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Custodian REIT: DEEP DIVE
OVERVIEW

Custodian REIT offers one of best yields in UK property

“No properties inside the M25, with one or two minor exceptions,” says Richard Shepherd-Cross, managing director of the REIT's investment management arm
Building
OVERVIEW: CREI The Big Picture
Office rents are climbing

Custodian REIT PLC (LON:CREI) pays one of the highest fully-covered dividends amongst its peer group of listed property investment companies.

On a forecast dividend of 6.55p for the year to end next March, the yield is 5.5%, while the shares trade at a premium to asset value of about 8%.

WATCH: Custodian REIT 'offering one of the safest dividends in the REIT sector'

What also sets it apart from its peers, is that the trust targets properties outside London, where there is less competition, priced at less than £10mln.

 “No properties inside the M25, with one or two minor exceptions,” says Richard Shepherd-Cross, managing director of the trust’s manager, Custodian Capital.

One of the exceptions arose in November, when the REIT bought a property for £2.1mln in the East End of London.

The Grove in Stratford comprises a ground floor retail unit with an upper floor office suite and was acquired on an initial yield of 6.78%.

Nearby occupiers include Morrisons, Boots, Argos, Lidl and Nando's.

“The title provides the ability to use the adjacent Morrison's car park without restriction, providing almost unlimited car parking, which is a major selling point should the premises ever become vacant," added Shepherd-Cross.

Industrial sector weighting

Custodian’s portfolio is weighted towards the industrial sector and split between industrial, retail, office and other properties.

Shareholder returns were strong in the nine months to September.

Net asset value (NAV) per share was108.6p, up from 107.8p at the end of June with the portfolio valued at £547mln, up from £537.4mln three months earlier.

Occupancy rose risen to 96.9% from 96.7% at the end of June.

Regional offices have remained a strong market says Sheppard-Cross, with record rents being acheived in some of the major cities.

Very low levels of development for 10 years have resulted in low levels of modern vacant real estate, he explains.

In the regions, industrial and office rents have been growing since 2016 and while the rate of growth may be slowing there remain a large number of regional assets with latent rental growth.

Retail tricky 

Retail is more tricky, but blaming online growth for the high street’s demise is too simple he says.

“Over-gearing, poor management strategy and an inability to modernise over an extended period of time have had a more detrimental impact on certain retailers than the internet.”

At the end of September, retail warehouse space accounted for 18% of the portfolio the High Street 14%.

The largest segment is industrial property (39%) while office space (12%) is the smallest segment.

At 117.6p, Custodian is valued at £465mln.

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Custodian REIT Timeline

CN Research
January 29 2019

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