As an income share, Urban Logistics REIT (LSE: SHED) looks like a great prospect to me.
If I had just £250 to invest today, I could bag 221 shares in the business for just £1.13 per share.
Here’s why I’m bullish on the stock!
Last mile delivery
Urban Logistics is set up as a real estate investment trust (REIT). In simple terms, it’s a property business making money from rental income. From an income perspective, it must return 90% of profits to shareholders, making it an attractive passive income option.
Urban provides warehousing space designed for ‘last mile delivery’ for those firms operating online shops and stores, which is pretty much most businesses with a product selling direct to consumers these days.
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I’m not surprised to see the shares are down 12% over a 12-month period. At this time last year they were trading for 132p, compared to current levels of 112p. The current economic malaise we find ourselves in has hurt the property sector, primarily due to higher interest rates and inflation.
My investment case
The warehousing and storage sector has exploded in recent years. This has been driven by changing shopping habits, and the rise of online shopping and e-commerce. What I like about Urban is the fact its properties are designed to help firms with that crucial last mile delivery. This part of the industry is lacking supply, compared to heightened demand. Urban could be in a good position to capitalise and boost performance and returns.
Due to higher interest rates, net asset values (NAVs) have come down considerably for most property stocks, Urban included. However, based on its current NAV of 165p per share, and current share price of 113p, the shares look undervalued. Buying shares now could be shrewd before any interest rate cuts push up NAVs once more, as well Urban’s share price, and investor sentiment.
Finally, a dividend yield of 6.6% is very attractive. However, I’m conscious that dividends are never guaranteed.
From a bearish view, Urban has grown via acquisitions. They’ve worked out to date, which is great. However, if one were to be unsuccessful, it could have a major impact on the firm’s balance sheet, as well as investor sentiment.
Another risk is that of continued economic turbulence. There’s no clear sign as to when interest rates may come down, as well as inflation. As businesses are working with tighter margins, perhaps cutting costs on warehousing is something they may need to consider? I’ll keep an eye on this through performance updates.
Final thoughts
An attractive valuation and passive income opportunity entices me. Furthermore, demand for last mile delivery facilities outstripping supply is a major draw too. This is especially as the e-commerce sector looks set to continue growing.
Finally, Urban already has some excellent relationships with major retailers that show its prominence. These include Boots and Sainsbury’s, to name a couple.
For me, the pros outweigh the cons by some distance, making Urban look like an exciting opportunity to help build wealth in my portfolio.
