I think this raises a number of interesting possibilities for investors. And at a 43% discount to where it was five years ago, it could well be worth closer attention.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

London real estate

Like all REITs, Great Portland Estates leases properties and returns the cash to shareholders as dividends. Its portfolio consists of around 40 office-type buildings located in Central London. 

It’s no secret that demand for office space has been weak since the Covid-19 pandemic. And this has been reflected in both the firm’s operational performance and its financial returns.

Vacancy rates have increased from below 2% to around 9% over the last five years. As a result, the company hasn’t increased its dividend since 2020. 

Neither of these is a positive sign, but there are reasons for optimism. One is the fact the imbalance between supply and demand seems to be improving, from the firm’s perspective.

Source: Company presentation

That’s partly a feature of the company’s focus on properties in desirable Central London locations. But there’s another reason the stock has been catching my eye lately.

I don’t normally view a stock trading at a big discount to the net value of its assets as particularly significant. But in this case, things are a bit different. 

Selling opportunities

The reason I don’t usually pay attention to book value is that it’s unlikely to be realised. Unless a company starts selling its assets, their market value doesn’t really matter.

With Great Portland Estates, however, selling assets is a key part of the business. The firm’s strategy involves acquiring, developing, leasing, and ultimately disposing of properties.

Source: Company presentation

In fact, the company currently has plans to dispose of around £565m worth of properties. That’s the equivalent of almost 45% of its market value. 

This means shareholders could well benefit from the FTSE 250 firm selling some of its assets. And there’s one last thing to note as well. 

UK REITs have been attracting a lot of attention recently from institutional investors. A number of real estate stocks trading at discounts to book value have been takeover targets.

The possibility of being bought out at a premium to the current share price isn’t the primary reason to consider buying the stock. But I do think it’s something investors shouldn’t ignore.

A stock to consider

I think investors have a number of ways to get a good result from shares in Great Portland Estates. One is from the company’s operations and the other is from selling its assets.

An improving balance between supply and demand (albeit from a low base) could boost occupancy rates and rental income. And this could result in a return to dividend growth.

Equally, the firm’s scope for selling assets – either as part of its strategy or in an acquisition is another possibility. And this is especially plausible with the stock trading below book value.

Having multiple routes to a good return is something that makes the stock attractive. And I think it’s worth considering at today’s prices.

The post 1 FTSE 250 stock trading well below book value appeared first on The Motley Fool UK.

Soaring inflation and high interest rates have hurt the sector over the past few years, with stock prices falling across the board. But now with things looking up, there could be great opportunities here.

Two stocks I’m enthusiastic about are Tritax Big Box Reit (LSE: BBOX) and Great Portland Estates (LSE: GPE). And I’m not alone — both were recently tipped as a Buy from major broker Goldman Sachs.

As real estate investment trusts (REITs), 90% of their profits must be returned to shareholders under UK law. This makes them great options for dividend investors looking for a steady income stream.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Here’s why I think these two shares are worth considering.

Tritax

Tritax Big Box is a REIT that specialises in very large logistics facilities, known as big boxes. It focuses on providing sustainable income through investing in high-quality assets with good growth potential.

With a £4bn market-cap, it’s one of the largest stocks on the FTSE 250. This year it returned to profitability, with earnings forecast to grow 28% a year going forward.

If the growth materialises, it may even join the FTSE 100 in the next listing reshuffle. That would likely result in a big boost for the share price.

It’s been paying and increasing dividends consistently for 10 years, with only a small reduction in 2020 during the pandemic. Naturally, a similar economic crisis could lead to further reductions which is a risk to consider. Moreover, its dividend per share is larger than its earnings per share (EPS), so it has a rather high 83% payout ratio. If that gets closer to 100% it could prompt a dividend cut.

For now, its 4.6% yield’s attractive so I think it would make a great addition to my dividend portfolio. I plan to buy the shares later this month.

Great Portland

Great Portland Estates is another REIT that develops central London properties, including ready-to-fit and fully managed spaces.

The past few years have seen reduced demand for London for office space. As such, GPE has struggled to fill some of its properties. The company reported a £307.8m earnings loss earlier this year but is forecast to return to profitability next year.

In May this year, it announced plans to raise £350m for new acquisitions through a rights issue. It believes the market slump has bottomed out and expects that demand for London office space will increase.

The share price is up 10% in the past six months. However, global markets remain sensitive, particularly in the US where uncertainty about rate cuts has led to slower growth. Should another 2008-style scenario unfold, the property market could take a big hit.

This leaves me concerned about putting too much capital into the sector. While I think GPE exhibits decent growth potential, I will hold off on buying the stock right now. Should I see further signs of demand for Central London office space, I’ll give it another look.

The post 2 FTSE shares that could benefit from falling interest rates appeared first on The Motley Fool UK.