Custodian REIT (LON:CREI) is a strong dividend paying UK REIT (real estate investment trust), managing a diverse portfolio of non-residential properties. The company continues to pursue a low-churn buy-and-hold rental income focused strategy. We summarise some recent developments.

In October 2019, Custodian announced the acquisition of a portfolio of eight distribution warehouses under a sale and leaseback deal with Menzies Distribution Limited. Key points:

• Net initial yield (NIY) of 6.4%, broadly in line with Custodian’s existing portfolio. NIY is an industry standard measure of rental yield.
• Natural fit with Custodian’s existing industrial portfolio (industrial = 40% of the overall portfolio by value).
• Weighted average unexpired lease time (WAULT) of 8.8 years, above the average for the existing portfolio. WAULT is an industry standard measure of lease longevity.
• The acquisition is a “corporate” acquisition, meaning Custodian is acquiring a subsidiary of Menzies that holds the assets. This type of deal tends to be efficient in terms of acquisition costs.

In September 2019 Custodian agreed with Lloyds Bank to increase the total funds available under the company’s revolving credit facility from £35 million to £50 million for a term of three years, with an option to extend the term by a further two years subject to Lloyds Bank's agreement, and a reduction in the rate of annual interest to between 1.5% and 1.8% (from 2.45%) above three-month LIBOR - the London inter-bank offer rate. This agreement provides visibility on further funding for Custodian, as well as the reduced interest cost.

On p2 we present a reminder of some of the portfolio metrics that support Custodian’s ability to maintain its progressive dividend policy, and we argue that recent developments align well with this objective.