Here’s some wise advice: “Never let a good crisis go to waste.” As the Covid-19 crisis seems to be bargain-hunting time, I’ve picked out what I see as a powerful property share from the FTSE 250.
Top property is safe as houses?
Many Londoners will argue that nothing is as safe as houses. Indeed, after crashing during the Global Financial Crisis (GFC) of 2008/09, London house prices have easily exceeded previous peaks.
As house prices soared and crashed last time, so did the values of commercial properties like offices, retail outlets and warehouses. And as with all crises, the strongest emerged as winners, while the weakest went bust.
Today too, as weaker landlords struggle with plunging retail values, high debt levels and weak balance sheets, I reckon that one particular property share with a strong track record could emerge supreme.
The best property share in the FTSE 250?
Billionaire Warren Buffett says “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” You get what you pay for – and dipping too enthusiastically into Mr Market’s bargain bucket might mean pulling out a dog. Conversely, buying into first-class businesses is rarely wrong, even when the shares trade at premium prices.
I consider Great Portland Estates (LSE: GPOR) to be a first-class property share. Imagine the opposite of much-maligned office-rental firm WeWork and you have FTSE 250 member in a nutshell.
As the Coronavirus crisis ravages global markets, the London office market is in meltdown. But while its rivals struggle, GPOR has a fortress balance sheet, low borrowings, cash in hand and unused credit lines.
This property share is a serial winner
In the previous property crash, Great Portland aggressively bought London offices from distressed landlords and lenders. Three-fifths (60%) of its current estate was bought in 2009-14, when prices weakened and then rebounded.
Facing similar conditions, it’s poised to take advantage by snapping up prime London sites to add to its £2.5bn, largely West End-based, portfolio. Indeed, its CEO recently remarked that “I see no reason why we won’t [buy prime properties on the cheap] again.”
What’s incredible is how lowly geared the property share is: loans outstanding amount to around 14% of its estate’s value. I was so amazed at this ratio that I verified it at several sources. Thus 86% of GPOR’s estate is mortgage-free. That’s astonishing to me.
Furthermore, the company has £111m of ready cash and untapped credit lines totalling £300m. With borrowing, its war chest could buy a fair few prime London sites at knock-down prices from over-leveraged landlords.
Great Portland’s fundamentals are reassuringly unexciting. At its current share price of 709p, its market value is almost £1.8bn, so it’s no tiddler. Its shares trade on a price-to-earnings (P/E) ratio around of 32 and offer a dividend yield of 1.8%. This dividend is well-covered and has risen steadily, supplemented by special dividends.
I’ll sum up what I think of this property share in one repeated word: capital, capital, capital. It’s a capital business with plenty of capital in England’s capital city. Capital stuff!