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

The stock market crash has resulted in a number of cheap property shares. Some may look a bargain, but does the risk outweigh the potential reward?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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?

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »