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British Land - Profits improve

Sophie Lund-Yates, Equity Analyst | 17 November 2021 | A A A
British Land - Profits improve

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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: 493.40 | Buy: 493.80 | Change 16.50 (3.46%)
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Half year underlying profit rose 12.1% to £120m, reflecting a 10% increase in net rental income, to £210m, driven by a reduction in money set aside for debtors and tenant incentives, as covid-related uncertainty eased. 96% of first half rent was collected.

Including the upwards revision of the value of its property portfolio, the group reported a £370m profit after tax, compared to a £730m loss last year.

So far this year, the group's made £501m worth of acquisitions. Several logistics purchases mean Urban Logistics now accounts for 4% of the Retail & Fulfilment portfolio.

The Board proposed a 10.32p per share interim dividend.

The shares were unmoved following the announcement.

View the latest British Land share price and how to deal

Our view

British Land's enjoying the ride into post-pandemic normalcy as businesses reopen and rent collection improves.

Footfall and sales are approaching pre-pandemic levels across the retail portfolio, and the picture's especially bright in retail parks. Interest in new office space has also picked up and less uncertainty meant the group was able to release some of the money it set aside in case its tenants defaulted, which provided a welcome boost to profits. But improved circumstances doesn't mean all challenges have disappeared.

The rapid rise of e-commerce accelerated by the pandemic is bad news for traditional retailers, and worse for the landlords like British Land that own physical stores. Retail made up about 30% of the portfolio at the last count, but rather than exit completely the group's looking for ways to shift exposure. Management's snapping up out-of-town retail park real estate and increasing exposure to logistics--think warehouses and distribution centres. This is an admirable strategy, but there are no guarantees and execution risk hangs heavy.

On the bright side, the reopening of offices has alleviated some of our concerns about the impact of an uptick in remote working. Occupancy's risen considerably from last year and businesses are signing longer leases, suggesting most employers see employees returning for the most part.

The group's 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 are back on track, growing steadily and new developments are 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 traditional retail, and requires significant investment.

British Land's balance sheet is in reasonable condition too. That should give the group the cash it needs to invest in its pipeline of new developments, and has allowed the dividend to return. But with the new policy set at 80% of profits (rather than an absolute amount), the board's built in room for flexibility if conditions deteriorate.

The improving conditions mean shares are trading at a slight premium to the long-term average. This reflects the market's approval of BLND's pivot, and the quality of British Land assets means it's one of the better placed property companies in the UK. However, the group's exposure to uncertainty in retail and the potential of further covid disruption means investors should proceed with caution.

British Land key facts

  • Price/book ratio: 0.83
  • Ten year average Price/book ratio: 0.79
  • Prospective dividend yield (next 12 months): 3.6%

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.

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Half Year Results

Net rental income for Retail & Fulfilment rose from £82m to £113m, with occupancy levels at 95.9%. Footfall in the retail estate was 89% of pre-pandemic levels, led by traffic at retail parks. A 7.1% increase in the value of the group's Retail parks portfolio helped the overall value of Retail & Fulfilment rise 2.7% to £2.9bn.

The group's average lease length increased to 6 years from 5.3 years, reflecting a significant jump in the duration of Campuses leases and a slight decline in Retail and fulfilment lease lengths.

British Land's loan-to-value ratio, which measures the group's debt against the value of its assets, rose to 33.4% from 32%.

Underlying net debt as at 30 September increased to £3.3bn, from £2.9bn at the end of March. Operating cash flow rose from £62m to £107m, reflecting improved profits.

Find out more about British Land shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.