British Land has received 82% of FY2021 rent so far this year, representing 99% of Office rents and 70% of Retail. 76% of March 2021 rent has been collected (Offices 96%, Retail 54%) and management expects this to improve over the coming weeks in line with previous quarters.
As of 12 April, following the relaxing of government guidelines, 79% of stores are open.
Retail lettings and renewals covered 1.4m sq ft in the 11 months to 28 February 2021, the same as the whole of FY20. However, deals were on average 20% below previous passing rent.
The group has pre-let 30% of the space at 1 Broadgate and demolition at the development site will begin in May. Planning has been secured at Canada Water, the headlease has been drawn down and enabling work on the first three buildings has begun.
British Land has £1.8bn in cash and undrawn borrowing facilities, and no re-financing requirements until 2025. The group has completed £1.2bn in sales since 1 April 2020 including £640m of mature office assets and £560m of retail assets.
The shares rose were broadly unmoved in early trading.
Commercial real estate in general, and British Land in particular, is struggling against two major economic trends.
The first is the rapid rise of e-commerce. It's a long running trend, but coronavirus has seen it accelerate. That's bad news for traditional retailers, and worse for the landlords like British Land that own physical stores.
To be fair, the group has been looking to adapt to that trend for some time. The group's consolidating the retail portfolio through property sales, and is focussing on larger, higher quality sites with the potential for mixed use.
The combination of sales and falling property values mean retail now accounts for only a touch over 30% of the portfolio and it should steadily decline as times goes on. Occupancy remains high, but many tenants are now on very short-term agreements, and recent renegotiations have not tended to go in British Land's favour.
The second macro-trend British Land is fighting against is the sudden increase in remote working, and we actually think that's perhaps more concerning.
The group has been recycling the proceeds of its retail sales into mixed use London 'campus' portfolios. These combine topflight office facilities, with retail, leisure and hospitality facilities as well as carefully designed public spaces. Property value and rents have been growing steadily and new developments have been expected to contribute to growth over time. The 53-acre Canada Water development in particular is expected to play an important part in the transition away from retail, and requires significant investment.
However, the coronavirus pandemic has upset plans. While 95% of the office portfolio was technically occupied at the half year, just 18% of normally occupied desks actually had people sitting at them in mid-September. If that trend continues after the pandemic subsides that would affect long term demand for office space. While British Land's flagship assets should be some of the most resilient office assets out there, lower demand is still likely to hit rental rates and property values across the spectrum.
The good news is that British Land's balance sheet was in relatively good shape going into the current crisis. Access to significant cash financing from banks should allow it to weather the immediate storm. As a result, the group has resumed dividend payments. But with the new policy set at 80% of profits (rather than an absolute amount), the board is building in room for extra flexibility if conditions deteriorate.
Given the uncertainty the current discount to book value seems reasonable by historic standards, especially as property values have been written down as rent reviews drive lower rental value. While we think the quality of British Land assets probably mean it's one of the better placed property companies in the UK, the disruption striking the industry will not leave it unscathed.
British Land key facts
- Price/Book ratio: 0.68
- 10 year average Price/Book ratio: 0.79
- Prospective dividend yield (next 12 months): 4.1%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Operational Update (11/01/21)
Footfall across British Land's retail assets between 30 November and 26 December was 76% of last year's level (21 percentage points ahead of the UK average). Like-for-like sales at those stores that were open were 81% of the same period last year. Open air retail parks have remained the strongest performers - with 87% of last year's footfall and 85% of last year's sales.
As of 7 January, following the new national lockdown, 620 stores are able to trade in some way - around 32% of the total.
British Land has collected 71% of the £86m of rent due in December. Collection rates remain high in office, reaching 95% in December, and that's expected to improve over time. However, retail collection for December came in at just 46%, a and although it is expected to improve September retail rent collection is still at just 72%.
Disposals of several West End office buildings and smaller retail assets bring total disposals for the year to £1.1bn (of which £660m was in the second half). This is being reinvested in new developments including Canada Water.
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