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What’s the outlook for Lend Lease and BWP Trust?

These two real estate related companies have great opportunities to grow as both the domestic economy and major international markets of the US, UK and Asia are all beginning to move forward. Given their potential earnings, they are showing good value at this time.

BWP Trust (ASX: BWP) invests in commercial real estate nationwide and the majority of its tenants are Bunnings Warehouse stores, which are owned by Wesfarmers (ASX: WES). In 2013, it continued its uninterrupted growth in NPAT before abnormals since 2003. It delivered $110.5 million in NPAT, from $69.9 million the previous year.

It has a price-to-earnings ratio of 10, the dividend yield is 6.39%, and price-to-book value is 1.33. This is in line with other real estate investment trusts (REITs). Its 10-year total shareholder return was 11.5%, so investor earnings have been steadily growing. To fully understand BWP Trust’s growth potential an investor would want to see the expansion potential of Bunnings Warehouse itself.

It has competition from the Masters chain, owned by Woolworths (ASX: WOW), although it is relatively new in the market and will have growing pains until it gets its business model at optimum levels. Both companies will be vying for prime real estate in growing or new communities, so that will be the first front of the rivalry.

Lend Lease Group (ASX: LLC) is an international infrastructure and property group which will be involved in the Barangaroo development at Darling Harbour. It has been building up its earnings since the GFC, when it experienced heavy writedowns.

NPAT after abnormals was up 9.8% in 2013 to $552.5 million. Although net gearing is at 77.3%, looking at $552 million NPAT versus $2.06 billion in long-term debt, the debt / NPAT ratio is about 3.7 and therefore not too bad in comparison.

The US and UK housing markets are recovering and key markets in Asia are providing a solid base for continued growth. According to the November AGM presentation, the US and Europe make up 22.1% and 9.4% of total revenue respectively.

In Australia, property development companies like Mirvac Group (ASX: MGR), Stockland (ASX: SGP) and Australand Property Group (ASX: ALZ) will also benefit from the growing housing market.

Foolish takeaway

Just as the residential and commercial property markets floundered for a number of years, when an economy starts expanding, the basic needs of homes and business space combine with the pent-up demand for property. This can drive a property market for a good number of years. Market leaders like Lend Lease will have the capacity to take advantage of the growth and take on large-scale developments. BWP Trust has the plus that it is directly connected to an expanding, highly-successful chain store like Bunnings Warehouse. This should support the steady earnings growth that investors need for the long term.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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