Custodian Reit: The future is bright for this plucky company

Higher interest rates mean that real estate investment trusts (Reits) need to do more to keep their heads above water. Custodian Reit (CREI) is doing just that. Income is the focus for this diversified Reit and it seems to be pretty good at generating it. 

The team grew rents by 2.8 per cent over the period and increased occupancy to 93.5 per cent. However, there is still room to grow – passing rent is 11 per cent below the portfolio's estimated rental value (ERV). 

The dividend is also healthy. Custodian is targeting a fully covered full-year dividend of 6p per share. It currently trades on a dividend yield of about 7.8 per cent. 

Valuations are also looking good. Custodian reported a 0.4 per cent increase in portfolio valuation. For the valuation sceptics, this is backed up by market evidence – Custodian sold £13.7mn-worth of assets for 39 per cent more than the pre-sale valuation. 

The Reit is also on the prowl. Despite trying unsuccessfully to merge with Abrdn Property Income Trust (API), the Reit's investment manager, Richard Shepherd-Cross, said that it is still scanning the market: “We are actively looking at opportunities all the time… We have tended to trade at a slightly higher rating relative to our peers, which would suggest [that we are] more likely to be an acquirer than an acquiree," he said. 

Given the income offered by this Reit, it looks undervalued. It currently trades on 12.8 times forward earnings, according to FactSet, which is below its five-year average of 14.9 times forward earnings. All in all, we like this little Reit. Buy.