3 income property stocks to buy

I've already warned income investors of income generating property stocks that may proove to be fools gold.

So what should income orientated investors buy?

Here are three stock that income monkeys could look at and should provide a handsome income and a solid investment.


Close High Income Properties
This UK specialist investment company was set up by Close Brothers Bank bank in 2003 with an offer of 50 million shares priced at £1. The portfolio comprises of industrial property which is not as sexy as some of the sectors such as retail and offices. However, the good news for Income Monkeys is that as anybody that yields on industrial property are higher than other sectors meaning that a portfolio of industrial property can return much higher incomes.

The current dividend is 8.5p which on the mid price for the stock gives a yield of 11.5%. Unsustainable you might say. Well no. Careful inspection of the latest interim report published on 25th September reveals in the consolidated income statement that the company generated net cash of just over £5.5 million before financing. Interest payments and other finance charges accounted for just over £2.8 million leaving approximately £2.7 million in free cash to fund dividends. The costs of funding a dividend of 4.25p for the half year on the 77 million shares in issue come to about £3.3 million. Therefore the dividend is not quite covered but with a little bit of financial engineering or cutting of fees it should be sustainable. Investors may be also comforted by the Chairmans statement in the Interim Report released in September reiterating the dividend target of 8.5p.

The latest net asset value revealed NAV of just under 120p which means that it is currently trading at a 38% discount to its underlying share price of 74p. The downside with this share is the ridiculous spread between the buying and selling price which is over 10% meaning its not a share for short term speculation.


Dawnay Day Trevaria
For income monkeys looking at avoiding the down turn in the Uk commercial property market. They should consider Dawnay Day Trevaria. This company is focused on investing in income generating German retail property. Launced in December 2005 the company has now completed its objective of having a portfolio of euro 2.3 billion. The company's share price has been hit by the down turn in sentiment towards property assets.

The projected dividend for this year is 4.59 cents rising to 5.87 cents in 2008 equating to a 7.2% yield on its current share price of 81 cents. These levels of dividend are easily affordable from its rent roll of 59,319,000 euros for the 6 months ended 30 june 07. After expenses and interest net revenue should be approximately 42 million euros for the year before tax. This is enough free cash to pay up to a 6.6 cent annual dividend. The company's share price is easily covered by its' net assets. It had a NAV of 116c back in june which means the property income stock is now trading at over a 30% discount to its current share price. Too high for a company investing in a property market that has not seen the excessive over valuations experienced in the UK & therefore is on a much firmer footing.

Mapeley
For investors not spooked by a slightly different business model should consider Mapeley. This company is not only a property investment company but is an outsourcing business which means that it has long-term contracts with large organisations to look after all their property & accommodation requirements. This means that not only do they receive rent from their tenants they also earn regular fixed fees for taking on this role.

Mapeley's share price has slumped from a high of just over £40 early this year to a low of £13.20 last week. Currently the shares are trading at a little over £14. This puts them on a massive yield of over 13% forecast to rise to 13.8% next year. With a rock solid set of tenants including the Government and Abbey National and several large outsourcing contracts their income seems assured. The market seems to be marking them down savagely because of concerns over the future of the UK commercial property market. With latest net assets of £22.78 per share according to the 3rd quater results published in November. The current market capitalisation now values the company at £421 million putting them on a discount to net assets of 37%.

The most important thing is cashflow. The consolidated income statement reveals that net revenue was a little under £100 million for the nine months ended 30 September 07. If admin expenses of £14.5 million and then net finance costs of £59.3 are taken off this leads net cashflow of £26.8 million. This is somewhat short of the £41.4 million needed to fund the expected dividend payment and therefore casts doubts on its' long-term sustainability. However, it still leaves just under £36 million free cashflow annually for income investors or £1.21 per share. This still equates to a very healthy 8.7% yield on a share price of £14 and their is always the chance that the company holds to dividend in anticipation of rising rental incomes.

INCOME MONKEY VERDICT
Income investors should read the previous post about fools gold. A little careful digging through the consolidated cashflow statements of these property companies has revealed some real income gems. Don't forget to come back to read about more income investing opportunities in coming weeks.