Custodian REIT - Diverse portfolio still paying dividends
Custodian REIT (LON:CREI) remains one of the best dividend/yield plays in the UK market going into the calendar year 2020, in our view. The company has recently released its interim report for the half-year period ending September 2019, confirming continued solid progress. During the period Custodian delivered a +0.5% net asset value (NAV) total return (NAV TR is an industry-standard measure of underlying property portfolio performance) with good performance in the industrial property portfolio offsetting negative revaluations in retail properties. The strategy of maintaining sectoral diversification (see chart p2) is an important risk limiter for Custodian.
Importantly the company delivered EPRA (European Public Real Estate) earnings per share (EPS) of 3.4p during the period, providing steady dividend cover for the 3.325p payout for the period. A definition of EPRA EPS can be found at EPRA.com, but essentially it is net rental income (no capital gains). We are confident in our forecast of continued dividend growth in the full-years (FY) to March 2020 and 2021, fully covered by EPRA EPS (see chart p2).
Additionally, Custodian extended its revolving credit facility from £35mln to £50mln with the interest rate margin above three-month London interbank offered rate (LIBOR) reduced from 2.45% to between 1.5% and 1.8%. This low funding cost is partly a reflection of Custodian’s prudent level of balance sheet gearing. Gearing stood at 20.5% at 30 September and is now at 23% (by our estimate) following the acquisition of the warehouse portfolio from Menzies in October.
Quick facts: Custodian REIT
Price: 87.6 GBX
Market Cap: £367.97 m
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