There are good ways to invest in property, and there are bad ways. I consider buy-to-let as falling firmly in the second category these days… and I say that as a buy-to-let investor myself. It was an attractive market when I went for it, but it’s becoming increasingly squeezed, and I wouldn’t start the same thing today.
But I remain convinced that general fears for the property market are overblown and that there are some cracking bargains to be had out there, not least from our under-pressure house-builders.
Cheap growth stock?
If there’s going to be a crunch in house-builder profits, Countryside Properties (LSE: CSP) is showing no sign of it, as it reported a 27% rise in completions for the year to 30 September.
Adjusted operating profit soared by 28% to £211.4m, with adjusted earnings per share up 30% to 36p. The full-year dividend is lifted by 29%, with the declared 10.8p per share providing a yield of 3.9% on the current share price.
Now, that’s not a great yield compared to some others in the sector — Taylor Wimpey‘s dividend, for example, is expected to yield 10.5%, including specials. But there’s a further rise to 4.5% forecast for next year, as analysts continue to predict double-digit earnings growth.
Countryside Properties shares have lost 20% of their value so far in 2018, and that’s pushed their forward valuation down to a P/E multiple of just 6.8 on 2019 forecasts. We’re also looking at a PEG ratio of 0.4, where anything under 0.7 tends to be seen as a strong growth indicator.
Are there any signs that this growth optimism is misplaced? The firm told us that net reservations in the seven weeks since year-end are “in line with the same period last year and towards the top of our expected range,” and that its guidance for 10-15% growth in completions remains on track.
Bricks and mortar
If you want direct exposure to property while avoiding the risk of your own buy-to-let, I think NewRiver REIT (LSE: NRR) is also worth a close look. Rather than focusing on the residential rental sector, the real estate investment trust puts its shareholders’ cash into a range of commercial properties, including shopping centres, warehouses, high street properties, and pubs.
According to chief executive Allan Lockhart, in the first half of the year the trust “delivered a robust performance in a challenging market, with resilient cash returns,” following active expansion across its range of property investments.
You might be concerned by that “challenging market” bit, and we only have to open a daily newspaper to read of high street woes. But NewRiver enjoyed a 96.2% retail occupancy rate during the period, only slightly down from the 96.5% it recorded in March. Pub occupancy was only marginally down too, to 98.6% from 99%.
The company avoids risky businesses such as department stores, and saw its average retail rent rise from £12.36 per square foot in March, to £12.48. And while like-for-like footfall fell 1.9% and like-for-like net income declined by 0.5%, I see those as pretty decent figures in the current economic climate.
Net asset value dropped a little to 283p per share (from 292p), which is a significant premium of 24% on the current share price of 228p. I reckon that positive sentiment is partly down to the trust’s progressive dividends, which are expected to yield more than 9%.