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QD view – Cheers to the property dividend hikes

After witnessing the anguish of property companies slashing dividends left, right and centre, at the start of the pandemic last year, it is encouraging to see news of dividend hikes now filtering through.

Not all companies have experienced tenant distress during the crisis, and it is good to see that investors are being rewarded with a boost in income.

This week LXI REIT, which is focused on long, indexed linked income, announced its dividend target for the year has increased 4.3% on the pre-COVID level.

It now aims to pay an annual dividend of 6p per share from April 2021, compared to an annual payout of 5.75p per share before the pandemic.

This is very impressive considering the state of the market and the fact that we are in the middle of a national lockdown. LXI was one of the companies that reduced its dividend at the start of the pandemic, but strong rent collection figures since has given it confidence to grow its distributions.

Investors reacted positively to the news, after all dividend income is the lifeblood of property companies, and as at 10am today (Friday 12 February 2021) its share price was up 1.6% to 127.8p from the time of the announcement on 11 February, representing a dividend yield at this price of 4.7%.

This is below the 137.4p it was trading at in late February 2020, but it is still trading at a slight premium to net asset value (NAV) of 2.6%.

LXI’s confidence has come from strong rent collection rates across its £907.25m, 125-asset strong portfolio. It has received 98% of rent for the current quarter and has reported similar levels throughout the pandemic.

Its diversified portfolio is weighted towards strong performing sectors, with industrial representing 21%, foodstores 20% and healthcare 13%. It does have a large weighting to budget hotels (which have been closed for much of the last year) of 21%, and was somewhat stung by Travelodge’s company voluntary arrangement (CVA) last year, although the majority of LXI-owned Travelodge hotels were classified category A and had no rental reductions.

Another company that announced a dividend increase is Tritax EuroBox. The company, which owns logistics warehouses in continental Europe, declared a dividend for the final quarter of 2020 of 1.25 euro cents per share, 13.6% up on the previous level of 1.1 euro cents.

The group has received near 100% of rents, with the small number of deferments all keeping to payment plans this year.

The logistics sector is benefitting from positive structural tailwinds, with accelerated online retailing resulting in strong demand for logistics space across Europe. Perhaps with the increased dividend and strong portfolio performance, EuroBox’s discount will continue to narrow (currently 9%), which could open up the option of an equity raise so it can continue to grow its presence in this booming sector.

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