Edison Investment Research Limited
London, UK, 24 January 2024
Edison issues flash on Custodian Property Income (CREI): Proposed merger
Custodian Property Income REIT (CREI) and abrdn Property Income Trust have announced a proposed all-share merger, recommended by both boards. This recommendation reflects the increased diversification of income that the combined company will provide, with potential to benefit from increased scale and share liquidity, and the opportunity for cost savings. The investment strategy will remain income focused, emphasising below institutional-sized regional assets, typically offering a yield premium. The combined portfolio offers 24% reversionary potential.
Since it launched 10 years ago, the two key elements of CREI’s investment strategy have been a focus on smaller-sized properties (generally less than £10m at the point of acquisition), which typically provide a yield premium over larger properties, within a well-diversified portfolio to manage risks. This will continue to be the case and a higher risk-adjusted property yield is a key plank of the company’s income-led return strategy. As of 31 December 2023, the combined portfolio has a gross value of more than £1bn, comprising c 200 properties, further diversified by tenant and geography. The average value of properties across the combined portfolio is c £5m. With a combined estimated rental value of £84.3m pa compared with passing rents of £68.1m pa, there is the opportunity to grow income, primarily from void reduction and rental growth, providing support to capital values. The combined pro forma loan to value ratio as of 31 December 2023 is 30.2% with a weighted average maturity of 3.8 years, and a weighted average cost of 5.0%, well below the portfolio EPRA topped-up net initial yield of 6.2%.
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