Buy-to-let property is seen by many as the ideal retirement investment, thanks to its ability to provide a long-term income stream.
The problem is that owning and renting your own properties leaves you exposed to unpredictable repair costs, problem tenants, void periods and a tidal wave of paperwork. That’s why I prefer to generate an income from bricks and mortar by investing in good quality property stocks.
One company that’s on my radar is Leeds-based commercial property firm Town Centre Securities (LSE: TOWN), which published its full-year results today. This family-owned business has held or increased its dividend every year since its flotation in 1960. That’s 58 years without a dividend cut.
A long-term buy?
A mix of retail, leisure, office and car park properties helped to increase the group’s EPRA net asset value by 6.8% to 384p per share last year. With the share price at a last-seen level of 260p, the stock now trades at a 32% discount to its net asset value.
Although adjusted earnings fell by 2% to 13p per share last year, the dividend rose by 2% to 11.75p, giving the stock a 4.5% yield at current levels.
Conservative management helped this company to make it through the financial crisis without needing to cut the dividend or raise fresh equity. Over the last two years, the family-led board of directors has maintained this approach by cutting the firm’s exposure to the troubled retail sector from 70% to 55%.
I’m confident in the firm’s long-term prospects. But it has to be said that overall returns are average, rather than outstanding. The business delivered a total property return of 9.4% last year, broadly level with the 9.3% return from the benchmark MSCI (IPD) All Property index.
This stock has also traded at a discount to book value more often than not in recent years. So I don’t see this as a buy signal in itself.
However, Town’s falling share price is widening the valuation discount and pushing up the dividend yield. I’m starting to get interested, and have added the stock to my watch list.
A FTSE 100 landlord with a 5% yield
If you’d prefer to invest in a larger business with a more diverse range of assets, one potential choice is FTSE 100 firm British Land Company (LSE: BLND).
This firm’s portfolio contains a mix of prime London office property and major shopping sites such as Broadgate in London and Meadowhall in Sheffield.
It’s clear that this business is heavily exposed to the retail market. However, the group’s focus on so-called tier 1 sites and its ownership of top-quality London office property should help reduce the risks.
Another attraction is that the group’s debt levels and borrowing costs are very low. I don’t see much risk of a cash crunch here, even if bosses are forced to cut rental rates for retail units.
Too soon to buy?
At about 620p, British Land shares currently trade at a 35% discount to their last-reported book value of 967p per share. There’s also a forecast dividend yield of 5%.
I suspect that these shares could be a decent long-term buy at this level. However, as a value investor I’m only interested in serious bargains. I plan to wait for the group’s half-year results in November before making a decision on whether to invest.