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The Land Securities Group (LSE: LAND) share price is down 34% in the past five years, with real estate investment trusts (REITs) out of favour.
I’ve always seen the bearish sentiment as misplaced. And first-half results on Friday (15 November) provided a bit of a boost, with the shares up 2% as I write.
That’s not a big jump. But this FTSE 100 member is the UK’s biggest property investment company. And I see signs that it could be the start of something bigger.
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Getting better
One key standout for me is the improving outlook.
The company reported earnings per share (EPS) on an EPRA accounting basis of 186p. That’s a bit below the 198p for the prior period.
But CEO Mark Allan spoke of “operational outperformance,” with “further growth in occupancy and positive rental uplifts across our retail and London portfolio, which is translating into accelerated income growth.“
He added that “we therefore raise our outlook for EPRA EPS and now expect FY25 to be in line with last year’s level despite £0.5bn of net disposals over the past year, and for this outperformance to flow through into FY26.”
Dividend time
The board raised the interim dividend, by 2.2% from 18.2p last year to 18.6p. That’s only a modest increase. But to me it adds a vote of conidence to the current forecast for a 6.9% FY dividend yield.
That 6.9% just happens to match the average annualised FTSE 100 return over the past 20 years.
And it’s from dividends alone, with no further share price rises. I wonder if we could be looking at a future market-beating total performance here?
Adding further detail, the update spoke of “6% uplifts on relettings/renewals across London and Major Retail, 40bps increase in occupancy, 3.4% growth in like-for-like net rental income, and property valuations returning to modest growth as rental values rise 2.1% and yields stabilise.”
Caution needed
I need to keep in mind that this is still a sector that could be under pressure for some time yet.
Interest rates remain high, and it looks increasingly like the pace of reductions will be slower than we maybe first thought.
We just heard that the UK economy barely grew between July and September too. On the one hand, that could move focus towards lowering interest rates a bit quicker. But on the other, it’s not great news for a company that depends on commercial real estate for its business.
REITs usually carry a lot of debt too, in the form of funding for their property investments. And Land Securities just reported a net debt/EBITDA ratio of 7.4 times.
For many companies that would be terrifyingly high. But in the case of property investment, it seems modest.
Bottom line
So, will I buy for my Stocks and Shares ISA? Not now, mainly because I see candidates I prefer. That includes other REITs with different property models.
I still fear medium-term share price weakness too, though Land Securities stays on my long-term watchlist.