Where to find value in property trusts
30 April 2020, Trustnet
By Richard Williams,
Covid-19 has obliterated the property market, with tenants across all sectors struggling with cash flow problems as various measures to restrict the spread of the disease have been stepped up.
This has had a devastating impact on the rental income of property companies, which have in some cases received as little as a third of rent for the current quarter.
Rents are typically paid quarterly in advance and the next quarter rent day in the UK is due on 24 June 2020. Landlords are bracing themselves for an even worse quarter for rent collection as the lockdown in the UK continues. The situation beyond that point is far from certain, either.
Most listed companies have scrambled to secure their balance sheets, with some drawing down available funds on revolving credit facilities, and most taking extreme cost-cutting measures to see them through this period.
How long ‘this period’ will last is still unclear and therefore companies with historically low levels of debt are in a far superior position to weather the storm and be standing when we come out the other end.
There are one or two property sub-sectors that are performing well during the crisis.
Companies that have a large majority of their income either directly or indirectly paid by the government are faring well. Assura (AGR) and Primary Health Properties (PHP) both own portfolios of GP surgeries and their income is predominantly paid by the government through the NHS.
That is the case too for the social housing companies, Civitas Social Housing (CSH) and Triple Point Social Housing REIT (SOHO), whose rents are indirectly paid by the government through housing benefit.
Discounts across the sector have widened greatly during the Covid-19 pandemic, and there are a few companies looking very good value.
Listed European logistics companies are particularly interesting. Aberdeen Standard European Logistics Income (ASLI) and Tritax EuroBox (EBOX) are trading on discounts to net asset value of 9.6 per cent and 15.9 per cent, as at 27 April 2020.
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