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It has been an interesting last 12 months for the FTSE 100. The UK Large Cap Index is up 7.3% to 8,254 as I write, but has not advanced much since mid-2024.
There have been some big winners, including Rolls-Royce and NatWest which have seen valuation gains of 92% and 85% in the last year, respectively.
However, right now I'm looking for bargains. That means I want to find a hidden gem at Footsie that might fit well into my current wallet.
There is a stock that I don't like that has piqued my interest and I am thinking of buying it in 2025.
Unloved REIT
British land (LSE: BLND) is the stock in question. The real estate investment trust (REIT) has seen its share price fall, down 8.6% in the last 12 months and 11.9% in the last three years, to £3.64 per share.
The company is one of the largest REITs in the UK and invests in a portfolio of London campuses and urban logistics assets, as well as business parks across the country.
British Land's £1.1bn strategic investment in retail parks in recent years has helped boost profits and profitability, partially offsetting challenges in the London office market.
The owner posted a 1.7% drop in valuation for the half-year ended November 30, 2024, and analysts see its office exposure as a potential impediment to earnings per share (EPS) growth in 2025. .
European Real Estate Association (EPRA) net tangible assets (NTA) are a common valuation metric in the REIT game. Notably, British Land's EPRA NTA per share declined 4.4% to 562p due to its exposure to the office sector.
However, an increase in full-year EPS guidance to 28.1p, up from 27.9p, shows some green shoots emerging. Similarly, a 1% increase in the full-year dividend per share to 22.8p is good news for investors.
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To buy or not to buy?
There are several reasons why I am considering buying British Land shares. On the one hand, I think the office sector could perform better than expected this year.
It's certainly an area of the property market that has been under pressure, but a falling interest rate environment and a continued return-to-office trend could see valuations bottom out.
I also like the management's clearly defined strategy. A recent acquisition of a portfolio of retail parks worth £441 million from brookfield continues to diversify the portfolio and reduce overall office exposure.
For me, the key driver is the performance of the retail parks, including the newly acquired portfolio, which is critical to EPS growth forecasts for FY25 and beyond. Any further evidence of stabilization in office valuations should also give investors comfort that the worst may be behind the REIT.
Verdict
I think British Land is an exciting prospect. There are still big risks in buying shares, including the volatility of the commercial real estate market, uncertain demand for office space and the integration of acquired business parks.
However, I believe that where there is risk there is reward and a long-term perspective is important. The REIT would be complementary to my current portfolio and I will seriously consider it when I have some additional funds.
