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.