Several property companies in the FTSE 250 have suffered a pummelling by the market in recent months and years.
British Land (LSE: BLND) is a good example. With the stock near 331p, it’s down around 17% over the past year and had been trending lower for some time before that.
Given the challenges in the property market over several years now, the fall from grace is understandable. But the firm’s half-year results report delivered on 13 November 2023 has many positives. And it could be a good time for investors to consider a return to property firms such as British Land.
Good operational momentum
In the six months to 30 September 2023, the business experienced “continued operational momentum and strong rental growth”. Underlying earnings increased 3.4% in the period and the directors pushed up the interim shareholder dividend by almost 5%.
That’s important. When investing in stocks in the property sector, one of the main sources of return is income from dividends. But British Land’s record on the shareholder payment has been on the rocks. There were declines for the trading years to March 2019 and March 2020.
However, dividends have been increasing each year since. And City analysts expect further progress in the current trading year and the year following. The recovering shareholder income performance is more evidence that the business is turning around. And it’s happening with the share price near its lows.
The valuation looks attractive, especially if operations are recovering. The price-to-tangible book value is around a modest-looking 0.5. And the forward-looking dividend yield is about 6.7% for next year.
Chief executive Simon Carter said underlying profits increased in the first half because of strong leasing and cost control. Rental growth has accelerated, and occupancy is “strong” at 96%.
Adding value
Carter said the company is benefitting from a prior decision to pursue a “value-add strategy” across campuses, retail parks and London urban logistics. The directors think those submarkets have the strongest occupational fundamentals. And they also deliver the best rental growth within the office, retail and logistics sectors.
Carter reckons the company achieved good earnings growth over the past 18 months. But asset values were affected by the increases in interest rates. However, the peak of the interest rate-raising cycle could be near. Carter expects the robust occupational fundamentals of the submarkets and the quality of British Land’s assets to “reassert themselves as the primary drivers of performance”.
Operational conditions look set to improve for British Land. But much of that comes down to the normal cyclicality in the property sector. And a big part of the problem for the company recently has been the effects of the down leg of the cycle.
So, cyclicality is one of the risks for investors here. And any future downturn in the economy or the sector could pull the rug from under profits, dividends and the share price.
Nevertheless, British land looks like it’s well worth further research and consideration now. And it could make a decent addition to a diversified portfolio of stocks – at least for a while!
