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Several real estate companies FTSE 250 They have suffered a setback from the market in recent months and years.
British land (LSE:BLND) is a good example. With the stock near 331p, it is down around 17% over the past year and had been trending lower for some time before that.
Given the challenges facing the real estate market for several years, the fall from grace is understandable. But the company’s semi-annual earnings report filed on November 13, 2023 has many positives. And it could be a good time for investors to consider returning to property companies like British Land.
Good operational momentum
In the six months to September 30, 2023, the company experienced “Continued operational momentum and strong rental growth”. Underlying profits rose 3.4% in the period and directors increased the interim dividend to shareholders by almost 5%.
That is important. When investing in real estate stocks, one of the main sources of profitability is dividend income. But British Land’s record on shareholder payouts has been troubled. There were declines in the trading years to March 2019 and March 2020.
However, dividends have been increasing each year since then. And City analysts expect further progress in the current business year and the year after. The recovery in shareholder income is further evidence that the business is improving. And it’s happening with the stock price near its lows.
The valuation looks attractive, especially if operations are recovering. The price-tangible book value is around a modest 0.5. And the prospective dividend yield is around 6.7% for next year.
Chief executive Simon Carter said underlying profits rose in the first half due to strong cost and lease control. Rent growth has accelerated and occupancy is “strong” at 96%.
Value added
Carter said the company is benefiting from an earlier decision to seek a “value added strategy” on campuses, business parks and urban logistics in London. Directors believe those submarkets have the strongest occupational fundamentals. And they also offer the best rental growth in the office, retail and logistics sectors.
Carter believes the company achieved good earnings growth over the past 18 months. But asset values were hit by rising interest rates. However, the peak of the interest rate hike cycle could be near. Carter expects strong submarket occupational fundamentals and British Land asset quality to improve “reaffirm themselves as the main drivers of performance”.
It appears that operating conditions will improve in British Land. But much of that is due to the normal cyclical nature of the real estate sector. And a big part of the recent problem for the company has been the effects of the downside of the cycle.
Therefore, cyclicality is one of the risks for investors here. And any future downturn in the economy or sector could derail earnings, dividends and the share price.
However, it appears that British land now deserves further investigation and consideration. And it could be a decent addition to a diversified stock portfolio, at least for a while!
