What’s more, there are many listed real estate investment trusts (REITs) trading at steep discounts to their book values, meaning investors can get a slice of the commercial property market on the cheap.

Defensively positioned

Landsec (LSE: LAND) today reported a 5.2% hike in underlying profit in its first-half, following high levels of leasing activity and healthy rental contribution of recent acquisitions and newly completed developments.

The company, formerly known as Land Securities, has a good track record of developing and managing its assets. But looking ahead, it warned about the impact of Brexit headwinds on the economy. Rental values have already weakened slightly in the London office market, and worse may still be to come.

But despite the uncertain macro backdrop, the company is seeing only a slight uptick in its vacancy rate — it rose by just 0.1 percentage points to a still-low 2.9% in the first half of 2017. And going forward, the group is defensively positioned, as demand for higher-value properties has historically been resilient throughout the cycles. 

The balance sheet is in good shape too, with a loan-to-value (LTV) ratio of just 25.1%. What’s more, thanks to its recent refinancing efforts, the group has an average debt maturity of 15.1 years, with fixed interest rates determining 97% of its value. This high proportion of fixed interest rate loans and its long-dated maturity structure should help Landsec to reduce near-term exposure to refinancing risk and better withstand future interest rate increases.

As such, I reckon rental income is likely to shine through in the coming year and remain high enough to keep NAV and dividend growth on the positive side. And if you’re looking for another reason, valuations are cheap too — the stock trades at a 35% discount to NAV and yields 4.3%.

Solid earnings growth

Also offering impressive income in the commercial property space is Schroder Real Estate Investment Trust (LSE: SREI).

The REIT’s focus on higher growth locations has paid off as it recently announced an impressive 10.3% increase in its first-half EPRA earnings, a measure of underlying profits which strips out valuation gains. And thanks to its resilience, SREI has been a top-performer in the commercial REIT sector, with shares in the trust up 8% year-to-date.

Looking ahead, the company has an eye on growing its income, by targeting investment in higher-income-producing assets and increasing its exposure to faster growing locations. I reckon these asset management opportunities would help it to sustain its outperformance against its peers.

On the downside, SREI trades at a much smaller discount to its NAV of just 6%. Still, it offers inflation-beating potential, as demand for good quality, well-located assets is likely to hold up well amid ongoing political uncertainty and cyclical risks. The REIT also offers a 4% yield, with dividends covered nearly 1.2 times by underlying rental income. 

The post Why I’d buy Land Securities Group plc for its 4%+ dividend yield 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.

Improving outlook

The F&C Commercial Property Trust (LSE: FCPT) reported its half-year performance on Wednesday. The company’s net asset value total return for the six month period to 30 June was 5.1%. The ungeared total return from the property portfolio was 5%. This compares with a total return of 4.6% from the MSCI Investment Property Databank All Quarterly and Monthly Valued Funds.

According to the update, the commercial property market has now readjusted following the EU referendum. Capital values are now above pre-referendum levels, with both capital and rental growth positive throughout the period at the all-property level.

The market has been aided by overseas buying in London, as well as through local authority purchases. Although the general election was major political news, it does not seem to have had a significant impact on demand. While investors remain cautious about the UK economy and the commercial property sector, its overall outlook remains relatively upbeat according to the update.

Inflation-beating potential

Investment trusts such as the F&C Commercial Property Trust and the Schroder Real Estate Investment Trust (LSE: SREI) could help investors to overcome higher inflation. They have dividend yields of around 4% before fees, and this is considerably higher than the current inflation rate of 2.6%.

Both trusts could benefit from improving rental income, with them offering a diversified exposure to a range of UK commercial property assets. And since rents could increase at a faster pace than inflation, there is scope for an already inflation-beating income yield to at least keep pace with the rate of price increases over the medium term.

Risks

Certainly, there is scope for a slowdown within the sector. Consumer confidence may decline due to inflation being ahead of wage growth. This could reduce demand for retail space and lead to reduced upward pressure on rents. Likewise, falling business confidence may hurt office assets in the same way.

However, with interest rates expected to remain low and Brexit negotiations still being in their relatively early stages, confidence among businesses and consumers appears to be more buoyant than many investors had expected. Commercial property remains popular at the present time according to today’s update from F&C, with its income-producing capacity being popular. This situation may remain in place and could lead to a narrowing of discounts or an extension of premiums in the sector. As such, now seems to be a good time to buy the two investment trusts for the long term.LSE:

The post 2 high-yield investment trusts for income investors appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in F&C Commercial Property Trust. 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. 

Mother’s ruin

I am a big fan of gin and tonic. These days who isn’t? However, there is one thing I find hard to stomach about Fevertree: it currently trades at 100 times earnings. Can it justify such a gassy valuation?

My big concern is that growth rates must inevitably slow as the company struggles to maintain the frenetic pace of recent years. In 2015, for example, it recorded earnings per share (EPS) growth of an incredible 303%, as the craft tonic revolution belatedly caught up with the craft gin revolution. In 2016, EPS growth slowed to 106% and that is forecast to slip to 45% in 2017, and again to 12% in 2018.

Tree of life

No firm can expect to triple its earnings forever, so this slippage hardly comes as a surprise. However, forecast revenue growth remains impressive. In 2016, Fevertree generated sales worth £102m. In 2017, this is forecast to climb to nearly £153m, then £181m in 2018, with pre-tax profits following a similar trajectory. By then, the valuation is forecast to shrink to 61.8 times earnings. That is still heady, but less so than today.

Fevertree is now looking beyond its core UK market, which contributes 47% of group sales. UK revenues grew 117% to £33.6m in the year to 30 June but European revenues also impressed, growing 64% to £22m, with US earnings up 43% to £13.2m. The US looks particularly promising, with Fevertree now sold through retail giant Walmart, and its tonics winning a listing across the Virgin Atlantic fleet in July.

New spirit

I am less excited by plans to diversify, for example, by offering a premium cola and moving into premium dark spirits mixers. Fevertree caught a couple of waves when it launched its premium tonic (the hipster gin revival, and the clean food fad), with founders Tim Warrilow and Charles Rolls travelling the globe to source natural ingredients. Hard to pull off the trick a third time.

I reckon we are nearing peak gin, but at the same time I do not see a reversal in the trend towards fresher, more natural flavours. I used to be happy with Schweppes. I don’t buy it now.

Great expectations

Fevertree, which styles itself “the world’s leading supplier of premium carbonated mixers,” last month posted a 77% rise in first-half revenues to £71.9m, with gross margins of 54.5% and net cash up 117% to £40.5m. It also hiked its interim dividend by 95%% to 3.01p per share. Warrilow suggested the fizz could continue: “Given the strong performance in the first half of the year, the Board anticipates that the outcome for the full year will be materially ahead of its expectations.”

Fevertree may struggle to repeat its market disruption but US prospects could help it thrash today’s modest growth forecasts. It could still make you rich, although at a slower pace than before.

The post Multi-bagging Fevertree Drinks plc can still make you amazingly rich appeared first on The Twelfth Magpie.

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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