But apart from an increasingly punitive tax environment that’s making it harder to make buy-to-let pay, I worry about the lack of diversification facing many private landlords.

Personally, I could never afford to start a real estate business with multiple properties because I haven’t got enough capital. And I don’t want all my investment hopes tied up in just one or two buildings in case something goes badly wrong.

New to REIT status

That’s why I’m so attracted to stock-market-listed property-owning companies, particularly those operating as Real Estate Investment Trusts (REITs). Property firms tend to own many underlying assets, so if I buy shares in a property-owning company, my investment is diversified across many assets underpinning the stock. And when property companies operate as REITs, shareholders gain a tax advantage on their total returns from holding the shares compared to owning shares in property firms that don’t have REIT status.

I like the look of Picton Property Income (LSE: PCTN), which converted to REIT status during October 2018. The company owns commercial property up and down the UK focused in the sectors of Industrial, Office, and Retail & Leisure. Tenants include some well-known names such as public sector organisations, B&Q, Belkin, DHL, Snorkel, The Random House Group and TK Maxx.

The firm started up in 2005 and now owns around 49 assets worth about £685m in total. Rental income is diversified across some 350 occupiers, which is a spread I’d be unlikely to achieve from any buy-to-let operation might set up myself.

Meanwhile, I find today’s full-year report encouraging. Net asset value rose 2.5% compared to the year before, to 93p per share and adjusted earnings per share came in almost 2.4% higher. The directors nudged up the total dividend for the year by nearly 3%.

Falling debt and potential upside

The company managed to reduce its net debt by 9% during the period and now has a loan-to-property-value ratio of around 25%, which strikes me as a comfortable level of borrowings. Meanwhile, occupancy runs at 90%, but Picton isn’t content to merely buy and hold investments indefinitely and made two disposals raising £12m in the period “9.7% ahead of March 2018 valuations.” 

The realisation of value in that way gives the firm funds to reinvest and during the year it ploughed £1.6m into refurbishment projects.

Looking forward, the company thinks Brexit uncertainty will continue to make the property market challenging for some time, particularly because of delayed decision making by market participants.

But the directors believe that the firm’s “modest” financial gearing and portfolio of interests put it in “a good position.” Upside will likely come from leasing the company’s vacant space, lease restructuring, asset management, and new investment opportunities, they said in the report.

With the share price close to 98p, the price-to-book value runs at just over one and the dividend yield a little under four. I think Picton’s shares are well worth my further consideration.

The post Forget buy-to-let! I’d buy shares in this UK-focused REIT appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

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.

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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.

One of the best in that area over the past few years has been the Allianz Technology Trust (LSE: ATT). As its name suggests, ATT invests in technology stocks with its largest holdings compromising Amazon, Microsoft and Facebook.

And although the technology sector as a whole has done well, with the benchmark Dow Jones World Technology index up 181% in the five years to June 29, ATT’s managers have done even better. Over this period they’ve delivered shareholders a whopping 256% share price increase.  

Looking ahead, there are certainly headwinds approaching for the technology sector ranging from investor unease over relatively high valuations to increased regulatory scrutiny of the sector. However, tech firms by and large are continuing to post record revenue and profit growth, which should reassure investors who remember the dotcom bubble. The fund is also well diversified with a total of 67 portfolio companies.

For UK investors, another benefit is that the trust offers exposure to international stocks that can otherwise be expensive to purchase through some retail investment platforms. As of June, a full 86% of the trust’s assets were American firms with a further 5% coming from Chinese companies and the rest a smattering of European stocks.

The fund currently trades at a marginal 0.9% premium to its net asset value (NAV), so investors shouldn’t worry about paying too much over the odds for the fund. All told, I think these qualities maker Allianz Technology Trust worth taking a closer look at for investors seeking to remedy the dearth of tech stocks listed on the LSE.

Offering growth and income

But if you’re worried by tech valuations or overexposure to foreign equities, one option closer to home is Picton Property Income (LSE: PCTN). The fund invests in UK commercial property and over the past five years its share price has risen 123% against a 43% gain for its benchmark, the IPD UK All Property TR index.

The fund’s properties are made up of 41% industrial locations, 36% offices and the rest are retail and leisure properties. And before would-be investors become too worried by this exposure to retail outlets, much of its activity in this sector is to very in-demand warehouses with only 11.4% of its total portfolio tied to high streets.

This diversified approach means it has benefited from a generally buoyant economy and has served Picton well with the company reporting a rock-bottom 4.2% vacancy rate at year-end and securing rent rises in recent years. This has flowed through to the bottom line with its NAV per share steadily rising from 77p in 2016 to 90p last year.

Earnings per share last year jumped from 3.8p per share to 4.2p, which allowed management to boost its dividend payout to 3.4p per share. This works out to a dividend yield of 3.8% at its current share price. This high dividend combined with a solid record of capital appreciation means investors bullish on the UK economy in general and property in particular may find Picton Property Income an intriguing investment trust to consider for their retirement portfolio. 

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Today I’m going to take a closer look at two potential 20-year stocks I’ve found on the London market. One is a £2bn FTSE 250 firm, while the other is a little smaller at £470m.

Safer than houses?

My first stock is London property group Great Portland Estates (LSE: GPOR). Shares in this 60-year old FTSE 250 company edged higher this morning, after it upgraded its rental growth guidance for the year.

You might think that property is too much of a ‘boom and bust’ sector for a long-term buy-and-hold position. I’m not sure that’s correct.

Owning prime real estate in London has proved to be a profitable strategy over very long periods of time. Although the property market is undoubtedly quite expensive at the moment, Great Portland’s share price already reflects a degree of caution. The group trades at a 25% discount to its EPRA net asset value of 813p per share.

Prime income appeal

Today’s figures from Great Portland Estates show a 1% rise in portfolio value and rental growth of 0.7% during the six months to 30 September. The group’s EPRA earnings — an industry-standard measure — rose by 11.7% to £31.6m, compared to the same period last year.

EPRA earnings per share climbed 15.7% to 9.6p, while the interim dividend was lifted 8.1% to 4p per share.

A further attraction is the group’s prudent approach to borrowing. Today’s results show that the portfolio’s loan-to-value ratio has fallen to just 15.4%, with a weighted average interest rate of only 2.7%.

Although the forecast dividend yield is only 1.8%, I see this as a slow-burning winner over long periods. I’d be likely to view any major share price crash as a buying opportunity, rather than a concern.

What about growth?

Great Portland’s focus on London may mean that growth opportunities are limited. If this concerns you then my second stock may be of more interest. Picton Property Income (LSE: PCTN) is a company you may not be familiar with.

Its focus is on commercial property such as industrial estates and office parks in towns and cities across the UK. Top 10 tenants include DHL, B&Q and publisher Random House. I think it’s probably fair to say that Picton’s properties are a good proxy for the UK economy as a whole, excluding the London-focused financial sector.

With a market cap of about £450m, Picton is smaller than Great Portland. Its borrowing costs are slightly higher at 4.1%, and it also carries a little more debt, with a loan-to-value ratio of 28%.

However, I don’t see these figures as a concern in this context. The group’s like-for-like rental income rose by 4.4% during the first half, while occupancy is higher, at 95%.

Picton shares currently trade in line with their net asset value of 86p, and offer a 4% dividend yield. I believe this stock could be worth tucking away for a few years — or longer — for income investors.

The post 2 dividend stocks I’d buy and hold for the next 20 years appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Roland Head 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.