Time to pile into property?

Retail therapy
Investors interested in slightly more unconventional opportunities in the sector might check out LXB Retail Properties, which raised £110 million on AIM last October. Chaired by Phil Wrigley, previously the chairman at womenswear retailer New Look, this Jersey-incorporated investment concern plans to take advantage of what it sees as low prices for out-of-town retail parks, aiming to buy them up and develop them, then attract bigger retailers willing to pay higher rents. 

LXB has already made a number of acquisitions, including the purchase of two retail assets and a development site at Greenwich for £19.2 million, along with the purchase of Biggleswade Retail Park for £22.7 million, a site currently generating £1.6 million in annual rental income from household-name retailers including Matalan and Halfords. 

Having spent £72 million, 66 per cent of the float funds, LXB still has around £50 million left to spend on further developing its portfolio and also offers investors exposure to a potentially lucrative source of income. As such, the shares, now 92p, at which they trade at a 7 per cent discount to a projected NAV of 99p, could prove to be a good medium- to long-term investment.  

Smaller fry worth a look
Besides the sector’s bigger players, there are a number of smaller, more speculative ventures that are well worth considering. Led by chief executive Andrew Jacobs, previously a salesman at Nomura International, Lok’nStore is an unusual business in the property sector. 

The company buys, builds or leases large warehouses or industrial buildings and then offers a variety of self-storage units to rent on a weekly basis, currently owning 22 premises in the UK. Lok’nStore attracts a mixture of business and household customers, with business clients using its storage services for everything from retaining stock to safeguarding archived data. Meanwhile, ‘household customers’ use Lok’nStore for a number of reasons, including ‘decluttering’ and storing items during or following house renovation.

Jacobs told Growth Company Investor that the business had an usual range of customers: ‘We get everyone from people who have been evicted from their houses to the police, who recently used us to store a number of speed cameras.’ And with prices varying from £5 a week for the smallest space to £1,000 a week for the largest, Jacobs insists that the AIM-listed concern can count on a reassuringly ‘diverse range of customers’.

An interesting business, Lok’nStore has £24.2 million of net debt, but that stands against a property portfolio valued at £78 million, which means that gearing is low. Jacobs also notes that the company previously sold two of its stores in Kingston in 2007 for a handsome profit, so there is potential for investors to benefit from any future property asset disposals.

Although Lok’nStore is trading on an unattractive 450 times prospective earnings, it should be assessed, like its sector peers, on a NAV per share basis, whereby it seems a much more attractive proposition. Indeed, at 90p, the shares are trading at a sizeable 57 per cent discount to a projected net asset value per share of 223p. Undervalued on a NAV basis and boasting a consistently cash-generative model, Lok’nStore is worth buying and locking away for profit.  

Overcoming volatility
Those seeking secure, steady growth in this presently volatile sector should examine property management group HML Holdings. Led by CEO Robert Plumb, HML manages approximately 28,000 flats in the UK. As one of the only listed property management companies, Plumb told Growth Company Investor that, pre-recession, ‘HML was not seen as a sexy firm’ in the sector, since growth was only steady and the group was viewed as under-leveraged.
 
HML made profits of £170,000 for the year to March, with previous profits of £230,000 and £310,000 in 2007 and 2008 only punctuated by a goodwill impairment that led to an accounting loss of £1.25 million in 2009.

Plumb points out that ‘there is security in our business model, and we have proven that even in the nasty times we won’t go out of business’. Although HML also makes a small amount of revenue from sales, the recurring revenues come from management of property, and hence the company is able to protect itself against fluctuations in sales in the wider property market.
 
With house broker finnCap forecasting earnings of 1.2p for the year to March 2011, shares in the company are trading on a modest ten times earnings and represent a wise investment in a niche market for those with security and dependability at the forefront of their minds.  

Lure of the East
Those tempted by the lure of the East should run the rule over the numbers at West Pioneer Properties, which develops and operates shopping centres in India and is headed by chairman Ami Jatia, previously managing director of Hardcastle restaurants, the company that managed the McDonald’s franchise when the fast food chain came to the country.

West Pioneer currently owns the Kalyan shopping mall in Mumbai and has two projects in development, at Aurangabad, western India where it has acquired 750,000 square feet of land, and a project at Nashik, western India. The developments are intended to house shopping malls and hotels, with West Pioneer already striking an agreement with Intercontinental Hotels to operate a number of hotels under the Holiday Inn brand.
 
Speaking to Growth Company Investor, executive director Nitin Dattani said that West Pioneer offered investors ‘a great chance to get in on the India growth story’. He added, ‘While there are a number of funds that invest in India, many of them have little on-the-ground experience, while we are heavily invested in the company that we manage.’ He also noted that the group’s Kalyan mall has attracted a number of big names including Reebok, McDonald’s and Indian chain Big Bazaar.

West Pioneer is also developing residential properties, with CEO Ajay Gupta noting that the development was attracting ‘a number of professionals such as lawyers, accountants and doctors’. Both men are keen to emphasise the potential in profiting from India’s growing middle classes, which they noted were defined by researchers by their consumption patterns rather than by income.

As with any venture in an emerging market, it is important to exercise caution. However, West Pioneer shares are currently trading at 20.5p, a meaningful 53 per cent discount to projected NAV per share of 64.9 US cents (43.4p), which should narrow as investors become increasingly aware of the scope of its India-based prospects.