Advertisement

Custodian: this Reit will look after your cash

Custodian Reit has been grappling with retail turmoil, but that is only a small part of the picture.

Philip Green © Andrew Gombert/EPA/Shutterstock
Philip Green: "not a very nice person"

Philip Green © Andrew Gombert/EPA/Shutterstock

Philip Green is "not a very nice person", Richard Shepherd-Cross, manager of the real estate investment trust Custodian Reit (LSE: CREI) told Citywire earlier this month. Custodian was one of the landlords that voted against his retail group Arcadia's ultimately successful company voluntary arrangement (CVA) proposal a few weeks ago. These arrangements give indebted companies time to restructure debts, and often involve forced rent reductions, which is bad news for their landlords.

Advertisement - Article continues below

More and more retailers have had to resort to CVAs in recent years, prompting accusations that they're using the mechanism merely to duck out of rental responsibilities. Indeed, "CVAs used to be the last roll of the dice, a compromise with creditors to save the business," says Shepherd-Cross. "There was shame in it. Now... people think it's clever financial planning."

Custodian invests in commercial properties across the UK. Its net asset value per share total return how much of the value of assets has some from income for the year to the end of March 2019 was 5.9%, down from 9.6% in 2018. This fall can partly be explained by the initial costs (primarily stamp duty) of buying 11 new properties. However, the fund saw £5.3m knocked off the value of its portfolio as a result of CVAs.

Since the end of the accounting year another CVA has been proposed by Cotswold Outdoor; this comes on top of Arcadia's. However, Custodian says it added £6.4m to the value of the portfolio over the year through rent reviews, new lettings and lease extensions.

Advertisement - Article continues below

Shepherd-Cross acknowledges the "continued weakness" in what he calls "secondary high-street retail locations", with rental levels "still under pressure" and "a very real threat of vacancy". The fund will continue to rebalance the portfolio to focus on stronger high-street retail locations while working on an "orderly disposal" of assets it no longer sees as being good prospects.

Beyond the high street

Another benefit to this strategy is that it means the fund has low exposure to any one individual tenant. Where the fund lets a single property to a single tenant, that tenancy only makes up a small part of its portfolio.

The fund has "performed strongly" in recent years, delivering a total shareholder return of 10% a year over the last three years, notes Capital. It has also experienced lower volatility than the wider Reit sector or the stockmarket.

Custodian's shares "combine an attractive yield, a good level of dividend cover and conservative gearing", adds research group Edison. Investors' demand for the shares, which trade at a premium to net asset value unlike its peers provides funding for acquisitions, which combined with rental growth "is a positive indicator for future returns". The fund yields 5.5%, and is worth a look for those interested in buying a diversified commercial property Reit.

Advertisement
Advertisement

Recommended

Visit/investments/funds/investment-trusts/600959/if-you-think-now-is-a-good-time-to-buy-look-at-these
Investment trusts

If you think now is a good time to buy, look at these investment trusts

With the latest market slides, an awful lot of assets are beginning to look very cheap indeed. If you are thinking of buying, Merryn Somerset Webb has…
10 Mar 2020
Visit/investments/funds/investment-trusts/600873/how-to-build-a-properly-diversified-investment-trust
Sponsored

How to build a properly diversified investment trust portfolio

Max King explains how to build a well diversified portfolio using one of our favourite tools – investment trusts.
25 Feb 2020
Visit/investments/funds/investment-trusts/600757/why-investment-trusts-are-the-best-vehicle-for-your
Sponsored

Why investment trusts are the best vehicle for your money

Max King explains the advantages of investment trusts – sometimes called closed-ended funds – over their open-ended counterparts (or Oeics).
11 Feb 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020

Most Popular

Visit/economy/eu-economy/601422/heres-why-investors-should-care-about-the-eus-plan-to-tackle-covid-19
EU Economy

Here’s why investors should care about the EU’s plan to tackle Covid-19

The EU's €750bn rescue package makes a break-up of the eurozone much less likely. John Stepek explains why the scheme is such a big deal, and what it …
28 May 2020
Visit/investments/commodities/industrial-metals/601401/money-printing-infrastructure-base-metals-copper
Industrial metals

Governments’ money-printing mania bodes well for base metals

Money is being printed like there is no tomorrow. Much of it will be used to pay for infrastructure projects – and that will be good for metals, says …
27 May 2020
Visit/investments/funds/601385/in-support-of-active-fund-management
Funds

In support of active fund management

We’re fans of passive investing here at MoneyWeek. But active fund management has its place too, says Merryn Somerset Webb.
25 May 2020