Originally published July 2023.

Some listed Propcos are now a “buy” and here’s why…

It is ironic that the thing the listed property sector seems to need more than anything else right now is a jolly good recession, isn’t it?

There are several decent property companies out there. Why, then, are they trading at such big discounts to net asset value in the listed markets today?

Let’s stop for a second and think about what that means. £1 of property assets (net of liabilities!) can now be purchased for 65p, or less in some cases. That looks interesting right now if you pick the right company. And if you have the nerve and the patience to believe that the discount will narrow through share price appreciation, as opposed to valuations coming down!

Dividend yields on some of those shares are around 7% today, even for some of the better managed portfolios; a level at which the discounted cashflows would not be able to purchase the underlying assets. So, could these shares be a bit of a bargain today? The equity market doesn’t seem to think so.

My view, for what it is worth, is that 7% is quite an attractive dividend yield as we are likely past the peak of the inflation cycle and interest rates likely near their peak. (If you are looking for yield, some other types of financial services companies offer close on 10% per annum, but their assets go home each night which is quite a different proposition!).