A real estate investment trust (REIT) might not seem attractive in the current stock market crash. Especially FTSE 250 member LondonMetric Property (LSE: LMP) which is big in retail properties, now that sector has been hammered. The shares did crash heavily early in the year, in line with the mid-cap index. But after a strong recovery, we’re looking at a year-to-date fall of only 7%.
We had an update from LondonMetric on Thursday, describing some acquisitions and disposals. The firm has sold four retail properties, including two M&S Food stores, for a total of £22.2m. Against that, it’s spent £10.8m buying three convenience service stations. With the bricks-and-mortar retail industry under pressure, I think that could turn out to be a canny move. The latest moves come on top of several acquisitions and disposals in recent months, and I think LondonMetric is making the most of opportunities thrown up by the stock market crash.
The disposals have realised a £4.1m profit on cost, for an ungeared internal rate of return of 11% per year. That sounds like good investment management to me. The newly acquired service stations should provide a net initial yield of 4.7%, rising to 5.2% over five years. They’re let to BP for another 16 years, and LondonMetric says their “vacant possession value is materially above the purchase price“.
LondonMetric has been paying nicely progressive dividends for years, and forecasts suggest more of the same. We’re looking at forward yields of close to 4%. I like investment trusts, I like REITS, and if you fancy a property investment, I rate LondonMetric as an attractive buy.
Stock market crash loser
Shares in FTSE 250 housebuilder Countryside Properties (LSE: CSP) have been doing less well in 2020. The shares were storming ahead in the first couple of months of the year. But the stock market crash sent them spiralling downwards. As I write, the price is down 27% year-to-date. And it’s fallen 4.5% on the day, after the release of a full-year trading update.
Total completions for the year are down, to 4,053 homes from 5,733 homes in 2019. And the average selling price has dropped a little, from £367,000 to £364,000. But looking forward, the company is enjoying a boost to its order book, up 17% to £1.4bn.
The balance sheet was a problem earlier in the stock market crash, which Countryside addressed with a new share issue in July. It placed 74.6m new shares, raising £250m. The result is net cash at 30 September of £98.2m, from £73.4m a year previously. The firm got the share placing done without problems, suggesting to me that institutional investors are bullish over the long-term prospects for the housebuilding industry. I am too.
The dividend has been suspended in this tough year, in which analysts expect earnings to fall heavily. But a partial rebound on the cards for 2021 would put Countryside Properties shares on a price-to-earnings multiple of around 16.5. I expect that to drop significantly in 2022. I rate Countryside Properties a buy, along with the sector as a whole.