Property fund with a growing store of income
MANY commercial property investment funds have had a difficult pandemic – as workers have stayed at home, demand for office, retail and industrial space has fallen and some tenants have struggled to pay rents, or worse, gone under. In a nutshell, the value of their holdings have dropped and the income from them has dried up.
Some investors in these funds have had a particularly galling experience, with a few being unable to sell their investments because of a lack of liquidity in the funds they hold. For example, investors in the £2.1billion M&G Property Portfolio Fund have been trapped since December 2019 and only in recent weeks has the investment manager talked about moves to reopen the fund.
However, one fund that has successfully tiptoed its way through this chaos is Urban Logistics, a real estate investment trust listed on the London Stock Exchange. By focusing on ‘last touch’ distribution centres, it has benefited from the boom in ecommerce. A ‘last touch’ property is typically a building from where goods are distributed to consumers or a retailer’s store. Among the tenants in its portfolio of more than 100 properties are Amazon, Whole Foods Market, Sainsbury’s, Boots and parcel delivery company DHL. Through active portfolio management – essentially selling properties where capital values have risen and using the cash to buy new cheaper ones – the £380million trust has generated attractive total returns for shareholders of more than 40 per cent over the past three years.
Income to shareholders has grown steadily from 6.23p per share in the year ending April 2017 to 7.6p in the year to April 2020. The shares are currently priced at £1.49.
So far in this financial year, it has paid dividends of 3.25p a share with another payment due in May. This suggests a small cut in the annual dividend.
The trust is managed by Pacific Capital Partners, part of Pacific Investments. Chief executive is Richard Moffitt, who has more than 25 years of experience in the industrial and logistics property markets. He says: ‘We’re not interested in multi-let buildings or properties where manufacturing can take place. It’s all about buildings from which essential goods – be they food or pharmaceutical products – can be delivered the last mile to customers and businesses.’
Rental agreements are ‘upward only’ which Moffitt says should mean the prospects for income growth are ‘very good’.
As well as developing new properties, usually on brownfield sites, the trust is always looking to trade buildings if it can crystallise capital gains. Last week, it confirmed the £30 million disposal of five properties for ‘thumping’ profits. The proceeds will be used to acquire buildings which should produce higher income streams – 6 per cent a year – than the properties it has sold which delivered annual dividends just below 5 per cent.
The trust is set up to deliver income twice a year and the stock market identification code is BYV8MN7. Richard Williams, property analyst at research company QuotedData, says: ‘Urban Logistics is well positioned for the current environment as online shopping expands. Property’s holy grail of increased demand and suppressed supply is no more evident than in the ‘last mile’ segment of the sector.
‘The need to be close to large population areas to satisfy home deliveries is juxtaposed with a chronic lack of supply of warehouses in and around towns and cities. This leads to both rental and capital value growth.’