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British Land - Valuations rise, with dividend also growing

Nicholas Hyett | 17 May 2018 | A A A
British Land - Valuations rise, with dividend also growing

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

British Land Co plc Ordinary 25p

Sell: 521.20 | Buy: 521.60 | Change 3.40 (0.66%)
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Net asset value per share rose 5.7% to 967p, with rising property valuations and recent share buybacks both contributing. Underlying profits fell 2.6%, following the sale of £1.5bn in assets in the last two years.

The full year dividend rose 3% to 30.08p a share, and management expect it to increase a further 3% next year to 31p a share - a quarterly payment of 7.75p.

The shares rose 2% in early trading.

View the latest share price and how to deal

Our View

With Brexit threatening to force bankers from London, and retailers struggling in the face of ever rising costs and online competition, conditions are hardly rosy for British Land.

However, the group's strategy of targeting high quality destination shopping centres and mixed use London campuses have been insulating it from the worse effects. That its portfolio valuation has actually improved this year is testament to that.

But the reason for investing in British Land at the moment is really its dividend.

The group is a Real Estate Investment Trust, or REIT. This means it's legally required to return 90% of its rental profits to investors as dividends, making for a potentially attractive income.

A high quality list of blue chip tenants and relatively long leases means it has excellent visibility over future income and that's allowed it to steadily increase the dividend with confidence.

Despite property values proving resilient British Land's share prices have retreated leaving the shares trading on a forward price to book value of 0.76 times, an 8.5% discount to its longer-term average.

A depressed share price means the prospective yield is higher than it might otherwise be, currently at 4.6% compared to roughly 4.2% if it were trading in line with its longer-term valuation. The risk is a disorderly Brexit, which could mean capital values have further to fall.

Lower debt levels suggest management have half an eye on an uncertain outlook. But the recent purchase of a 4.9 acre slice of Woolwich for £103m suggests management believes the capital still holds long term attractions.

Those in search of an income, and prepared to weather Brexit-induced volatility, might find British Land an attractive option.

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Full Year Results

The value of British Land's property portfolio rose 2.2% and now stands at £13.7bn. Occupancy of 97.4% and an average lease length of 7.7years, both down slightly on the previous year.

The group completed 2.4m of letting renewals in the year, at an average of 8.2% above the estimated rental value.

British Land completed £1.8bn of sales or purchases in the year, including the sales of its stake in the Leadenhall Building and purchase of the Woolwich estate.

Netting investments against disposals the group made net disposals of £850m, funding £300m of share buybacks and reducing loan-to-value (LTV) by 1.5 percentage points to 28.4%.

Net rental income in the period fell 5.6% to £576m, following the sale of income producing assets.

The group's committed development pipeline has doubled to 1.6 million sq. ft. with 55% of these future developments pre-let. Speculative exposure remains low at 4.5% of the total portfolio value.

Find out more about British Land shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.