Income generating property shares could be ripe for recovery

Anybody who has invested in income generating property shares will identify with comments made by Chris Turner at the end of 2007.

Not in my lifetime have we seen an asset bubble deflate so quickly and so devastatingly for many investors who had staked their livelihoods and pensions on the safety of income generating shares invested in bricks and mortar.

These shares in many cases are standing at a fraction of their values several years ago as these income generating property shares have had their loan covenants tested and in many cases breached by the dramatic fall in property asset valuations.

However, in the last couple of months stability has returned to some of the lower geared income generating property shares suggesting that the time to once again look at these shares as a way of generating a healthy income through a robust dividend stream may well be right.

I particularly like some of the PITs or Property Income Trusts. These shares predated the more heavily regulated and larger REITs sector and some which over geared have seen share prices savaged and dividend income obliterated. However, there are some which were conservatively geared have continued to pay very health dividends approaching 10%. With an expectation that asset prices are finally stabilising it could be a good time to go in search of some income generating bargains.

My favourites and ones which I all have a personal shareholding in are:

F&C Commercial Property Trust

Launched 2005
Total assets £964m
Gearing 23.8%
Largest three properties St Christopher’s Place Estate, central London; Newbury Retail Park, Newbury; and Cassini House, central London
Sector breakdown 44% offices, 25% retail, 20% retail warehouse, 10% industrial, 1% shopping centre
Chairman Peter Niven, former chief executive of Lloyds TSB Group’s offshore banking operations (Data as at 30 eptember 2008)

ING Real Estate Income Trust

Launched 2005
Total assets £434m
Gearing 47.2%
Largest three properties Unit 5320, Magna Park, Lutterworth; Units A-F3 and G2, River Way Industrial Estate, Harlow; and Phase II Parc Tawe, Swansea
Sector breakdown 48% offices, 29% industrial, 12% retail, 7% retail warehousing and 4% leisure
Chairman Nicholas Thompson, former head of fund and investment management at Prupim and present director of the Lend Lease Retail Partnership (Data as at 31 December 2008)

Standard Life Property Income Trust

Launched 2003
Total assets £167.5m
Gearing 38.9%
Largest three properties Hollywood Green, London; Clough Road, Hull; and Ocean Trade Centre, Aberdeen
Sector breakdown 35% industrial, 30% offices, 22% retail and 13% others
Chairman Sir David Christopher Moore is an advocate of the Royal Court of Guernsey (Data as at 31 December 2008)

UK Commercial Property Trust

Launched 2006
Total assets £643m
Gearing 0%
Largest properties The Parade, Swindon; 5/7 Chancery Lane, City of London; and Great Lodge Retail Park, Tunbridge Wells
Sector breakdown 52% offices, 10% shopping centres, 9% retail, 11% retail warehouses, 18% industrial
Chairman Christopher Hill is chairman of Close Fund Management Portfolios II and Investec Capital Accumulator Trust (Data as at 30 September 2008)

I have been particularly impressed by companies like ING which have despite being quite heavily geared managed to sell property in a difficult market to enable them from breaching their covenants and still return quickly to paying a dividend demonstrating their commitment to the goal of sustainable income generation. Most recently the shares which currently trade at a little over 43p have an asset value of 49p in July. The company has restarted paying a quarterly dividend of 1p which puts the shares on a yield of 9.3%. After a strong recent run up in price from 30p I would look to pick them up at around 40p or a 10% yield.

There are still attendant risks of buying any property income share at the current time. The risk is now not so much about asset price falls but a squeeze on the income generating ability of the companies as occupiers fail to pay rents and voids rates increase. On the upside if inflation does take hold then property, particularly highly geared property is the perfect hedge.

Income shares to buy - wrap yourself in British Polythene!

With share prices still at very low levels. There are some interesting high yielding shares out there. The big concern is how sustainable the dividend is. Will the companies dividends be cut as company profits come under strain and try to rebuild their over leveraged balance sheets.

In my own portfolio I have a number of high yielding shares. One of the income generating shares I'm a fan of is British Polythene. Its not sexy but old BPI has been banging out solid dividends for years. The share price currently is just shy of £2 and the most recent interim statement talked about profits being comfortably ahead of expectations.

The shares currently trade on a projected yield of 6% with a projected dividend of 11.25p for the year. This is over twice covered by projected profits. If the economy does start to turn up then there is every chance that dividends will also be increase pushing the adequate yield even higher. Recent dividend payments have been as high as 22p for several years which at the current price would generate a double figure yield for income seeking investors.

Making additional income out of a renting a parking space?

Have you got a spare parking space or garage? Renting out these spaces can be an ideal way of making extra income according to a recent article on Property Hawk.

You don't have to be a landlord to let out your parking space or garage. Anybody can do it and make anywhere between £50 month up to £313 month in Mayfair just by letting out an unwanted space. It all helps to generate a little more residual income.

Whats income will I get from my West Bromich BS PIBS

Holders of West Bromich BS PIBS who would previously have expected a 6.15% coupon rate or 6.15 pence for each PIB held will now receive less as a result of the recent rescue. They will receive just 1.5% for the half year. The new PPDS will then receive 25% of any future net profits. For a summary of this income investors will find this article in the Telegraph useful. For a full but slightly confusing outline of how the new regime will work have a look at the West Bromich BS website.

Earn income through investing in Litigation

A team of former lawyers is bringing a new asset class to investors with the launch of a closed-ended fund investing in litigation cases.

Therium Capital Management (TCM) expects its Therium Fundco investment company to be listed on AIM in August.

Therium Fundco intends to fund legal cases with a minimum cost of £100,000 and a maximum of £5 million per case. It is targeting an average return of 250% of the original investment in each case.

The fund managers have already provided funding for one case, which TCM said has been settled at its return target.

The trust will also invest in after-the-event insurance to create an income source. The insurance provides cover for legal costs in the event the claimant loses a case.

Therium Fundco has a projected dividend yield target of 5% and has a five-year life before it converts into a run-off vehicle. It will also levy a performance fee of 12% subject to NAV growth in excess of 6% a year with a high watermark.

For a full report on this product see Citywire.

How to gain an income from asian property

For those income seeking investors they should check out Asian REITs according to a recent article in Money Week. Real Estate Investment Trusts are property investments which guarantee to pay a high proportion of their profits in dividends giving them a relatively high dividend yield. Despite powering ahead some of these REITS still offer close to a double digit yield. One income generating opportunity that warrants further examination.

PIBS investors recovering their nerves

Anybody investing in PIBS were recently stunned by the events at the West Bromich BS where the bond holders were effectively forced to be come shareholders to save the building society.

The knock on effect in the PIBS market was rapid and profound with many investors running for the door at the prospect of their nice safe income generating investment being threatened.

Analysing the effects using the selftrade website which shows daily updates of PIBS prices.

The figures show that the weakest building societies had the values of their PIBS decimated as investor ran for the door. However, in recent weeks PIBS prices have started to stabilise as confidence returns to the market. In the last month the Coventry 12% PIBS has recovered by almost 30%. Despite this recovery it is still almost down by 25% over the last year.

West Bromich BS PIBS to become PPDS

The Telegraph reports that holders in PIBS will see them converted to PPDS or Profit Participating Deferred Shares.

It is anticipated that the new shares will pay an annualised income of 3%.

PIBS safe so far......

Anybody considering investing in a PIBS or PSB first acts how safe is my investment. Will I continue to receive my coupon / interest payments and should the bond be redeemed will I receive my capital back.

Well so far no bank or building society has failed to pay their coupon and no PIBS have been defaulted on. But we are living in extraordinary times and with the government owning several of the minor former building societies then the future is uncertain. The conflicting consideration for income investors are:

1. This government have shown them to be less than consistent or principled when dealing with financial markets and are quite prepared or able to act incoherently often without realising. This makes the chances of default a real concern.
2. The sums involved are microscopic compared to the scale of government investment in the banking sector. Is it worth the government confronting controversy of defaulting on a loan for say £20million in the case of Northern Rock PIBS. Logic would say no but as it has been said before.

We are living through extraordinary times.

PIBS in nationalised or part nationalised banks

One of my questions since discouvering PIBS is what is going on with the PIBS or Perpectual Subordinated Bonds PSB as the pibs are banks and former building societies are technically known as.

I recently came across the website of the UK Shareholders Association which explains very clearly what is happening in respect of the PSBs relating to the different banking organisations affected by the current crisis.

1. HBOS & LLOYDS bondholders are currently safe and will be part of Lloyds financing
2. NORTHERN ROCK has been nationalised and refinanced. It is reducing its mortgage book prior to a probable eventual sale. PIBS are continue to receive interest. If the Government fail to find a buyer the bank would be wound up and importantly PIBS holders would receive payment before the Governments loan is repaid.
3. BRADFORD & BINGLEY continues to pay the interest on their former PIBS. However subordinated debt such as the PIBS ranks behind the governments debt.There is therefore a possibility of there being no capital left in the bank following the Government’s and FSCS’s charges for the interest and capital repayments which would arise over many years of funding B&B. This would mean that bondholders would be wiped out as would the shareholders of B&B. Only if there is any capital available to repay bondholders would the subordinated bondholders be repaid their capital at the par, face value, of the bonds.Under the terms of the current Treasury order there may be little hope of the money being made available to make interest payments long term and this is reflected in the current price of the bonds.

I'm therefore going to give Bradford and Bingley a wide birth even if the current yield at over 40% looks very tempting.

Best source of pibs info

I've just found a great new source for PIBS information. The site is called fixed income investor and it gives up to date data on PIBS prices, graphs and yield analysis. There is also some editorial comment on some of the PIBS. This recent article on the Nationwide 7.25% PIBS is very complementary but this PIBS only yields 7.5%. Personally, I'm looking for nearer double digits. Thats why I plumped for my first holding in the West Bromich BS 6.15% at 60p it just about does a double digit yield.

I'm just hoping that the managers having being investing in too many toxic assets over their in the Black Country such as loaning money to the struggling local footy team West Bromich Albion.

Where to get up to date PIBS prices?

Where can I get up to date PIBS prices?

There are several sources I find useful. Online you can go to a PIBS price chart in thisismoney the online part of the Daily Mail. Alternatively you can go to Collins Stewarts website and download their up to date table on PIBS PRICES

For those more traditional income seeking investors who like to stay non digital try the FT WEEKENDS Money sections DATABANK. PIBS prices here are updated weekly.

All these prices are only updated weekly so for a real time update you will have to phone your broker.

PIBS - first purchase

I finally took the plunge last week. I bought 2500 PIBS in Britannia 5.5555% PIBS (call 14/12/2015)at 60p which should give me a gross yield of around 9%. Not bad I thought. A bit of drama arose when I received a call from my stockbroker TDWATERHOUSE a few minutes after my purchase informing me that purchases could only be made in 1000 unit lots. I plumped for 3000 given that a 9% yield was just tooo juicy to resist.

Why Britannia? Well having just agreed a merger with the COOP I figure they were a pretty safe bet not to go bust.

I will be looking at topping up my holding in PIBS over the coming weeks and will keep you updated with my next purchase.

PIBS income generating opportunity

Savers and income seeking investors should take a look at this income generating option.

For anybody that was stunned by the recent scare over the financial health of some of most respected banks and financial institutions we are suddenly aware that even what were seen as risk free deposit accounts with banks and building societies are not completely risk free. If those financial institutions go bust then their is a risk that you as a saver may lose all or some of your savings. Thankfully, the Government recently increased the amount of a savers savings that are guaranteed to £50,000.

Are you prepared to risk a PIBS?

Therefore savers and investors who are prepared for a bit of risk may want to consider what are called PIBS or Permanent Interest Bearing Securities. n the very unlikely event of a building society getting into financial trouble, it can miss paying interest on PIBS. If the society became insolvent the PIBS holders would be last in the queue to get their money back. All the other investors would be paid first, and only if there was sufficient left would the PIBS holders be repaid. Also, unlike other building society investors, PIBS holders are not covered by the Financial Services Compensation Scheme. So far no building society has failed to pay interest when it falls due. However, the recent debacle with former building societies which have been taken over by the government have illustrated the potential risks that holders of PIBS face. In the case of Northern Rock PIBS the government has continued to pay the coupon or interest whilst for Bradford & Bingley the situation is less clear. Check out this article on these PIBS for some up to date info.

So clearly there are some risks attached to buy PIBS but what about the returns?

Currently the best rates available on fixed rate PIBS are a stratospheric 30% but this is on the Bradford and Bingley PIBS where there is considerable debate over whether the coupon will be met this January. Interest or the Coupon as it is known is paid twice a year.

More typically PIBS yield between 7-10%. Given that interest rates for many savers are nearer 1% than 10% this is looking very attractive, especially for what up until recently were considered very low risk investments. I'm going to be looking at several PIBS for inclusion in my own income generating portfolio and will go through the selection process in future posts. At the moment the best place to get an overview on yields is the FT weekends Money supplement or go to Collins Stewart website. Remember PIBS which are traded on the LSE prices will vary daily in the same way as shares.


How do I buy PIBS?

are traded on the London Stock Exchange (LSE) in much the same way as equities.

Market makers will quote a firm two-way price on the LSE dealing screens, though there is a limit to the size in which they are obliged to deal at these prices.

The spread between the bid (the price at which you can sell) and offer (the price at which you can buy) and the quantity at which the quoted prices are firm will vary from stock to stock.

The stockbroker executing the business for you will be able to give you the specific details for the Pib you are looking to deal in.

No stamp duty is paid on purchases of Pibs

Other info about PIBS

Former building societies including Halifax and Cheltenham & Gloucester can also issue Pibs and currently do so, although these are referred to as PSBs (Perpetual Sub Bonds).

You do pay income tax on Pibs, but you can shelter them in a tax-free Isa. Many of the Pibs have very long redemption dates while some don't have any redemption-dates. If you invested in Pibs this would make you a member of the society. They act much like bonds, so are not risk-free. So, if interest rates are rising their price will fall.


Need to know more about PIBS or have a comment about investing in PIBS post a comment below

New year income generating investments

After a calamitous 2008 where putting my faith in highly leveraged income generating investments. This clearly was a big mistake.

I was not the only income seeking investor that fell foul of this mistake given the fall in the numbers and fortunes of many of the worlds billionaires. However, in 09 with my meagre pile much depleted I am determined to pursue much less risky income generating options. Lets hope that 09 is far more successful. In many ways it couldn't be less so.

Income seeking investors who watched this week with horror as UK income seeking investors were confronted with the reality that interest rates in the UK have hit an all time low of 1.5%. Many income seeking investors are now confronted with deposit rates in the UK of less than 1%. My interest rates on the various esavings accounts I hold such as my Natwest and First Direct are now at 1.3 and 1.75% AER. I'm therefore looking at alternative fixed rate saving accounts anticipating that interest rates and therefore deposit rates are likely to fall further in 09.

Having studied the financial press such as the FT it seems like I'm going to be hard pressed to get any more than 5% from a fixed savings account. Moneyfacts has shown me a table of the best fixed savings rates around. Not wishing to tie my cash up for more than a year. I think interest rates could rise rapidly in 2010 as all the liquidity being pumped into financial system turns the spectre of deflation into rampant inflation. I am therefore looking at going for the Anglo Irish Bank's 4.6% Fixed Rate Bond. I understand that this is guaranteed by the Irish government. Any more information from readers would be appreciated before I put my trust in our Celtic cousins.