The price of property shares continues to drop through the floor on Friday as the markets appear to have gone into melt down.
In times like these it is hard for income orientated property investors to keep their head there is no doubt about that. However, could this panic, the rush for the door be throwing up once in a lifetime opportunity for income seeking property investors prepared to ride out the market turbulence and the ensuing depression? I still believe so.
When the dust clears from this financial Armageddon, people will still need places to work, live, shop and eat. They may be not doing so much of this and paying so much for it, but by and large we will still need buildings.
Having said all this, which stocks am I still buying?
Heres a safe stock after my recent more speculative punt.
Isis Property 2 (IRP)
Price 58.25p
High 121p
Annual div 7.2p
Proj yield 12.4%
Net gearing 31%
Net assets 121p
Net annual income 11.9p
This company has one very important characteristic in the current cash strapped markets, low levels of borrowing. Just over 30% according to its year end results produced for the year to 30.06. It proposes to keep its quarterly dividend payment at 1.8p into 2009.
More importantly dividend cover is 1.65 times. This means that unless voids increase dramatically or rent fall (unlikely given most leases are upwards only guaranteeing rent rises for the landlord) then this should be secure.
RISK vs REWARDS
There are risks with holding property shares still with commercial property values continuing to fall and capital values will remain under attack whilst banks scramble to deleverage their balance sheets. The likely depression will also no doubt increase the voids experienced by many property investment companies. However, if there is such as things as a safe pair of property hands in the current climate then Isis Property Trust 2 is probably it.
Hello again Income Monkey. Interesting choice and some good logic to your argument. However I would have the following questions for you on this one.
ReplyDelete1. If it is such a bargain at the current price, why are the directors not buying? The last purchase of about £20k by an executive was in July 08 at a price of 73pence. Not a massive purchase, but if they are not buying now, what do they know that you and I do not?!
2. Current earnings per share are negative, principally due to losses on recent asset sales. Do you not see this continuing?
3. Balance sheet shows very little cash (just over £2M) which is down significantly from last year, is this going to be enough to weather the storm?
4. The net change in cash to end June 08 is -£14M (aggregate of cash from operating, financing and investing activities). How is this sustainable or likely to improve going forward with financing becoming more difficult?
Hi Gavin,
ReplyDeleteYou raise some good points. I like to see directors buying into their businesses but this is not always the best indicator of the future direction of a share price. Directors are savvy enough to know that a token purchase will reassure the market and there are plenty of examples of where purchases have been the precursor to a huge melt down.
Earning per shares are pretty meaningless on property shares as they are influenced by changes in the capital values of the property. Whats more important is cashflow and loan covenants in the current crisis.
I would say with this share that the price dropped to 50p and then bounced pretty dramtically to its current level of 69p - a dramatic swing. Eager buyers were obviously waiting for a floor. With interest rates now down at 3% all those smug gits sitting on building society savings may not be feeling so smug now. The projected yield of significantly over 10% looks to me as being more and more attractive.