Landsecs (LAND) and British Land (BLND): The REIT path to property investing (2024)

How attractive is the UK property sector right now?Both Land Securities (LAND) and British Land (BLND) report this week. All eyes will be on the figures they reveal and what they say about how the testing economic landscape is impacting real estate investment trusts (REITs).

REITs are essentially listed companies that invest in numerous physical properties – it could be an office block, a retail unit or a medical centre.As an investor, your returns are based on the performance of the listed company (for instance, Land Securities) – you are not directly invested in bricks and mortar but you are exposed to the vagaries (good and bad) of the property sector.

The specialist team at the REIT decides which property to invest in and reduces risk by having a broad spread of property holdings in a portfolio.REITs earn an income by leasing space and collecting rent, which is then paid out to shareholders via dividends. You can buy or sell REITs in much the same way as a normal share.

British Land (BLND) share chart

Pandemic impact on REITs

REITs suffered amid the global pandemic. If you look at this time last year, the FTSE NAREIT Equity Index had returns of -8%, while the S&P 500 recovered to return 18.4% over the 12-month period.

Land Securities results for last year reflected this torrid period for the REIT sector. The company reported revenue profit down 39.4% to £251m and loss before tax for the year of £1,393m (2020: loss of £837m).

It was a similar story at British Land, which saw underlying profit fall 34.3% to £201m from £306m for 2020.

As we approach the mid-way point in 2022, with lockdown restrictions lifted and offices and retail units opened once more, does the picture look brighter for the sector.?

Jason Hollands, managing director of corporate affairs at Tilney Investment management sees some reasons to be positive. He told Capital.com that the property market has had some major challenges in recent years, with the retail and leisure subsectors being particularly hit by Covid-19.

“The office market is also under pressure as some businesses have permanently adopted flexible working models, thereby reducing their office space requirements. But on the flipside, the acceleration of online shopping has created strong demand for depots, so it isn’t all grim news,” he said.

He addedthat like most asset classes, a key risk is that tightening monetary policy triggers a recession causing rising vacancies. As always, when you are assessing a REIT, Holland says tenant quality and length of unexpired leases are key.

Preferred REITs

“Of the multi-sector UK REITs, we like UK Commercial Property REIT and Picton Property Income.

“And of the companies reporting this week, we’re positive on British Land in part due to it’s flagship Canada Water regeneration project, which will see it develop up to 5 million square foot of new buildings with outstanding sustainability metrics. This is one of the largest mixed use regeneration projects in London,” Hollands concluded.

Danni Hewson, financial analyst at AJ Bell told Capital.com that both Land Securities and British Land have worked hard over the last couple of years to recalibrate their portfolios, to sell off assets that don’t fit into their future plans and redirecting the cash into other projects.

“Covid lockdowns took a huge toll on their retail and office businesses, but both delivered a decent set of half year results at the back end of last year and investors expect that recovery will have further developed over the last six months as the UK set about “living with covid,” she said.

Hewson added: “A greater focus on distribution, particularly London’s last mile delivery should yield decent returns and rent renegotiations are finally working through the system as bricks and mortar retail and leisure gets back on its feet.”

Stock price recovery

Hewson arguedthat while REITs won’t be immune to the current economic landscape,both Land Securities and British Land have proved remarkably resilient. Both their share prices have recovered much of the ground lost during the pandemic and they both deliver decent dividends which might well be attractive to investors in this current period of uncertainty.

“There are still big questions about exactly how much retail and office space will be required in this post Covid world where many people are adopting hybrid working but the quality of the property held by both REITs mean they are likely to remain attractive if further disposals are necessary”.

Land Securities(LAND) share chart

But whilst both British Land and Land Securities are well known names with large portfolios, Hewson suggests their exposure to city centre retail might still be sounding alarm bells for some. “As the cost-of-living crisis really begins to impact footfall, other, more specialised REITs might prove more attractive until this cycle of rising inflation comes to an end.”

Marketbeat currently shows a consensus rating of ‘hold’ for British Land. Out of eight analysts, four rate the company a hold; three a buy and only one a sell.

Marketbeat’s consensus rating for Land Securities is ‘buy’. Out of nine analysts, six rate the REIT a ‘buy’ with the remainder rating it a ‘hold.