In December, I liked the prospects for Grainger (LSE: GRI) after seeing the shares gain 47% over the year to date.
At the time, I found the UK’s biggest listed residential landlord attractive for the long run. But I felt the shares might be a bit toppy after their 2019 performance. Well, since then, the price is up a further 11%.
That includes a solid gain over the past week, on the back of a successful share placing that raised £186.7m. The placing was at 305p per share, and the price is now at 338p. Those who subscribed are already sitting on a nice profit.
Acquisition
Grainger seems to be making the most of weakness in the property market, and announced a new acquisition on Tuesday. The company is set to forward fund and acquire a 348-home build-to-rent development in Nottingham. It’s on an old rail side site, and is going to cost £55.6m. It’s Grainger’s first property in Nottingham, and it apparently rates it as a key target city.
This latest acquisition looks like it’s part of a fairly aggressive growth policy from Grainger, coming on the back of news of other expansion deals since the firm’s full-year results were released in November. And I do think it’s coming at a good time.
If you want to earn profits from the residential rental business, I see Grainger as a considerably less risky approach than the individual buy-to-let business. And I think it could be a good long-term buy.
I’m just a bit wary of the stock’s valuation right now, and I want to see its next net asset value figures first.
Property dividend
I’m also drawn to property developer U and I Group (LSE: UAI), whose shares are on significantly lower P/E valuations. The firm specialises in regeneration, putting up new commercial rental real estate amid public developments.
Just a few days ago, Manchester City Council decided to grant planning permission for the first phase of U and I’s Mayfield project in Manchester. The development will create, in addition to a public park, two office buildings plus a 581-space car park. U and I expects the 15-year scheme to deliver £40m-£60m in profit, plus around £40m in development management fees.
Again, this is just the latest in a string of announcements of similar developments, including a project in Lambeth expected to provide £25m-£35m in profit, and a mixed use development at Swanley Shopping Centre in Kent which includes residential space and another car park.
Undervalued
Given the nature of the company’s long-term developments, earnings are erratic on a year-to-year timescale. Based on forecasts out to March 2022, that puts the shares on P/E multiples from as low as 7.8 up to 13. Dividend forecasts are strong, yielding around 5.4%.
If you’re considering buy-to-let, you’ll presumably be expecting ups and downs in your earnings too. Rental voids, maintenance, and other costs mean it’s really a pursuit for those with a long-term horizon.
But I think you’d be pushed to match the yields from U and I, consistently and with relatively low risk. Oh, and with no effort on your part.