Custodian Property Income REIT plc: Interim Results: Difference between revisions
(Created page with "* Custodian Property Income REIT plc announced its 2022 interim results. * The company aims to deliver a high income return, by investing in a diversified portfolio of smaller regional properties in the UK. Median growth is 1.57%. {| class="wikitable" |+Dividends ! !Q1 !Q2 !Q3 !Q4 ! !Total !Growth (%) |- |2023 |1.375 |1.375 | | | |2.75 | |- |2022 |1.25 |1.25 |1.375 |1.375 | |5.25 |5.00% |- |2021 |0.95 |1.05 |1.25 |1.25 |0.50 |5 | -24.81% |- |2020 |1.6625 |1.6625 |1.662...") |
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== Interims == | |||
* ccc | |||
== Name change == | |||
On the 7th December 2022, the company has announced that to better reflect the main objective of the company, it has changed its name to Custodian Property Income REIT plc, from Custodian REIT plc. | |||
The objective of the company is to generating income returns for shareholders. | |||
== Financials == | == Financials == | ||
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==== What's the expected return of an investment in Primary Health Properties using the absolute valuation approach? ==== | ==== What's the expected return of an investment in Primary Health Properties using the absolute valuation approach? ==== | ||
Accordingly, we estimate that the expected return of an investment in | Accordingly, we estimate that the expected return of an investment in Custodian Property Income REIT Plc over the next 12-months is 59%. In other words, an £100,000 investment in the company is expected to return £159,000 in 12-months from now. The assumptions used to estimate the return figure can be found in the table below. | ||
Assuming that a suitable return level in the 12 months is 10% and | Assuming that a suitable return level in the 12 months is 10% and Custodian Property Income REIT Plc achieves its expected return level (of ccc%), then an investment in the company is considered to be a 'suitable' one. | ||
==== What are the assumptions used to estimate the return figure? ==== | ==== What are the assumptions used to estimate the return figure? ==== | ||
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|+Custodian Property Income REIT investment expected return sensitive analysis | |+Custodian Property Income REIT investment expected return sensitive analysis | ||
!Main input | !Main input | ||
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|Discount rate | |Discount rate | ||
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|Dividend per share | |Dividend per share | ||
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Revision as of 16:30, 15 December 2022
- Custodian Property Income REIT plc announced its 2022 interim results.
- The company aims to deliver a high income return, by investing in a diversified portfolio of smaller regional properties in the UK.
Interims
- ccc
Name change
On the 7th December 2022, the company has announced that to better reflect the main objective of the company, it has changed its name to Custodian Property Income REIT plc, from Custodian REIT plc.
The objective of the company is to generating income returns for shareholders.
Financials
In light of the announcements, we have maintained our forecasts, which can be found by clicking here.
Risks
As with any investment, investing in Custodian Property Income REIT carries a level of risk. Overall, based on the company's market beta (i.e. 0.426), the degree of risk associated with an investment in Primary Health Properties is relatively 'low'.
Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.
For us, currently, the biggest risk to the valuation of the company relates to macro-economic factors, in particular unexpected and sudden changes in inflation and interest rates movements.
Valuation
Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more/most accurate is the absolute valuation approach, so that's the approach that we suggest using to determine the estimated value of the company.
What's the expected return of an investment in Primary Health Properties using the absolute valuation approach?
Accordingly, we estimate that the expected return of an investment in Custodian Property Income REIT Plc over the next 12-months is 59%. In other words, an £100,000 investment in the company is expected to return £159,000 in 12-months from now. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level in the 12 months is 10% and Custodian Property Income REIT Plc achieves its expected return level (of ccc%), then an investment in the company is considered to be a 'suitable' one.
What are the assumptions used to estimate the return figure?
| Description | Value | Commentary |
|---|---|---|
| Which valuation model do you want to use? | Discounted cash flow | Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the absolute valuation approach, so that's the approach that we suggest using to determine the estimated value of the company. |
| Which type of discounted cash flow model do you want to use? | Dividend discount model | The dividend discount model (DDM) is one of the most common discounted cash flow models. |
| How many distinct stage of growth do you want to use? | One stage | For simplicity, we have used the one stage pattern here. |
| What is the expected constant growth rate in dividends? | 3% | We note that the gross domestic product (GDP) growth rate in the last 20 years (2001 to 2022) is around 3% per year for the global economy, and around 2.25% for the United Kingdom. Over the last 10 years, the median dividend growth rate of the company is 2.78% and the mean is 3.47%. |
| Which forecasts to use for the one-year ahead expected dividend amount? | Proactive Investors | Here, we have used the forecasts of Proactive Investors. |
| What is the required return on equity? | 7% | For estimating the required return on equity, we used the Capital Asset Pricing Model (CAPM), which provides an economically grounded and relatively objective procedure for required return estimation, and, therefore, it has been widely used in valuation. The calculation of the required return on equity (and the reasons behind the calculation) can be found in the table below. |
| What's the current value of the company? | 108.9 pence per share | As at 12th December 2022, the current value of Primary Health Properties Plc is 108.9p per share. |
| Input | Input value | Additional information |
|---|---|---|
| Risk-free rate (%) | 3.488% | Here, the risk free rate is the US 30 year treasury bond, and is calculated as at 12th December 2022. |
| Beta | 0.426 | Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta; because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta. |
| Equity risk premium (%) | 6.00 | Here, the equity risk premium is in relation to the global region, and is calculated as at 1st January 2022 (https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html). |
| Cost of equity (%) | 6.04% | Cost of equity = Risk-free rate + Beta x Equity risk premium. |
Sensitive analysis
The three main inputs that result in the greatest change in the expected return of the Custodian Property Income REIT Plc investment are, in order of importance (from highest to lowest):
- The discount rate (the default multiple is 6.04%);
- The dividend growth rate (the default multiple is 1.57%); and
- The dividend per share forecast (the default forecast is 5.56 pence per share).
The impact of a 30% change in those main inputs to the expected return of the Custodian Property Income REIT Plc investment is shown in the table below.
| Main input | 30% worse | Unchanged | 30% better |
|---|---|---|---|
| Discount rate | |||
| Dividend per share | |||
| Growth rate |
Appendix
Peers
| Company name | Primary exchange | Market capitalisation (USD) | BF P/FFO | Yield (%) | Interest cover (x) | Total debt/total capital |
|---|---|---|---|---|---|---|
| Custodian Property Income Re | United Kingdom | 495.07M | -- | 6.02% | 5.12 | 20.57% |
| Prs Reit Plc/The | United Kingdom | 577.62M | -- | 4.67% | -- | 35.16% |
| Regional Reit Ltd | United Kingdom | 381.88M | -- | 11.05% | -- | 44.34% |
| Triple Point Social Housing | 325.50M | -- | 8.21% | -- | 37.23% | |
| Abrdn Property Income Trust | 273.84M | -- | 6.85% | -- | 21.63% | |
| Schroder Real Estate Investm | 268.02M | -- | 7.12% | -- | 30.56% | |
| Uk Commercial Property Reit | United Kingdom | 973.35M | -- | 8.49% | 41.73 | 0.00% |
| Workspace Group Plc | United Kingdom | 1.01B | -- | 4.99% | 2.98 | 25.82% |
| Lxi Reit Plc | United Kingdom | 2.49B | -- | 5.21% | -- | 15.58% |
| Derwent London Plc | United Kingdom | 3.32B | 19.4x | 3.22% | 3.79 | 21.95% |
| Nextensa | 514.41M | -- | 5.17% | 5.76 | 54.35% |
Dividends
Since the company's inception (i.e. eight years), the median dividend of the company is 1.57%.
| Q1 | Q2 | Q3 | Q4 | Total | Growth (%) | ||
|---|---|---|---|---|---|---|---|
| 2023 | 1.375 | 1.375 | 2.75 | ||||
| 2022 | 1.25 | 1.25 | 1.375 | 1.375 | 5.25 | 5.00% | |
| 2021 | 0.95 | 1.05 | 1.25 | 1.25 | 0.50 | 5 | -24.81% |
| 2020 | 1.6625 | 1.6625 | 1.6625 | 1.6625 | 6.65 | 1.53% | |
| 2019 | 1.6375 | 1.6375 | 1.6375 | 1.6375 | 6.55 | 1.55% | |
| 2018 | 1.6125 | 1.6125 | 1.6125 | 1.6125 | 6.45 | 1.57% | |
| 2017 | 1.5875 | 1.5875 | 1.5875 | 1.5875 | 6.35 | 1.60% | |
| 2016 | 1.50 | 1.50 | 1.5875 | 1.6625 | 6.25 | 19.05% | |
| 2015 | 1.25 | 1.25 | 1.25 | 1.5 | 5.25 |