FTSE 100 incumbent Land Securities Group (LSE: LAND) has seen its shares continue to fall in recent years. Could now be a good time to pick up the shares ahead of any potential stock market rally?
Real estate
Land Securities, often referred to as LandSec, is a real estate investment trust (REIT). This means it invests in and makes rental income from properties. LandSec focuses on office buildings, shopping centres, and retail parks. As a REIT, it must return 90% of profits to its shareholders as dividends.
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As I write, LandSec shares are trading for 606p. At this time last year, they were trading for 514p, which is a 17% increase over a 12-month period. For context, it has outperformed the FTSE 100 by some margin during this period.
Digging a bit deeper, LandSec shares are down 15% over a two-year period, falling from 714p to current levels. Furthermore, they’re down nearly 40% since the pandemic began, from 995p to current levels.
Buy the dip or avoid it like the plague?
So why have LandSec shares fallen so far? Firstly, the pandemic struck. Shopping centre numbers fell and people began working from home. E-commerce was already impacting shopping centres and garnered further momentum during lockdowns. More recently, soaring inflation and higher interest rates have dampened the economic outlook.
From a risk perspective, there are a couple of things I’m keeping an eye on. To start with, LandSec has over £3bn of debt on its books. This can impact payouts and investor sentiment as in the current high interest environment we find ourselves in, it could be costlier to pay down and service.
Another issue is that of the looming spectre of a property crash, especially in the commercial sector. This has been driven by a weakened economy and high interest rates. These factors could impact LandSec’s profitability, growth initiatives, and performance.
On the other side of the coin, LandSec shares look decent value for money on a price-to-earnings ratio of close to 13. This is just under the FTSE 100 average of 14.
Moving on, LandSec has an enviable market position, in my opinion. It is one of the largest property groups in the UK, including owning well-known sites such as Blue Water in Kent and Trinity Leeds, to name a couple. In addition to this, it is looking to change its approach and add more mixed use and urban regeneration developments to its portfolio. I think this is a wise strategy and could pay off, albeit over a long period of time.
Next, LandSec shares would boost my passive income with a dividend yield of 6.4%. This is higher than the FTSE 100 average of 3%-4%. However, I am conscious dividends are never guaranteed.
A FTSE 100 stock I’m watching closely
To me, LandSec looks like a potential opportunity with a decent valuation, attractive business model and a passive income opportunity. I do believe there is some further turbulence ahead, especially with the current economic picture.
I’ve decided that I’m going to keep LandSec shares on my watch list for now. I’m keen to see interim results in November as well as economic developments before I revisit my position.
