If you have £5,000 to invest and don’t want to take on too much risk, then I think property companies could be an excellent home for your money.
The great thing about these businesses is that you can get exposure to a broad portfolio of properties, even if you only have a small sum to invest. What’s more, you can invest in sectors of the property industry that would usually be out-of-bounds to individual investors, such as self-storage business Lok’n Store (LSE: LOK).
Lok provides self-storage facilities for clients. It is relatively small with a market capitalisation of just £155m at the time of writing, but it is expanding rapidly. Over the past six years, net profit has increased at a compound annual rate of 22% and earnings per share have grown at a rate of 14% per annum.
As the company has grown, shareholders have been well rewarded. Every £1,000 invested in the business back at the beginning of 2015 is worth nearly £2,500 today.
It doesn’t look like the company is going to slow down any time soon. Today the group reported an 8.7% increase in self-storage revenue for fiscal 2019. A mix of higher prices and more customers looking for storage solutions helped drive growth over the 12 months. Unit occupancy rose 6% year-on-year, and the price per square foot rose 0.6% year-on-year.
Lok opened four new landmark ‘stores’ in Dover, Cardiff, Exeter and Ipswich, as well as acquiring an existing store in Hedge End, Southampton, during the period. On top of this, the company has another eight new landmark sites in development, with the potential to boost its trading space by 27%.
If we assume that these facilities will attract the same level of business as the current portfolio, the new units could power earnings per share higher by around 27% over the next few years.
Considering this pipeline, it seems to me as if Lok’s growth is only just getting started. The shares currently support a dividend yield of 2.3%, and the distribution has doubled over the past five years.
Another property play with a fantastic record of generating value for shareholders is Sirius Real Estate (LSE: SRE).
Like Lok, Sirius is a relatively unique property business. It is engaged in the operation and development of commercial property in Germany. In total, the company owns 60 business parks across the country, directly and through joint ventures.
Over the past six years, its property portfolio more than doubled in size. Shareholder equity — the total value of assets in a company minus all liabilities — has increased 220% since 2014. Management has financed growth with retained capital and the issue of new shares, keeping borrowing low. Net-debt-to-assets was just 43% at the end of fiscal 2019, down from 93% at the end of 2014.
And as the firm’s property portfolio has grown, so has the share price. Over the past five years, the stock has produced a total return for investors of nearly 20% per annum, compared to just 6.2% for the FTSE 100.
I think it could be worthwhile buying into this growth story, and today the stock is on offer. It is trading just above book value per share and offers a dividend yield of 4.5%.
Rupert Hargreaves owns no share 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.