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Custodian REIT - Consistent income to shareholders

Custodian REIT - Consistent income to shareholders

Custodian REIT (LON:CREI) released its quarterly net asset value (NAV) update on April 30. The release shows a NAV of £426.6mln, unchanged versus December 2018, and NAV total return per share (definition in the release) of 5.9%. Occupancy remains high at 95.9%.

The property portfolio valuation is down by £5mln during the quarter at £527.7mln. This is due to a reduction in the valuation of the high street retail portfolio, which we believe is not a surprise to the market. We note that high street retail now comprises 12% of the overall portfolio weighted by income.

The release describes a subdued environment for investment activity in the UK non-residential property market, due to political uncertainties, but continued resilient economic activity supporting leasings, particularly in the Industrial market (38% of portfolio) and regional offices (11%).

Custodian has announced a target dividend of 6.65p for FY March 2020e, continuing a run of dividend increases since listing in 2014. Custodian now offers a 5.8% dividend yield for FY Mar 2019, versus 3.4% for the sector, as benchmarked by the iShares UK Commercial Property ETF (LON:IUKP).

We consider Custodian's dividend to be well supported by a number of factors:

  • Dividend fully covered by net rental earnings
  • Low balance sheet gearing
  • Low portfolio concentration, with no tenant comprising more than 3.5% of rental income

We consider some of these metrics in more detail on p2.

Custodian offers a high dividend yield supported by strong rental yields and a lean cost base. We argue that Custodian ranks among the safest dividend yields in the UK REIT space.

Full report is available via Capital Network website
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Custodian REIT Timeline

CN Research
January 29 2019

Related Researches

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June 11 2019

Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 484 primary health facilities in the UK (94% of the portfolio) and Ireland (6%). The business model is to manage the properties for rental income and to grow the portfolio over time. The asset base has some attractive characteristics for yield-focused investors:

  • 90% government-backed rent
  • 99.5% occupancy rate
  • Weighted average unexpired lease time: 13.4 years

This stable rental income base has allowed PHP to pay a steadily growing dividend, with increases every year since listing in 1997.

We would normally expect a 'safety' play like PHP to offer commensurately lower returns to shareholders; however, PHP has achieved a 14.1% annual total shareholder return over the last five years, versus 4.6% for the UK REIT sector. In this report we examine PHP's strong financial returns in terms of:

  • Solid rental income yield on property
  • Low-cost ratio

We also examine PHP relative to sector peers on other characteristics such as lease terms and rental escalations.

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October 25 2018

Custodian REIT PLC (LON:CREI) issued its quarterly NAV (net asset value) update for the three months ended September 30,  on October 23. The company reported a NAV total return per share of 2.3% for the period (NAV increase plus dividend approved), and a reduction in net gearing to 20.5% loan-to-value, from 21.0% on June 30. Custodian acquired five new properties during the period with net initial yields of between 6.38% and 9.79%. More details are on p2.

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June 27 2019

GRIT Real Estate Income Group (LON:GR1T), the leading pan-African real estate company, has released a trading update for its financial year ending June 2019. The company is on track to deliver its targeted 12% total shareholder return for FY June 2019, and an increased dividend. Furthermore, the occupancy rate stands at 97.2%, and 95% of expiring Gross Lettable Area has been renewed or replaced.

Against a mixed backdrop, with headwinds from EUR/USD translation effect and some weakness in the African retail sector, this performance fully delivers on the expectations set out at the time of the London listing in August 2018.

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