Office buildings are like “melting ice cubes” for investors because of how fast they are depreciating in the current market, according to the chief executive of one of the UK’s largest listed landlords.

Andrew Jones leads LondonMetric, which will break into the FTSE 100 this week after a series of deals culminating in a £1.9bn all-share takeover of smaller rival LXi, completed this year.
The company now ranks third by market capitalisation among UK real estate investment trusts (Reits).

But unlike most other listed landlords Jones said LondonMetric did not have a fixed speciality in a particular real estate sector such as offices or warehouses.

“Very few Reits over the last 15 years have pivoted their strategies,” said Jones, who founded the company as Metric Property in 2010. He partly blames the sector’s “habit of clinging to historical specialism and not wanting to evolve” for the decline of the listed real estate market in comparison to private funds.
A decade ago, LondonMetric had as much as a quarter of its portfolio in offices but it has sold out of the sector since then.

Jones said that a trend for shorter office leases, stricter environmental criteria and higher tenant expectations of facilities all meant that “[office] obsolescence has sped up over the last 20 years” — particularly since the pandemic and the rise of hybrid working.

“The money required to keep [offices] fit for purpose is rising quicker than the rents,” he said.

His comments come at a difficult time for commercial property investors. Rising interest rates have driven down values across the sector but offices have also been hit by worries about demand, as companies embrace hybrid working. European office values have fallen about a third on average since their recent peak in 2022, according to consultancy Green Street.

That drop has been painful for many real estate investors, who traditionally allocated a third or more of their capital to offices. Among large listed landlords, British Land and Land Securities both have multibillion-pound portfolios in London.

Office owners and some analysts argue that widespread negativity about office investments ignores a split in the market — with a shortage of top-quality space in demand and a glut of older buildings.
Jones believes it will be difficult for the sector to escape disruption by technology, in the same way that online retail devastated the value of shopping centres. “Everybody will claim they have the best, greenest office building and the most experiential shop,” he said. “The fact of the matter is we have too many offices and too many physical retail destinations.”

LondonMetric’s £6bn portfolio has some eclectic leftovers from its spate of acquisitions, including garden centres and car parks. The company said it had already reached deals to sell £140mn of LXi’s extraneous assets, and is looking to get rid of its remaining £35mn of offices.

Jones favours the roughly 45 per cent allocated to warehouse investments, alongside large holdings in what he calls “convenience retail” — typically small grocers such as Aldi, roadside convenience stores or discount retailers. The LXi takeover added a large portfolio of “entertainment” assets, including Alton Towers and Thorpe Park.

The theme parks exemplify a distinctive feature of LondonMetric’s approach, which is a preference for “triple net” leases, where the tenant pays all the upkeep costs. These leases are more common in the US, while many UK landlords prefer to retain more control of their properties to boost their value through active management.

“I think a lot of people in our industry associate activity with success,” said Jones. “Income and income compounding should be the bedrock.”

As for upcoming activity, LondonMetric will be busy selling some properties that it picked up through its takeovers, as well as assessing deals to buy smaller Reits.

The Motley Fool

How average savers can turn £180 a month into a lifelong second income

Story by John Fieldsend

A recent study put the average UK household saving at £180 a month. Putting a couple of hundred away monthly is to be applauded and this level of saving can even lay the groundwork for a lifelong second income.

More and more people are targeting this kind of income too. Some 4,000 people have reached £1m in ISAs now with around half of them hitting the figure in the last year alone.

Reaching the million-pound mark given the deposit limits on those accounts is impressive indeed, but such a large nest egg isn’t needed for a life-changing income.

Losing cash

I’ve been working towards something like this myself, and for me, financial security is what appeals most. The State Pension isn’t really enough to live on (and only 38% of under 35s expect to receive it). Plus near-double-digit inflation makes saving in cash look unattractive. 

Inflation is a killer for average savers. Our society is built around low levels of inflation, it’s true. While keeping cash circulating benefits an economy, it hurts savers who see their cash lose value constantly.

Even single-digit levels of inflation can be devastating. A 5% inflation rate means prices double after just 14 years. In other words, a £3 sandwich becomes £6. Perhaps more pertinently, £1,000 of savings will have the buying power of £500. 

While current inflation levels are unusually high, whichever way you slice it, all of us are seeing our cash being worth less and less. And with money losing value, I see inflation-beating investments as a no-brainer.

Let’s waste no more time then. On to the strategy. My plan essentially requires two things: a return above inflation and compound interest over decades. 

What I’m doing

For inflation-beating returns over years and years, I see no better option than investing in high-quality stocks. 

I invest the same way as billionaire Warren Buffett. He doesn’t buy stocks for a few days, but for a few decades. He says his “favourite holding period is forever”. 

Slow and steady

By looking long term, I can enjoy the inflation-busting effect of stock market returns while avoiding the erratic ups and downs of day-to-day share price moves.

Better still, £180 a month is more than enough to dip my toe in the water. These days, fees to buy stocks are only a few pounds with modern platforms like Hargreaves Lansdown or AJ Bell that make it simple for anyone to invest. 

And as for picking the stocks? Well, the Foolish musings of this very website are as good a starting point as any!

The post How average savers can turn £180 a month into a lifelong second income appeared first on The Motley Fool UK.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

Richard T togherr@ntlworld.com

Hi Anthony, It would be really helpful if you could maintain a link on your site which takes readers to your current Snowball portfolio please. Many thanks RT

I will post any changes for the portfolio but it is best if everyone carries out their own research before parting with any of the hard earned. Everyone will be at a different stage of their accumulation/de-accumulation journey, so when I bought is not really relevant. When I started the portfolio the plan was a dividend yield of 5% but as the underlying Investment Trusts fell in price the yield rose and the current plan is for a dividend re-investment at around 7% plus. GL

Income drawdown vs an annuity – or both?
How to invest your pension and live off it in retirement

Do you want investment growth AND a guaranteed pension? How to combine drawdown and annuities to maximise retirement income

Income drawdown depends on investment performance, and though this is more likely to be successful the longer you are invested, the returns to your fund will be volatile from one year to the next.

There are no guarantees, but you have control over the level of income you receive and can vary it over time.

From a £75,000 fund you could expect a drawdown policy to provide an annual income from age 69 of around £6,100 which may last until 90 if investment performance is good.

An annuity does provide a guaranteed level of income until you die, but the annual figure would likely be lower at around £5,750 per annum at current rates.

£££££££££££££££

For me it’s a dividend re-investment plan every day, thru thick and thin.

There will be plenty of thin.

If investment performance is good.

Do u really want to gamble your retirement income of the vagaries of the market ?

With a 75k pot

Never bet against America.

WB

££££££££££

Not a share for this blog but could be one to buy when the next market crash happens.

With the latest dividend for July being announced the the income figure will be

£6,498.00

The 2024 fcast is 8k and the target 9k.

August is a weak month for dividends, so please do not scale the figure to arrive at an end of year total, although the fcast is more likely to be achieved than not.

Dividend forecast and return of proceeds

Given the prompt progress of the realisation of assets, it is the current intention of the Company to make a dividend payment for the quarter ending 30 June 2024 of 1.375 pence per share, which is consistent with prior dividends paid. Future dividend payments will be evaluated on a quarterly basis, taking into account the payout level required for investment trust status, the progress of asset realisations and overall profitability for the period from the remaining income generating assets.

It is also the intention to make an interim return of capital to shareholders in the current financial year, after the disposal of the Hydroelectric Portfolio and in advance of the anticipated members’ voluntary liquidation.

Re-investing dividends is not a Get Rich Quick Plan but more like watching grass grow.

I expect to beat the 2024 year end target of 9k, although not guaranteed.

If we carry this figure forward, compounding at 7% next year’s target will be

(2025) £9,630 and the following year the target will be

(2026) £9,674

All baby steps, although this would equal the plan’s target for year end 2028.

Hopefully the target could be beat as the current portfolio’s blended yield is 11% but that depends heavily on future markets so is not a fcast.

9k compounded at 11% for 2 years equals 11k, possible but not likely.

The ten year plan is still to provide a ‘pension’ of 14-16k pa.

GL

8.1% dividend yield. 2 dirt cheap passive income stocks I’d buy to target £1,620

Looking for top passive income stocks to buy on sale? I think these two IT giants could be too cheap to ignore at current prices.

Royston Wild

Published 23 June,

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.

The London stock market has been underperforming for years. But it’s not all bad news. After all, investors today can now pick up some top passive income stocks at rock-bottom prices.

Two of my favourite dividend shares are shown below. As you can see, each trades on a super-low price-to-earnings (P/E) ratio and carries a gigantic dividend yield.

STOCK FORWARD P/E RATIO FORWARD DIVIDEND YIELD

Impact Healthcare REIT (LSE:IHR) 7.7 times 8.3% 

Greencoat Renewables (LSE:GRP) 9.7 times 7.9%

If broker projections are accurate, I have a great chance of supercharging my dividend income over the next 12 months.

More accurately, a £20,000 lump sum invested equally across these stocks would give me a £1,620 passive income during the period. This is based on an average dividend yield of 8.1%.

I’m confident that these UK shares will steadily grow dividends over the long term, too. Here’s why I’d buy them for my own portfolio if I had spare cash to invest.

Cheap REIT

High interest rates are an ongoing threat to real estate stocks. They depress the net asset values (NAVs) of these companies’ property portfolios and push up borrowing costs.

But the stunning all-round value of Impact Healthcare REIT suggests now could be a great time to buy. Not only does it trade on those rock-bottom P/E ratios and carry that 8%+ dividend yield. At 85.1p per share, Impact also trades at a near -27% discount to its estimated NAV per share of 116p.

As a major care home provider, it looks in good shape to capitalise on the UK’s growing elderly population. And REIT rules mean it could be an especially good pick for future passive income.

In exchange for certain tax breaks, these shares must pay at least 90% of their annual rental profits out by way of dividends.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Green dividend machine

Investing in renewable energy stocks could also deliver the holy grail of healthy capital appreciation and dividend income. Demand for clean energy is growing sharply as legislators take steps to wean their countries off fossil fuels.

I think Greencoat Renewables could be a great share to help me exploit this opportunity. The business owns onshore and offshore wind farm assets all across Europe, from which it sells power to electricity companies.

On the downside, its ability to generate power can be significantly compromised during calm weather periods.

But on the other hand, the stable nature of energy demand means its earnings aren’t affected by broader economic conditions, unlike most other UK shares. This in turn can make it a dependable dividend payer year after year.

What’s more, Greencoat’s wide geographic footprint helps reduce the threat of adverse weather patterns at group level. The bulk of its assets are in Ireland. However, its wind farms are also in France, Spain, Sweden, and Finland.

Over the long term, I think this could prove a hugely lucrative stock to own in my portfolio.

Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Tip Sheet

This is Money says Alliance is doing little wrong, while The Telegraph tips HICL Infrastructure to build itself back up.

ByFrank Buhagiar

This is Money ALLIANCE TRUST: The ‘dividend hero’ that’s poised to maintain its amazing record

What makes a record amazing? How about 58 consecutive years of dividend growth. For that’s the number of years in a row Alliance (ATST) looks set to raise its payout to shareholders after the global investor unveiled a 6.62p quarterly dividend, its first for the year. Crucially, 6.62p is higher than last year’s 6.18p paid.

But ATST is not just a dividend growth story, “As for share-price gains, Alliance is also doing little wrong. These have been 13 and 18 per cent over the past six months and year, respectively.” A thumbs up for the fund’s differentiated approach – rather than hand over the funds to one investment manager, ATST uses Willis Towers Watson (WTW) to identify the best managers around. WTW then gives these best-in-class managers a portion of the fund’s assets to invest and manage as they see fit – typically each manager invests in around 20 different stocks. Currently, the £3.4 billion fund employs 10 managers who run 11 different segments of the fund’s assets.

The article concludes by highlighting the tagline on Alliance’s website “The trust has its own website (alliancetrust.co.uk) and has taken to the airwaves to promote its suitability as a long-term investment – tagline: ‘Find your comfort zone’. It is a sign, some say, of the confidence that the trust’s board has in WTW.” And speaking of airwaves, you can have a listen of the fund’s latest doceo video update here.

Questor: This infrastructure fund is building itself back up

The infrastructure fund in question? HICL Infrastructure (HICL), first tipped by The Telegraph tipster back in 2014. Different world since then of course. Look no further than interest rates – Bank Rate was 0.5% back in 2014; today its 5.25% with most of the increase taking place over the last couple of years. Trouble is, infrastructure funds, which are viewed as bond proxies due to the government-backed revenue streams they receive from long-term contracts, are “sensitive to rises in the yields on government bonds which increase when interest rates go up.” Cue a steep fall in HICL’s share price from 176p back in early September 2022, at which point the shares traded at an 8% premium to net assets, to 121.8p today, a 22% discount to NAV.

But there could be light at the end of the tunnel. For as Questor points out, with both the Canadian and European Central Banks both cutting rates earlier this month, “it is probably only a matter of time before the Bank of England follows suit and lowers the Bank Rate from 5.25pc”.

The £3.2 billion fund hasn’t been sitting on its hands waiting for rates to be cut though. During the last financial year, HICL raised £500m by selling nine infrastructure projects. Crucially, the sales were at prices either at or above their previous valuation, thereby validating the internal valuation process. What’s more the proceeds raised have enabled the extensive credit facilities to be repaid and a £50m share buyback programme to be launched. And thanks to savings made, a pick-up in inflation-linked revenues and its investment in Channel Tunnel HS1 rail link resuming distributions to its shareholders, the fund has raised next year’s dividend target.

Questor goes on to note that broker Stifel rates HICL, along with other infrastructure funds, a “buy”, highlighting how dividend yields across the sector offer “an attractive margin over gilts, especially with their shares on wide discounts.” Questor concludes “That’s a view we share.