There are good ways to invest in property, and there are bad ways. I consider buy-to-let as falling firmly in the second category these days… and I say that as a buy-to-let investor myself. It was an attractive market when I went for it, but it’s becoming increasingly squeezed, and I wouldn’t start the same thing today.
But I remain convinced that general fears for the property market are overblown and that there are some cracking bargains to be had out there, not least from our under-pressure house-builders.
Cheap growth stock?
If there’s going to be a crunch in house-builder profits, Countryside Properties (LSE: CSP) is showing no sign of it, as it reported a 27% rise in completions for the year to 30 September.
Adjusted operating profit soared by 28% to £211.4m, with adjusted earnings per share up 30% to 36p. The full-year dividend is lifted by 29%, with the declared 10.8p per share providing a yield of 3.9% on the current share price.
Now, that’s not a great yield compared to some others in the sector — Taylor Wimpey‘s dividend, for example, is expected to yield 10.5%, including specials. But there’s a further rise to 4.5% forecast for next year, as analysts continue to predict double-digit earnings growth.
Countryside Properties shares have lost 20% of their value so far in 2018, and that’s pushed their forward valuation down to a P/E multiple of just 6.8 on 2019 forecasts. We’re also looking at a PEG ratio of 0.4, where anything under 0.7 tends to be seen as a strong growth indicator.
Are there any signs that this growth optimism is misplaced? The firm told us that net reservations in the seven weeks since year-end are “in line with the same period last year and towards the top of our expected range,” and that its guidance for 10-15% growth in completions remains on track.
Bricks and mortar
If you want direct exposure to property while avoiding the risk of your own buy-to-let, I think NewRiver REIT (LSE: NRR) is also worth a close look. Rather than focusing on the residential rental sector, the real estate investment trust puts its shareholders’ cash into a range of commercial properties, including shopping centres, warehouses, high street properties, and pubs.
According to chief executive Allan Lockhart, in the first half of the year the trust “delivered a robust performance in a challenging market, with resilient cash returns,” following active expansion across its range of property investments.
You might be concerned by that “challenging market” bit, and we only have to open a daily newspaper to read of high street woes. But NewRiver enjoyed a 96.2% retail occupancy rate during the period, only slightly down from the 96.5% it recorded in March. Pub occupancy was only marginally down too, to 98.6% from 99%.
The company avoids risky businesses such as department stores, and saw its average retail rent rise from £12.36 per square foot in March, to £12.48. And while like-for-like footfall fell 1.9% and like-for-like net income declined by 0.5%, I see those as pretty decent figures in the current economic climate.
Net asset value dropped a little to 283p per share (from 292p), which is a significant premium of 24% on the current share price of 228p. I reckon that positive sentiment is partly down to the trust’s progressive dividends, which are expected to yield more than 9%.
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Alan Oscroft 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.