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3 cheap property shares that I think offer high risk, high return

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The stock market crash in March decimated the property sector (among others). Here I look at three cheap property shares focusing on different sectors.

Each has lost between a third and two-thirds of their value over the past year. But are we looking at long-term bargains here, or could they have further to fall?

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This cheap property share comes with a student discount

Student digs provider Empiric Student Property (LSE: ESP) has ‘only’ fallen a third in value from its year high. The company reported a marginal decrease in revenue in H1 of £34m from £35.7m attributed to lower summer term lets. However, underlying growth increased 8%.

While dividends remain suspended under the fourth quarter, they are covered 159% by adjusted earnings.

Thanks to the recent A level exams debacle, a bumper crop of students is expected for the new academic year and supply of suitable properties is still limited. Bookings are only 7% below the same period last year.

Following the coronavirus outbreak, the company is seeing an increase in requests for self-contained studios and en-suite accommodation. With a successful refinancing in April the group has a strong balance sheet. It has £12m of cash and £35m of undrawn debt facilities available.

The firm previously provided a good dividend income of 5p per year. With a current price-to-earnings ratio around 15 I think this cheap property share is a buy.

London calling

West End landlord Shaftesbury (LSE: SHB) owns a 15.2 acre property portfolio predominantly in Carnaby Street, Soho, and Covent Garden.

The share price has fallen 50% in the past year and the REIT is trading at around half its net asset value.

The coronavirus pandemic forced Shaftesbury to scrap its dividend, suspend further payments, and defer rent payments for its commercial tenants. It warned that at least half its rent could be uncollected in the second half of 2020.

The firm swung to a loss this year, but I’m confident that if you take a long-term view the share price will come bouncing back and the dividends will be reinstated. The location of its properties is quite simply unique. However, it does look expensive right now on a price-to-earnings ratio of 28, and I foresee more short-term pain ahead with Brexit around the corner. A brave buy only, in my book.

A shift to working from home?

The final cheap property share on my list is Workspace Group (LSE: WKP). As the name suggests, the company rents out flexible office space mainly in London and the South East. Needless to say, this has not been a good market to be in during the pandemic.

I know that I personally won’t be returning to the office until at least 2021 and I think that the coronavirus may have vastly accelerated the culture of working from home for good. I certainly can’t imagine returning to a five-day-a-week office environment now.

The shares are down nearly 60% year-to-date. Workspace announced it had received 65% of rents due in the second quarter, down from 80% last year and customer activity was only 15% of usual levels.

I used to own shares in Workspace group, but I can’t see it being back in my portfolio any time soon. I believe the fundamental business model for the company may have changed permanently. This is a cheap property share with good reason.

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David Barnes owns shares in Empiric Student Property. 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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