People often ask – quite rightly – what we do for our clients and what kinds of investment opportunities we seek out, using our decades of industry knowledge, so this week, we introduce you to one such!
It seems so much can be caught up in the noise that sometimes, a great opportunity to invest is not noticed by the public – let alone the market.
This is what we call a ‘technical trading opportunity’ and has nothing to do with whether the stock market generally goes up or down (of course economic and sentiment events affect outcomes generally).
Whilst as ever the usual risk warnings have to apply (just as they do if you deposit too much at the Bank or Building Society where interest can fall and inflation eat it away…)
As ever, to avoid compromising regulations, this is not a recommendation from us but it is one of our investment components.
What is it? A national, commercial property company/fund owning over 140 units worth £650million, primarily offices and some development properties.
If I invest, what income might I expect? Today, if you invest £1,000, the income, the dividends (which is simply a part of all the rents less expenses) should be 10.5%pa (it has to distribute 90% of its income under REIT rules).
Debt? Yes, the company has relatively cheap debt where the interest is well below the rents received. It owes just over £250million.
How much is a share? If the company was starting today, all its assets may be priced at say £1 a share, representing the valuation of everything it owns. However, you can buy a share of those assets for 60p.
What else? As it develops its empty properties, it anticipates gains from planning and improvements.
As it refurbishes, it hopes to secure more and higher rents, as it has been doing already.
Rents and thus income should rise in line with buoyant demand and inflationary increases.
Present occupancy is only 71% so scope for more, as the properties are brought online.
Property values have been written-down to reflect a more pessimistic backdrop, so higher selling figures are very likely.
If the company winds-up, we could receive our £1 back, so an uplift of 67% on our investment today (40p over 60p) whilst receiving 10.5%pa income whilst we wait.
What is the catch? There isn’t one but yes, it may struggle to sell units, borrowing may cost more to refinance or prove hard to repay unless sales occur or are forced. Costs may escalate. They may lose tenants. However, there is plenty of comfort in the price we pay.
Is this high risk or low risk? You decide, but the lower the share price (so the more that initial investors may have lost when they started at £1), the lower the risk you face! We didn’t buy at the beginning – far from it.
Can you match that income? Remember, even if the discount to the underlying assets fell to a more meaningful level of say 20%, that would still have given you a capital uplift of 33.33% on today’s buying price, on top of the income and that is nothing to do with what the rest of the ‘stock market’ is doing.
