Investors are spoilt for choice when it comes to FTSE 100 property stocks. Whether you’re looking for exposure to commercial real estate or private housing, there’s an abundance of options. Land Securities, British Land and Persimmon are just three to consider.
However, if I had to pick two property stocks to buy and hold forever, they wouldn’t be familiar FTSE 100 names. Indeed, you may never have heard of my two picks. This is not because they’re tiny little companies — one has a market cap of over £1bn and the other is £480m — but more because they issue only absolutely essential RNSs and eschew paying brokers to publish ‘research notes’ and other PR puffery.
Instead, these two companies, which are family-controlled, go quietly about their task of increasing the value of shareholders’ equity, paying dividends and managing the businesses through economic cycles. They’ve been doing it successfully for decades. In fact, I’d say their pedigrees are such that they can be more rightly described as ‘blue-chip’ than some FTSE 100 firms.
Big discount
Daejan (LSE: DJAN) shares are up over 3% at around £64 after the company released its annual results today. These showed its total portfolio of commercial, industrial and residential properties valued at £2.26bn, up from £2.01bn last year. Its UK portfolio accounted for £1.66bn of the valuation and its US eastern seaboard portfolio accounted for £0.6bn.
Meanwhile, equity shareholders’ funds at the year-end stood at £101.61 a share, so the shares are currently trading at a 37% discount. This gives a wide margin of safety for investors looking to buy a slice of this business for the long term.
The company announced a 5.4% increase in the full-year dividend to 98p a share, supported by net cash from operating activities (rental income, less costs, interest and tax) of 116.5p. The current yield isn’t high at 1.5% but with the company conservatively-run to avoid boom-and-bust (the dividend was maintained through the financial crisis), investors could be enjoying a very nice income in 10, 20, 30 years’ time.
Hidden value
Long-term thinking is also the name of the game with Mountview Estates (LSE: MTVW), which reported its annual results last month.
The company buys residential properties with regulated and life tenancies at a discount to notional vacant-possession value and sells them years, or decades, later when they become vacant. Thus, it profits from both the long-term rise in the value of the property and the vacant-possession premium.
Mountview reported equity shareholders’ funds at its latest year-end of £86.25 a share. With the shares currently trading at £118 they appear expensive at first sight. However, there is hidden value in the property. This is because its residential properties are held on the books “at the lower of cost and estimated net realisable value.”
One analysis of the true value of the properties would imply equity shareholders’ funds of over £200 a share, putting the shares at a 41% discount.
On the dividend front, Mountview announced an unchanged payout of 300p a share for its latest year, supported by net cash from operating activities of 575p. The lack of an increase in the dividend is somewhat disappointing, but it does follow increases of 9% last year and 37.5% the year before. Also, the running yield of 2.5% is a decent starting point for a long-term investor.