If you think the UK property market is a solid long-term investment, but don’t fancy the costs and risks of your own buy-to-let property, then I’m with you.
And I say that as the owner of a legacy buy-to-let home that I invested in some years ago when the returns were better. In fact, in a rental void right now, my returns are negative (as I’m still paying a mortgage).
I’d go straight for property investment firms instead, and I see good value in LondonMetric Property (LSE: LMP). LondonMetric’s investment strategy is to concentrate on the retail properties that lie behind the boom in online shopping. Instead of the high-street shops and shopping centres it used to go for, we’re now looking more at the likes of warehouses and distribution and logistics centres instead.
That approach is doing well for shareholders, with the shares up 39% over the past five years (compared to just 5% for the FTSE 100).
But for a property investment, what I’m really looking for is income, and LMP is offering dividend yields in excess of 4%. They’re progressive too, growing from 7p per share in 2015 to 8.2p this year.
The firm sees bargains in the sector too, and its recommended cash and share offer for A&J Mucklow Group has just been given the nod by the Financial Conduct Authority. The deal valued Mucklow’s total share capital at approximately £415m, which is a premium of about 20% on its market cap prior to the announcement on 23 May, and I think that’s fair value for both sets of shareholders.
LondonMetric shares are on a forward P/E of around 22 and its shares trade at a 16% premium to net asset value as of 31 March, which might look a bit high. But I’m seeing an attractive income stream from a company in a potentially high growth segment of its market, and I like that.
Based on net asset value of 905p per share at 15 May, as reported in the company’s full-year results, it seems we’re looking at an astonishing 41% discount. That does need to be seen in the context of the firm’s year-end debt, which stood at £3.5bn, and I suspect there are fears of that coming to bite the shares if a Brexit-led economic malaise should continue for too long.
But that debt figure is down on last year, and British Land says the interest rate on 87% of its debt is hedged and that it’s 63% hedged over the next five years. The company does not seem unduly concerned about its debt, and I don’t think I am either.
The fall in the shares has pushed up dividend yields, and the 3% rise for this year to 31p per share represents a yield of 5.8% on today’s share price. That 31p is slightly less than analysts were predicting, but I see it as a very attractive yield.
Adjusted EPS fell 6.7%, largely down to one-offs, but forecasts suggest modest growth this year.
On a forward P/E of around 16, I think British Land shares are good value — as does the company itself, because it is engaged in a buy-back spree right now.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended A&J Mucklow Group and British Land Co. 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.