Berenberg starts British Land and Land Securities at 'buy'

Despite only representing roughly 17% of the market cap of the UK real estate investment trust sector, half of what it was a decade ago, Land Securities and British Land have both benefited from a reduction in swap rates and bond yields in Q4 2023, as they provide equity investors with "a liquid and diversified way" to increase their exposure to the interest-rate-sensitive UK real estate market.

While the German bank noted that discounts to net asset value offered by the pure London office REITs "may look more attractive", British Land and Landsec provide "a less concentrated exposure" to what it still sees as being "an uncertain London office market", together with access to the retail property sector, which it believes has bottomed and should "show selective growth".

"Investors can take their pick of retail warehouses (British Land) or destination shopping centres (Landsec)," said Berenberg, which thinks "any weakness" represents a buying opportunity and issued the former with a 469.0p price target and the latter an 807.0p target.

Berenbert also pointed out that a "relatively attractive earnings yield" of 7.1%, combined with discounts to NAV, offered investors the "best of both worlds", providing a steady income return while waiting for NAV growth to re-emerge, hopefully resulting in an improvement in NAV rating.

"We recognise that earnings growth for both companies is going to be minimal over the next few years, but the high earnings yield accounts for that, in our view. After a strong Q4 2023 (Landsec up 21%, British Land up 31%), both companies have unsurprisingly given up some share price performance since the recent high (-4%), in line with the wider UK REIT sector," Berenberg said.

Reporting by Iain Gilbert at Sharecast.com