Morgan Stanley upgrades Landsec to ‘overweight’

The bank lifted its price target on Landsec to 730p from 650p and on British Land to 460p from 405p.

It noted that investors who held British Land and Landsec shares over the last decade have made 0-1% per annum in total returns including dividends.

"That is unusual as the average total shareholder return averaged 9% per annum for both over the three prior decades," it said.

"The recent decade saw severe structural pressures on retail (UK asset valuations down 65% and rents down 30-40% on average) and recently office, Brexit-related uncertainty, Covid, and also the rise of large sector specialists. All of these factors have more than offset the tailwinds from low rates."

Morgan Stanley said NAV-based return profiles screen as compelling and NAVs are likely set to trough.

It pointed out that both companies are now guiding to 8-10% total accounting returns medium term, which it assumes is achievable. Retail and office portfolios have largely repriced, capital structures are appropriate, rents are rising, "and both are playing offence through opportunistic net investment even if they remain somewhat capital constrained," it said.

"Not only does this level of accounting return (cash dividend + change in NAV, as a portion of NAV) suggest a re-rating is likely, it is also consistent with the historical level of the long-term annual average 9% total shareholder return (cash dividend + change in share price, as a portion of share price); over the long term total shareholder return converges with total NAV-based returns."

At 0925 GMT, Landsec shares were up 1.4% at 660.40p, while British Land was 0.6% higher at 381.70p.