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Custodian REIT to reduce dividend as rent receipts fall

Custodian REIT to reduce dividend as rent receipts fall

Custodian REIT said it would reduce its quarterly dividend to a level broadly linked to net rental receipts.

It said it intended to make the fourth quarterly interim dividend payment relating to the quarter ending 31 March 2020 of 1.6625p per share on 29 May 2020, reflecting the full collection of rent for that period.

But due to a disruption to cash collection in the current quarter, as a number of tenants seek to defer rental payments in order to protect their own cash flows, the current level of dividend is not expected to be fully supported by net rental receipts going forward.

It said: “The company intends to continue to pay quarterly dividends at a level broadly linked to net rental receipts, with support from prior years’ undistributed reserves if required, of no less than an aggregate 1.5p per share for the first half of the financial year ending 31 March 2021, until deferred rents can be collected and the dividend can return towards the target level.”

The group, which has a portfolio of 161 assets last valued at £571.2m at 31 December 2019 with over 250 tenants, did not disclose how much rent it had received in advance of the current quarter, but said 67% of rent due relating to the month of April had been collected, with a further 5% expected to be received shortly.

It said it had agreed that a number of tenants move from quarterly in advance to monthly in advance rent payments, or defer the March quarter’s rent with a full recovery over the next 12 months. Some of its tenants had yet to agree a payment profile, but the group remained in active discussions to agree payment plans for the balance of outstanding rent.

Financial position

The company holds £25m of cash and has gross borrowings of £150m resulting in a loan-to-value (LTV) of 21.9%. It has no short-term refinancing risk and a seven year weighted average debt facility maturity.

Its LTV covenant is for a maximum of 35% and its interest cover covenants is for a minimum of 250%. The aggregate interest cover on borrowings was more than 600% at 31 March 2020.

It warned that covenants on individual facilities may come under some short-term pressure.

The company operates four loan facilities, each of which has an allocation of the company’s individual properties over which the relevant lender has security.  Each loan has covenants over the LTV and interest cover of its discrete security pool. In the expectation that interest cover covenants on some individual loans at 30 June 2020 may come under pressure, the company is in advanced discussions with its lenders to agree covenant waivers for the next two quarters in return for depositing amounts equivalent to interest into charged accounts.

It added, while LTV covenants were not currently a concern, around £191.3m (33%) of its property portfolio was unencumbered by its borrowings. These assets could, in the future, be charged individually by one or more of the company’s lenders to cure any potential covenant breaches.

CREI : Custodian REIT to reduce dividend as rent receipts fall

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