prevailing forward curve. \n   \n\n The Directors have assessed the Company’s prospects and longer-term viability over this three-year period in accordance with Provision 36 of the AIC Code, and the Company’s prospects as a going concern over a period of 12 months from the date of approval of the Annual Report, using the same forecast model and assessing the risks against each of these assumptions. \n\n   \n\n The Directors note that the Company has performed strongly during the year despite economic headwinds with like-for-like rents increasing over the last 12 months. \n\n   \n\n Sensitivities \n\n   \n\n Sensitivity analysis involves flexing the assumptions listed above, taking into account the principal risks and uncertainties and emerging risks detailed in the Strategic Report.   This analysis includes stress testing the point at which covenants would breach through rent losses and property valuation movements, and assessing their impact on the following areas: \n\n   \n\n Covenant compliance \n\n   \n\n The Company operates the loan facilities summarised in Note 16.   At 31 March 2025 the Company had sufficient headroom on lender covenants at a portfolio level with: \n\n   \n\n Net gearing of 27.9% compared to a maximum LTV covenant of 35% on its Aviva facilities and 40% on its Lloyds and SWIP facilities, with £103.5m (17% of the property portfolio) unencumbered by the Company’s borrowings; and \n 117% minimum headroom on interest cover covenants for the quarter ended 31 March 2025. \n   \n\n Over the one and three year assessment periods the Company’s forecast model projects a small increase in net gearing and an increase in headroom on interest cover covenants.   Reverse stress testing has been undertaken to understand what circumstances would result in potential breaches of financial covenants over these periods.   While the assumptions applied in these scenarios are possible, they do not represent the Board’s view of the likely outturn, but the results help inform the Directors’ assessment of the viability of the Company.   The testing indicated that: \n\n   \n\n The rate of loss of contractual rent on the borrowing facility with least headroom would need to deteriorate by 17% (for the going concern assessment period) to breach its interest cover covenant from the levels included in the Company’s prudent base case forecasts, assuming no unencumbered properties were charged; or \n To risk breaching the applicable covenant for both assessment periods, property valuations would have to decrease from the 31 March 2025 position by: \n 20% at a portfolio level; or \n 13% at an individual charge pool level, assuming no further properties were charged \n \n Note 10 details the expected movements in the valuation of investment properties if the equivalent yield at 31 March 2025 is increased or decreased by 0.25% and if the ERV is increased or decreased by 5.0%, which the Board believes are reasonable sensitivities to apply given historical changes. \n\n   \n\n The Board notes that the latest IPF Forecasts for UK Commercial Property Investment survey suggests an average 2.8% increase in rents during 2025 with capital value increases of 3.7%.   The Board believes that the valuation of the Company’s property portfolio will prove resilient due to its higher weighting to industrial assets and overall diverse and high-quality asset and tenant base comprising c.150 assets and over 300 typically 'institutional grade' tenants across all commercial sectors. \n\n   \n\n Liquidity \n\n   \n\n At 31 March 2025 the Company had £7.9m of unrestricted cash and £15.0m undrawn RCF, with gross borrowings of £175.0m resulting in net gearing of 27.9%.   As detailed in Note 16, the Company’s £20m loan with SWIP expires in August 2025 which the Company intends to repay using its RCF facility.   \n\n   \n\n The Company increased its RCF limit from £50m to £60m in June 2025 ahead of the August 2025 expiry to maintain headroom, with the Company’s forecast model projecting it will have at least £10.8m of undrawn RCF facility over the next 12 months to continue its programme of discretionary capital investment, pay its target dividends and its expense and interest liabilities over the one and three year assessment periods.   \n\n   \n\n Results of the assessments \n\n   \n\n Based on the prudent assumptions within the Company’s forecasts regarding the factors set out above, the Directors expect that over the one-year and three-year periods of their assessment: \n\n   \n\n The Company has surplus cash to continue in operation and meet its liabilities as they fall due; \n Borrowing covenants are complied with; and \n REIT tests are complied with. \n   \n\n Section 172 statement and stakeholder relationships \n\n   \n\n The Directors consider that in conducting the business of the Company over the course of the year they have complied with Section 172(1) of the Companies Act 2006 (“the Act”) by fulfilling their duty to promote the success of the Company and act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. \n\n   \n\n Issues, factors and stakeholders \n\n   \n\n The Board has direct engagement with the Company’s shareholders and seeks a rounded and balanced understanding of the broader impact of its decisions through regular engagement with its stakeholder groups (detailed below) to understand their views, typically through feedback from the Investment Manager, the Company’s broker and the distribution agent, which is regularly communicated to the Board via quarterly meetings.   Stakeholder engagement also ensures the Board is kept aware of any significant changes in the market, including the identification of emerging trends and risks, which in turn can be factored into its strategy discussions. \n\n   \n\n Management of the Company’s day-to-day operations has been delegated to the Investment Manager, Custodian Capital Limited, and the Company has no employees.   This externally managed structure allows the Board and the Investment Manager to have due regard to the impact of decisions on the following matters specified in Section 172 (1) of the Act: \n\n   \n\n \n Section 172(1) factor \n \n \n   \n\n Approach taken \n \n \n Likely consequences of any decision in the long-term \n \n \n The business model and strategy of the Company is set out within the Strategic Report.   Any deviation from or amendment to that strategy is subject to Board and, if necessary, shareholder approval.   The Company’s Management Engagement Committee ensures that the Investment Manager is operating within the scope of the Company’s investment objectives. \n\n   \n\n At least annually, the Board considers a budget for the delivery of its strategic objectives based on a three year forecast model.   The Investment Manager reports non-financial and financial key performance indicators to the Board, set out in detail in the Business model and strategy section of the Strategic report, at least quarterly which are used to assess the outcome of decisions made. \n\n   \n\n The Board’s commitment to keeping in mind the long-term consequences of its decisions underlies its focus on risk, including risks to the long-term success of the business.   \n\n   \n\n The investment strategy of the Company is focused on medium to long-term returns and minimising the Company’s impact on communities and the environment and as such the long-term is firmly within the sights of the Board when all material decisions are made. \n\n The Board gains an understanding of the views of the Company’s key stakeholders from the Investment Manager, broker, distribution agents and Management Engagement Committee, and considers those stakeholders’ interests and views in board discussions and long-term decision-making. \n\n   \n \n \n The interests of the Company’s employees \n\n   \n \n \n The Company has no employees as a result of its external management structure, but the Directors have regard to the interests of the individuals responsible for delivery of the property management and administration services to the Company to the extent that they are able to. \n\n   \n\n The ...

View stock analysis, news, and events for Custodian Property Income Reit Plc