One of the most exciting areas in the property world in recent years has been logistics, in particular in those “big boxes” used by online retailers as regional distribution hubs and “last-mile” facilities that get the goods to our homes.
However, the supply of such properties is not keeping pace with demand as more and more of our shopping goes online. They are unsophisticated buildings compared with the average office block and can be in out-of-the-way locations such as industrial parks, which makes sourcing the land relatively easy.
Up to now, investors have had the opportunity to buy property companies specialising in this area such as Segro, the old Slough Estates, and Tritax Big Box. Shares in these have been hit along with the rest of the sector by post-referendum falls, but have held up better than less specialist real estate investment trusts, or Reits. The shares, therefore, tend to trade at or above the net asset value, while the commercial property developers are at significant discounts.
Aberdeen Standard Investments, part of the merged Standard Life Aberdeen and the second largest European real estate investment manager, has launched Aberdeen Standard European Logistics Income, an investment trust that will give access to the returns from such properties in Europe.
The issue, which is expected to be worth about £250 million, is targeted at retail investors and will be available through intermediaries used to dealing with them, such as AJ Bell Securities, Barclays Bank and Redmayne Bentley.
Unusually, there are no seed investments already within the fund — other specialist vehicles such as infrastructure funds tend to come to market already holding a few seed investments, which provides a degree of certainty. That said, a comparable trust managed by Standard Life, UK Commercial Property Trust, is strong, given the uncertainties in the sector. Aberdeen is pledged to put a maximum of £15 million of its own into European Logistics Income. The management fees are modest. There are no fees until 75 per cent of the money is invested; it is all expected to be spent within 12 months.
It is an income fund and the targeted return is 7.5 per cent a year, with an expected dividend yield of 5.5 per cent. These are set in euros because the assets will be outside the UK, but dividends are to be paid quarterly in sterling and hedging is used to limit foreign exchange risk.
In terms of online buying, continental Europe is some way behind Britain, which means that demand for logistics assets of the sort that the fund plans to buy will remain strong. A study from Citigroup cited in the prospectus suggests another 900 million sq ft of warehousing space will be needed by 2035, while ecommerce apparently needs about three times as much space as traditional retailing.
The European market, therefore, offers long leases with fixed rental uplifts, high yields and a good premium over the financing costs of the assets. Those continental economies are expected to outpace Britain over the next couple of years, given the Brexit uncertainty and their continuing recovery from the financial crisis.
There is, typically, authority to buy back up to 14.99 per cent of the share capital to align the net asset value with the share price. There are a couple of caveats: that return is reliant on the ability of the Aberdeen team to find the right properties; and while the fund will aim to be diversified, the demise of a single big retailer could have an impact.
My advice: Buy
Why: The indicated dividend yield is an attractive one, even if this is a largely untried investment with no assets on board as yet
William Hill
Amid the furore over fixed-odds betting terminals and the myriad other regulatory and legal hurdles facing the big bookies, it is easy to forget sometimes that these are businesses that, for the vast majority of punters, provide a harmless leisure pursuit.
The big question that investors in William Hill wanted to know from yesterday’s 43-week trading update was whether, in the event of a worst-case scenario of a cut in the maximum stake for fixed-odds terminals from £100 to £2, it would still have a sustainable business. The answer, according to Philip Bowcock, its chief executive, is a definitive yes.
It may be too early to crack open the bubbly, but the group’s troublesome online business seems to have turned the corner. Net revenues in the year to date were up by 5 per cent, with amounts wagered up 12 per cent. Since the half-year, growth in net revenues has accelerated to 6 per cent, while wagering was 13 per cent better, or 14 per cent in its core UK market. The win margin is also up.
The shares have risen from a low of 240p in August to close yesterday at 274p, down just under 2p on the day.
Mr Bowcock said that the second-half improvement represented good progress given the “fierce competition” for customers from online-only rivals including Bet365 and Sky Bet. Its retail business has had a decent second half, with net revenues up 3 per cent, helped by a higher gross win margin, although it was also helped by a temporary absence of live racing coverage in the shops of Ladbrokes Coral, its big rival, which has now been resolved.
Internationally, trading was a mixed bag. In America, second-half revenues jumped by 28 per cent, but Australia fell by 2 per cent and the market “remains challenging” amid moves to ban credit betting and to introduce a point-of-consumption tax. Overall, group net revenues in the first 43 weeks rose by 3 per cent (they were up 4 per cent in the second half) and Mr Bowcock said that the company was “in a very different place to 12 months ago”.
His demeanour might have been different, though, if Floyd Mayweather had lost his boxing match against Conor McGregor, which would have cost it £8 million.
Advice: Hold
Why: An adverse outcome to the gambling review would make an M&A deal odds-on
