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Forget buy-to-let, I’d buy shares in this property company instead

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Buying a hands-on buy-to-let property as an investment is not an endeavour you should take on lightly, I reckon. Apart from all the hassle involved, the tax regime surrounding buy-to-let is making the option less attractive than it once was. On top of that, after a long period of low interest rates and rising property prices, the outlook for buy-to-let is starting to look murky now. Interest rates could be set to embark on a rising trend, which could dampen demand for property and keep property prices pegged down – my guess is that the next 20 years for buy-to-let landlords won’t be as lucrative as the past two decades have been.

Property-backed investments

Instead, if you like the idea of engaging in a property-backed investment, there are several shares listed on the London stock exchange that could give you exposure to the property market without all the inconvenience of actually buying and owning property. One example is Sirius Real Estate  (LSE: SRE), which invests in, develops and operates branded business parks providing conventional space and flexible workspace in Germany.

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The firm’s half-year report today revealed that rental and other income from investment properties rose almost 17% in the first half of the trading year “despite the impact of three large expected move outs.” I reckon the ups and downs of property ownership affect all property firms, but imagine the impact it would have if you lost your single tenant from your one buy-to-let property. By investing in a larger property company such as Sirius, you are able to spread your risk over many underlying properties.

Sirius is trading well and the total annualised rent roll increased almost 18% to €82m and profit before tax shot up 43% year-on-year. There was a valuation gain on the firm’s properties net of capital expenditure and lease-incentive adjustments of a little over €56m in the period, and adjusted net asset value per share moved up 7.3%, to 70.52 euro cents. The total book value of the assets rose to almost €1,049m, so Sirius operates a comfortably large enterprise.

Growth and income

The firm made two property acquisitions in the first half of the trading year, spending almost €30m, “followed shortly after the period end by the acquisition of an asset for €9.6m and notarisation of an asset for €25.7m.” But as well as buying, the firm has been selling and completed the disposal of its non-core assets during the period to raise a little over €19m. The firm plans to spend the money on further acquisitions and said in the report that it has “significant” resources to acquire more properties in the second half.

Chief executive Andrew Coombs said: Occupier demand for industrial assets and secondary offices in Germany has never been greater,” which bodes well for the company’s expansion programme. Meanwhile, at today’s share price close to 61p, the forward dividend yield for the trading year to March 2020 sits at just over 5%, which strikes me as decent income to collect while we are waiting for growth. The shares are up around 150% since January 2014 and now trade on a price-to-tangible-book-value of around 1.09, which seems undemanding. I think the stock is attractive, and owning it would be a lot less complicated than buy-to-let!

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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