The good news is there are other ways of benefiting from the growth and income opportunities available from the UK property market. Better still, you can invest free of tax, via your Stocks and Shares ISA allowance.

Bellway

UK housebuilders were hit particularly hard by the EU referendum result. House price growth has slowed, but there has been no sell-off, and while London has been slowing, other regions have compensated by playing catch-up.

FTSE 250 listed developer Bellway (LSE: BWY) builds traditional family housing across the UK, and apartments within outer London boroughs, giving it a good geographical spread. Its share price is trading 85% higher than five years ago, helped by recent positive results, which saw house completions climb 5% to hit a record 10,892, with profit before tax up 3.4% to £662.6m.

The £4bn group has a strong balance sheet with net cash of £201.2m, which also gives it capacity for future investment. Yet at the same time, it has a wide safety margin, trading at just 7.1 times forward earnings, while offering a forecast yield of 4.5%, covered 3.1 times.

Demand for property has been underpinned by the Help to Buy equity loan scheme, and could take a knock when that is limited to first-time buyers in 2021, then ends altogether in 2023. Brexit and the election also create some uncertainty but you could say that about almost every stock right now.

Derwent London

Alternatively, you could invest in commercial property instead, through the shares of Derwent London (LSE: DLN), which targets niche urban areas within central London. This £4bn FTSE 250-listed real estate investment trust (REIT) owns and runs an investment portfolio of 5.7m sq ft, of which 98% is located right in the centre of the capital, specifically the West End and the areas bordering the City of London.

It is well placed to benefit from the arrival of Crossrail with over 70% of its buildings within 800 metres of a station on the forthcoming route, and it has also shrugged off the slowdown in London’s property market and Brexit concerns. Earlier this month, it reported a 46% jump in lettings to £33.5m, and a drop in the vacancy rate down to 0.6%.

London is still a massive global draw and Derwent should benefit if we get some kind of Brexit resolution, and international money flows back into the country. Its share price is up more than 20% in the last three months and this could be a good way to play returning confidence.

The loan-to-value (LTV) ratio on its properties was just 16.4% at the end of September, and it has now increased its annual dividend for 26 consecutive years. It is currently trading on a low price-to-book value, while the share price trades at a discount of 8.33% compared to net asset value. Derwent London looks a strong long-term buy-and-hold, particularly for income seekers.

The post Don’t bother with buy-to-let. I reckon these two FTSE 250 stocks are a better way of investing in property appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A growing number of buy-to-let landlords have been moving towards commercial property following recent regulatory and tax changes that have made investing in residential buy-to-lets less attractive. The characteristics of commercial property are, however, different to residential property. For starters, investments in retail and office property generally require greater amounts of capital and specific technical expertise.

Commercial properties are also regarded as higher-risk investments, due to typically higher average vacancy rates, which can make it difficult for ordinary investors to rely on a single property investment for income. Instead, most investors would probably be better off pooling their money with other investors, via a property investment trust or a REIT, as this will allow you to benefit from added scale, diversification and the skill of the fund manager in looking after your investments.

Keeping that in mind, here are three commercial property investments that deserve a closer look.

Diversified portfolio

With total assets of nearly £1.5bn, the F&C Commercial Property Trust (LSE: FCPT) is one of the UK’s largest actively managed closed-ended companies investing directly in commercial property.

F&C aims to provide investors with an attractive level of income from a diversified portfolio of prime commercial property assets. The managers invest principally in three commercial property sectors: office — retail and industrial — focusing on investments that they believe will generate a combination of long-term growth in capital and income for shareholders.

The managers have a strong track record of delivering robust returns to its shareholders, after having generated a net asset value (NAV) total return of 82% over the past five years. There’s great income appeal too, with the company paying monthly dividends that currently annualise at 6p per share, giving prospective investors a yield of 4.2%.

Less retail exposure

Looking ahead, it may be a good idea to find a property company with less retail property exposure. With bricks and mortar retailers continuing to cede ground to online sellers, investors are becoming more sceptical towards retail property valuations.

With that in mind, Picton Property Income (LSE: PCTN) may be a better pick. It has just 23% of assets weighted towards retail and leisure, compared to 43% for the F&C Commercial Property Trust. And in place of the company’s lower exposure to retail, Picton is tilted more heavily towards the more resilient industrial and warehousing sector, which accounts for 41% of total assets.

Unsurprisingly, its portfolio construction has served it well of late. The company’s total return for the 12 months to 30 June 2018 was 14.2%, which was roughly double the return achieved by the F&C trust over the same period.

REITs

The REIT space is another good place for investors to look right now, as a number of property giants are trading at big discounts to the value of their underlying assets.

For example, shares in London-focused Derwent London (LSE: DLN) trade at a 21% discount to NAV, for no other reason aside from the weak investor sentiment towards office space in the capital. Analysts reckon the office market in the capital is particularly vulnerable to a ‘no-deal’ Brexit outcome, given the city’s outsized exposure to financial services.

Nonetheless, Derwent London continues to deliver steady earnings growth, with underlying earnings up 14% in the first half of 2018, to 51.8p per share. And on the back of this, the company raised its interim dividend by 10%, to 19.1p per share.

The post Forget buy-to-let! Consider these commercial property investments instead appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today the company showcased its strengths by announcing that it will pay a special dividend to investors on top of hiking its ordinary payout for 2017, thanks to a strong year for London property. 

Special dividend 

The trust saw its asset value per share rise by 4.6% in the year to 3,716p, from 3,551p a year before. Net rental income rose 10% to £161.1m and Derwent achieved a total property return of 8%, ahead of the MSCI IPD Central London Offices Quarterly Index of 7.1%. Its property vacancy rate at the end of December was just 1.3%. 

Off the back of these results, management has declared a final dividend of 42.4p, up 10% year-on-year, taking its total dividend for the year to 59.7p, up 14% on the year before. In addition to hiking its regular payout, the group also announced a special dividend of 75p per share paid out due to “several value-enhancing transactions” announced back in February 2017. 

Commenting on these figures, CEO John Burns said: “The London office market continues to be resilient with good occupier and investment demand.” And based on this outlook, I believe that this real estate investment trust is a great asset for any investor who wants to protect their portfolio from further market declines. 

Protecting your portfolio

Property, particularly London property, is an extremely defensive asset, and the returns are not correlated to equities, indicating that if markets fall, Derwent shareholders should continue to profit. 

Based on today’s figures from the company, the shares are currently trading at a price-to-book value of 0.8 and support a dividend yield (including the special distribution) of 4.4%. 

Another London property play that I believe can protect your portfolio from additional market declines is Great Portland Estates (LSE: GPOR). Like Derwent, Great Portland wants to return extra cash to investors this year after a successful 2017. The company is planning a special dividend of 94p per share later this year following the £306m sale of commercial properties. Management has decided to go down this route as the group is extremely well capitalised with a pro forma loan to value ratio of only 7%. 

A lack of debt, coupled with a balance sheet stuffed full of London property freeholds only reinforces my view that this is a great defensive investment. However, despite the company’s defensive nature, it trades at a discount to book value per share with the last reported net asset value being 813p.

At the time of writing, this implies that the stock is trading at a price-to-book value of 0.8, although this calculation does not include any adjustments from the return of value planned. 

The special dividend alone is equivalent to a dividend yield of just under 15% for 2017.

The post 2 investment trusts to protect your portfolio if markets crash appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, let’s look at two examples — both of which reported interim numbers to the market this morning — and ask whether either can help you achieve financial independence.

Massive demand

A huge rise in demand for warehouse space from blue-chip companies over the last few years has driven many investors to build positions in Tritax Big Box (LSE: BBOX). The £2bn cap trust owns, manages and develops logistics facilities in the UK and counts Tesco, Unilever and Marks & Spencer among its tenants.

Over the first six months of the year, the trust’s net asset value (NAV) grew by 3.3% to 133.3p per share. Pre-tax profits soared by just under 50% to £80.53m helping it to outperform the return generated by the benchmark UK Global Real Estate Index. 

At £2.1bn, Tritax’s total portfolio is now valued just under 11% more than it was at the end of 2016. During the interim period, it acquired three new sites and two new customers. The trust now owns 38 assets (covering almost 20m sq ft of space), all of which were let or pre-let and income producing during six months to the end of June.

Looking ahead, I see no reason why it shouldn’t continue to benefit from the explosion in online retail and wholeheartedly agree with the trust’s Fund Manager, Colin Godfrey, that the development of this logistics market “remains in its infancy“.

So, how about those dividends? Today, Tritax declared a payout of 3.2p — 3.2% higher than that declared for the previous six-month period — and remains on track to hit a target of 6.4p per share for the full year. At today’s share price, this would equate to a yield of around 4.3%. 

Despite trading at a premium (149p), I think Tritax would be a great purchase for any investor committed to achieving financial freedom through dividend reinvestment over the medium-to-long term. 

Vulnerable to Brexit?

Also reporting interim results today was Derwent London (LSE: DLN) which owns and manages a £4.8bn portfolio of roughly 6.2m sq ft in the capital’s West End and City borders.

Over the six-month period to the end of June, its NAV per share rose 0.9% to 3,582p. Net rental income increased by 9.2% to almost £80m compared to the same period in 2016 with the vacancy rate of its portfolio falling from 2.6% to 1.9%.

Thanks to £500m of disposals or forward sales above book values so far this year, Derwent claims to have a “robust” financial position. Net debt fell by 19% over the interim period. The trust also boasts cash and undrawn facilities of up to £446m.

Despite all this, the shares aren’t for me.

While today’s 25% hike to the dividend is undeniably attractive, Derwent’s forecast 2.4% yield for the year is far lower than that offered by Tritax. Thanks to its focus on owning assets in the capital, the former also presents as a riskier buy in my opinion, particularly as we crawl ever closer to our scheduled departure from the EU in March 2019. With so much political uncertainty abound, the current valuation of 32 times forward earnings just feels too rich.

The post Can these real estate investment trusts help you to achieve financial independence? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A second requirement, in my view, is that the firm must pay a reliable dividend. It’s worth noting that while Warren Buffett’s firm Berkshire Hathaway famously doesn’t pay a dividend, most of the firm’s successful investments do pay regular dividends.

One top choice

I believe one obvious choice for long term investors is the property market. My preference is for commercial property companies with large portfolios of income-generating assets.

Not all property stocks are of equal quality. But one company I would be happy to buy and own forever is Derwent London (LSE: DLN). This firm has been trading since 1984 and specialises in central London property, mainly offices and retail space.

The firm’s portfolio was valued at £5bn at the end of 2016, giving the stock a book value per share of 3,551p. At today’s share price of 2,869p, this means Derwent shares trade at an attractive 19% discount to their book value.

The other attraction for me is Derwent’s dividend. The stock’s forecast yield of 2.1% may not be the highest on offer, but Derwent’s dividend continued to rise during the financial crisis. The company’s payout has risen from 6.7p per share in 1998 to 52.4p today.

What could go wrong?

The biggest risk for property investors is that a fall in the value of their properties will coincide with a fall in demand from tenants. Heavily-indebted firms can be left struggling to meet interest payments and be forced to raise cash from shareholders.

However, I believe Derwent’s focus on central London and its low loan-to-value ratio of 16.5% means this is unlikely to happen. Historically, London has always bounced back fast from recessions.

Would I buy today?

High London property prices mean that Derwent shares aren’t especially cheap at the moment. But I’d be happy to buy at current levels, with a view to topping up during future downturns.

This business isn’t going away

Love it or loath it, packaging is a part of modern life. Although I’d hope that big retailers and industrial concerns will find ways of reducing waste, I can’t imagine packaging becoming any less important than it is today.

There are a number of listed packaging firms on the London Stock Exchange, but the one I’m going to focus on is FTSE 100 member Smurfit Kappa Group (LSE: SKG). This Dublin-based group is run by CEO Tony Smurfit, who has a £25m stake in the firm.

The firm’s stock looks quite attractive to me. Smurfit Kappa’s operating margin has risen steadily in recent years, from 8.1% in 2011 to 10% in 2016. The stock doesn’t look expensive either, on about 12 times 2017 forecast earnings and with a prospective yield of 3.3%.

My only reservation is that the group’s net debt to EBITDA earnings ratio looks a little high, at 2.4x. As a general rule, I prefer to see companies operate with net debt of less than two times EBITDA.

Notwithstanding this risk, I think Smurfit Kappa has the potential to be a buy and hold stock and would be happy to start building a position at current levels.

The post 2 income stocks I’d buy and hold forever appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Show me the dividends

The London-focused group also revealed that on average, lettings had been secured at 6.9% ahead of December 2015 ERV, with vacancy rates remaining low at just 3.3%. Meanwhile Derwent is continuing to make progress with its major development programme under construction, of which 400,000 sq ft is due for completion by the second half of next year, with 66% already pre-let. An additional 620,000 sq ft is due for completion in 2019, including the Brunel Building in Paddington, central London.

In the second half of the year Derwent sold three properties for a total consideration of £130.1m, and on average these have been in line with June 2016 book values. But the company has admitted that the EU referendum introduced considerable market uncertainty, and together with the rise in Stamp Duty Land Tax in March, and recent confirmation of the higher business rates from April 2017, it has had a negative impact.

Derwent London has been operating as a Real Estate Investment Trust since 2007, but despite shareholder payouts being increased every year, the dividends have failed to keep up with the soaring share price, resulting in disappointing yields for income seekers. Derwent’s shares have looked expensive for quite some time, and at the end of 2015 the company’s was trading at 52 times actual earnings.

The prospective yield looks far healthier at the moment following this year’s share price slump, but at just 2% is still well below what I would expect from a property investment firm. In my view, there are plenty of other property investment firms out there with more modest valuations and healthier yields.

Premium valuation

Trading systems provider Fidessa Group (LSE: FDSA) is another mid-cap firm that has recently highlighted the uncertainty it faced as a result of the Brexit vote. However, the Woking-based software firm derives more than 60% of its revenue from outside Europe, and believes it remains well positioned to benefit from any continued weakness in sterling, providing further support for its strong cash generation and dividend policy.

The software group, which provides trading, investment and information solutions to the financial community, has seen little or no earnings growth over the last four years, and yet commands a premium valuation. And although market consensus suggests a return to growth this year, this will be no more than single-digits, and certainly not deserving of its high P/E rating of 28.

The post The most overvalued stocks in the FTSE 250? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Fidessa. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Hastings said gross written premiums surged 28% during the six months to June, to reach £360.6m, with live customer policies up 17% to 2.2m. This drove operating profit 20% higher from the corresponding 2015 period, to £70.8m.

The firm’s core motor division continued to tear higher, and Hastings’ market share rose to 6.2% in the first half from 5.5% a year earlier. But the Bexhill-on-Sea business is also making inroads in other markets — home insurance sales surged by more than two-thirds between January and June.

And Hastings believes it has what it takes to keep this momentum going, the firm noting that “the UK leaving the EU is not likely to impact the need for UK motorists and households to obtain insurance and is therefore unlikely to significantly affect demand for the Group’s products.”

I reckon a forward P/E multiple of 13.9 times makes Hastings a great-value growth stock.

London stalling?

Property investment trust Derwent London (LSE: DLN) hasn’t fared so well following its own update, the stock recently dealing 3% lower from Wednesday’s close.

Derwent advised that letting activity hit record highs during January-June, the firm letting 267,700 square feet during the period.

But investors have headed for the exits after the capital-focused business downgraded its rental growth forecasts for 2016, Derwent commenting that “the outcome of the EU referendum may lower activity.” The company now expects rental incomes to expand between 1% and 5% this year versus its prior estimate of between 5% and 8%.

Given the huge uncertainty swirling around the UK economy in the near-term and beyond — and consequently demand for Derwent’s office space — I reckon the stock is an unappealing buy at present, particularly due to the stock’s huge forward P/E rating of 35.8 times.

Financial flailer

Insurance leviathan Old Mutual (LSE: OML) also worried investors on Thursday with a patchy first-half update of its own. The stock was last dealing 6% lower on the day.

Old Mutual — which had surged to 12-month peaks of 225p per share this week — advised that “the macro-environment has been challenging with a weaker rand against the first half of 2015 and lower average market levels.”

Adjusted pre-tax profit slumped 22% between January and June, to £708m. And the insurer warned that “an uncertain environment continues in our three largest markets of South Africa, UK and US which may lead to further challenges.”

On the plus side, Old Mutual advised it remains on track to complete massive restructuring by 2018 that will see it split into four separate divisions.

I remain convinced that Old Mutual’s focus on fast-growing African nations should deliver sterling returns in the years ahead, and that the firm remains decently-priced despite recent share price gains — Old Mutual deals on a prospective P/E ratio of 11.8 times.

Still, I reckon the prospect of extra currency-related road bumps ahead, allied with further market troubles and possible separation problems, makes Old Mutual an unsuitable pick for risk-averse investors.

The post Are these stocks ‘brilliant buys’ after today’s news? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.