Buy-to-let is getting tougher for small landlords. Average UK property prices are 20% above their 2007 peak and costs are rising, thanks to government tax changes.
This suggests to me that now might be a better time to be quitting buy-to-let than starting out. I’m certainly much more interested in buying listed property stocks today than I am in buying houses to rent.
This FTSE 250 REIT yields 10%
While house prices have been buoyant, retail property has fallen in price. One REIT (Real Estate Investment Trust) that’s been hit hard by these falls is FTSE 250 firm NewRiver REIT (LSE: NRR).
Its share price has fallen by about 40% from 2017 highs but so far the trust’s earnings and dividend payments have continued to rise. As a result, the stock now offers a 10% dividend yield.
NewRiver specialises in property such as convenience stores, discount retailers, health and beauty and community pubs. The company says this focus on value and frequent everyday spending means its performance has remained strong.
The figures seem to support this claim. NewRiver’s net asset value at the end of September was 283p, only 3% lower than six months previously. Occupancy levels and rents were broadly unchanged between March and December last year.
Still pricier than some rivals
This could be a buying opportunity, but I do have one concern.
NewRiver shares currently trade at a 25% discount to their net asset value of 283p. In contrast, FTSE 100 landlord British Land — which owns prime retail and London office property — boasts a discount of about 40%.
Are British Land’s properties really more overvalued than those of NewRiver? I don’t know. For now, I’m going to leave NewRiver on my watch list and await further news.
I’d like to own this FTSE 100 stock
One property-focused company I would like to own is Whitbread (LSE: WTB), which owns Premier Inn. Since selling Costa Coffee to Coca-Cola for £3.9bn, the budget hotel has become Whitbread’s only business.
The shares have risen by about 20% since the deal was announced last August. As I said in December, I think this surge higher may have gone too far. Last week’s trading update seemed to support this view.
Like-for-like revenue at Premier Inn fell by 0.7% during the nine months to 29 November. The only growth came from new openings in the UK and overseas. The company also warned of a “cautious” outlook on the UK market and said that profits were expected to be flat during the 2019/20 year, which starts in March.
One reason for this is that the company is ramping up spending on new hotels in the UK, Germany and Middle East. Although I have no doubt that Premier Inn is a good business, flat profits and rising spending make me cautious.
Whitbread shares currently trade on about 21 times 2019/20 forecast earnings, with a dividend yield of just 2.1%. For me, that’s a little too expensive. I intend to wait for a better buying opportunity.