It’s been an interesting last 12 months for the FTSE 100. The UK large-cap index has climbed 7.3% to 8,254 as I write, but hasn’t made much headway since mid-2024.
There have been some big winners including Rolls-Royce and NatWest that have seen valuation gains of 92% and 85% in the last year, respectively.
However, I’m in bargain hunting mode at the moment. That means I want to find a hidden gem in the Footsie that could be a good fit for my existing portfolio.
There’s one unloved stock that has piqued my interest and I’m thinking about 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 sliding, 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, investing in a portfolio of London campuses and urban logistics assets, as well as retail parks across the country.
British Land’s strategic £1.1bn investment in retail parks in the last few years has helped boost earnings and profitability, partially offsetting challenges in the London office market.
The landlord booked a 1.7% decline in valuation for the half-year ended 30 November 2024, and analysts see its office exposure as a potential impediment to growing earnings per share (EPS) in 2025.
European Real Estate Association (EPRA) net tangible assets (NTA) is a common valuation metric in the REIT game. Notably, British Land’s EPRA NTA per share declined 4.4% to 562p on the back of its office sector exposure.
However, an increase in full-year EPS guidance to 28.1p, up from 27.9p, shows there are 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’m considering buying British Land shares. For one thing, 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 continued return-to-office trend could be supportive of a bottoming out on valuations.
I also like management’s clearly defined strategy. A recent £441m retail park portfolio acquisition from Brookfield is continuing to diversify the portfolio and reduce overall office exposure.
The key factor for me is how retail parks perform, including the recently acquired portfolio, which is fundamental to EPS growth forecasts for FY25 and beyond. Any further evidence of stabilising 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 some big risks to buying the stock including commercial property market volatility, uncertain demand for office space and integration of its acquired retail parks.
However, I think where there’s risk there’s reward and a long-term outlook is important. The REIT would be complementary to my existing portfolio and is one that I’ll be looking at seriously when I get some spare funds.
