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Think Woolies and Wesfarmers are overvalued? Try these instead

Many investors — with good reason — are interested in owning a slice of two of Australia’s highest quality, blue-chip companies, Woolworths (ASX: WOW) and Wesfarmers (ASX: WES). With the ‘chase for yield’ pushing the share prices of these two companies higher and higher, there is reason for patience in purchasing at current lofty levels.

While an investment in the following property firms exposes investors to very different business model to Woolworths or Coles, they do provide a form of leverage to the blue chips — with a possibly lower valuation risk.

ALE Property Group (ASX: LEP) is the largest freehold owner of pubs in Australia, with 87 pubs across five mainland states. These pubs are all leased to the Australian Leisure and Hospitality Group (ALH). ALH is the vehicle through which Woolworths — along with its joint venture partner, the Bruce Mathieson Group — operates its pub business. With 30% of ALH’s pubs owned by ALE and the ALH business growing at double-digit rates, there is good reason to take a closer look at ALE.

ALE just released its results for the financial year 2013 which saw distributable profit increase from $26.7 million to $31.7 million. With only a 22% building-to-land utilisation rate there would appear to be significant scope to develop additional future earnings. The one catch to an investment in ALE could be its price. While the development pipeline is appealing at a 40% premium to net asset value, other property plays may be a better value.

BWP Trust (ASX: BWP) — previously known as Bunnings Warehouse Property Trust — owns a significant number of properties that are leased to Wesfarmers’ Bunnings business. At its formation BWP was solely exposed to Bunnings as a tenant, however it has since diversified its tenant and property base. The Trust is due to release its full year results on 8 August but has already announced that it expects to pay a distribution for the six months to June of 7.1 cents per unit.

Shopping Centres Australasia Property Group (ASX: SCP) is a recent addition to the property sector and is backed by a blue-chip retail tenant. Shopping Centres Australia (SCA) was listed in November 2012 via the transfer from Woolworths of 69 shopping centres – 56 of these were completed at the time of listing with 13 in development. SCA is arguably the most interestingly valued of the three property trusts mentioned here given it currently trades in line with its net tangible asset backing and close to its listing price.

Foolish takeaway

Value is getting harder to come by in the stock market as share prices move higher. While there is an understandable focus on yield, protection of capital is vitally important as well. Property assets often provide a good mix of asset backed capital protection and sound, maintainable dividend yields making them a potentially good alternative to expensive blue chip stocks.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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