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Custodian REIT - Consistent income to shareholders

Written by Ed Stacey

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.

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