We’ve seen tough times for retail lately and lower confidence in some property firms since the Brexit vote, which is why property investment and development firm LondonMetric Property (LSE: LMP) looks interesting at the moment.
It has been doing all the right things, positioning its portfolio to benefit from the rise of online shopping rather than bricks and mortar. And it has increased its exposure to the distribution sector to 54% from 20% of its portfolio since its merger with Metric Property investments in 2013. I believe this is a good strategy and should be welcomed by investors, as the business has been quick to acknowledge that fit-for-purpose logistics will be vitally important in trying to manage increasing consumer demand for instant gratification and quicker online delivery.
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Wheeling and dealing
The FTSE 250 firm recently announced that it had bought a distribution warehouse in Stevenage for £7.3m at a net initial yield of 6.25%. The 74,000 sq ft distribution warehouse is located immediately adjacent to the A1(M), on an established South East distribution park. The unit is let to Dixons Carphone for a further nine years at a rent of £6.50 per sq ft with a break clause in four years.
The Real Estate Investment Trust (REIT) has also been busy at the other end of the market, disposing of some of its more mature retails parks (the most recent being Alban Retail Park) and generating positive returns. It wants to reinvest the proceeds into investment and development opportunities within the firm’s favoured logistics sectors where rental growth prospects look more attractive. Shareholders will no doubt benefit from this policy in the long term.
In the meantime, management has decided that it’s time to increase the already generous shareholder rewards starting with a full-year dividend payout of 7.25p for FY2016, with a further improvement to 7.55p earmarked for the current year to the end of March. LondonMetric’s shares have fallen back to around 147p after peaking above 171p last year, leaving investors with a juicy 5% yield at current levels, with expectations of further dividend growth in the future.
Meanwhile, fellow mid-cap property investor Hansteen Holdings (LSE: HSTN) has been enjoying the benefits of the weaker pound against the euro following the UK’s decision to leave the European Union. The London-based REIT mainly focuses on industrial property in continental Europe with assets in Germany, Belgium, France and the Netherlands, as well as the UK, with any further weakness in sterling expected to give an even bigger boost to the company’s bottom line. I believe Hansteen is in a good place. Light industrial property is generally accepted as one of the most attractive of the property sectors with high yields and robust occupational demand.
Revenues have been growing steadily over the years with the City expecting this to continue at least until 2018, by which time total revenues are projected to reach £110m. The company has been paying a progressive dividend with a full-year payout of 5.59p per share forecast for 2016, at current levels equating to a generous yield of 5.2%. Hansteen looks like a buy for income investors seeking a stable well-covered progressive dividend in the real estate sector.