If you’re looking for income stocks to buy for 2020, then I highly recommend taking a closer look at the UK’s largest real estate investment trust, Landsec (LSE: LAND).
This company owns £14bn of commercial property around the UK, including London’s world-famous Piccadilly Lights.
The bulk of the property is located in and around the capital, although Landsec also owns a selection of shopping centres around the rest of the UK. It’s this exposure to retail property that has caused investors to flee the stock over the past two years.
Before the Brexit referendum in 2016, shares in Landsec used to change hands for around 1,250p. That was close to the value of its underlying property portfolio at the time. On some occasions, the stock even traded at a premium to its underlying asset value.
However, since mid-2016, investors have been running scared. At one point earlier in 2019, the stock was trading at a discount of nearly 50% to its underlying net asset value.
The group has a multi-billion pound portfolio of retail assets, which have declined in value this year. According to Landsec’s first-half results, the value of its retail parks declined by 11.1% during the first six months of its financial year, and the value of its regional retail properties fell by 9.4% following a series of retail failures.
Nevertheless, the value of the group’s office properties, which make up around half of its overall holdings, rose by 0.3% year-on-year.
Landsec is now focusing on this office market for growth. Indeed, the group has four new London schemes currently under development, which could add 1m sq ft of new office space to the portfolio. This is part of a £3bn programme of potential developments management has recently commissioned.
Landsec’s development pipeline suggests to me management is much more optimistic on the outlook for commercial property in the UK than the stock market. And with that in mind, I think now could be the time to buy its shares.
Time to buy?
Even though shares in the real estate investment trust have rallied by more than 20% since their 2019 low, the stock is still trading at a price to book value of just 0.7.
This valuation suggests if a buyer wanted to acquire Landsec’s entire property portfolio today, they would have to offer a 40% premium over the current share price. Considering the company’s well-diversified property portfolio and development pipeline, this valuation seems too good to pass up.
On top of the above, the stock also offers a dividend yield of 5.5%, and this could increase drastically in the years ahead as Landsec’s development pipeline moves forward. In other words, if you are looking for a deeply undervalued property stock that offers a market-beating dividend yield of 5.5%, Landsec seems to tick all the right boxes.
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Rupert Hargreaves owns shares in Landsec. The Motley Fool UK has recommended Landsec. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.