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Buy-to-let? Forget it! I’d buy this property share

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For me, the hassle and expense of getting into the buy-to-let business is too great. I’d rather buy the shares of property-focused companies trading on the London Stock Exchange.

The potential benefits of holding such shares can be like those of buying and letting property. For example, dividend income from shares substitutes for rental income from property. And we can see capital gains or losses from rising and falling share prices. That’s like the gains or losses we can experience when property prices move up and down.

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Trading on through the crisis

For some time, I’ve been keen on the FTSE 250’s Sirius Real Estate (LSE: SRE). And the current share price near 70p means the stock is still around 26% lower than it was on 24 February, just before its coronavirus plunge. Today’s trading update from the firm discusses the effects of the crisis on the business.

The company specialises in “branded” business parks providing conventional space and flexible workspace in Germany. Around 75% of the staff are now working from home. And since the beginning of the crisis, letting enquiry levels have decreased, leading to fewer viewings and new lettings.

Nevertheless, the company said more than 13,000 square metres of new letting space have completed since 1 March, generating €1.2m of annualised rent. Meanwhile, the collection of rent and service charge income during April has been “relatively robust,” running near around 90% of the “normal working pattern.” So far, just a “small” number of tenants have requested the deferral of rental and service charge payments because of the crisis.

Meanwhile, the directors reckon the firm has a “strong” balance sheet with more than €121m of cash, almost €97m of which is unrestricted. On top of that, there’s an undrawn debt facility of just over €33m. At first glance, the company looks well placed to trade through the crisis and seems unlikely to find itself in financial difficulty.

Well diversified portfolio

Chief executive Andrew Coombs explained in the update that Sirius operates a well-diversified portfolio of properties across Germany. The portfolio has lease agreements with over 5,000 tenants. However, the top 50 tenants make up 44% of the rent roll, but those clients include some of the world’s “best known” multinational companies. And 7% of the tenants are government agencies. I think the set-up suggests that rental income from those tenants will likely remain secure.

Around 35% of the portfolio is storage space and Sirius has seen an increase in enquiries for that since the start of the crisis. But a “large portion” of the rent roll comes from Germany’s Mittelstand (SMEs), which operate across a wide range of industries. The German government’s funding package should help to support such companies through the crisis. Nevertheless, Sirius expects some rent payments to be deferred over the next few months.

I think it’s a good time to research the opportunity available now with Sirius Real Estate. That’s even though the company said today that there is no certainty as to when the lockdown in Germany will end. And consequently, it can’t provide any future financial performance guidance “at this time”.

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Kevin Godbold has no position in any 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.

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