Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

British Land - property values fall as interest rates rise

Half year underlying profit rose 13.3% to £136n.

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.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Half year underlying profit rose 13.3% to £136m. That was driven by higher like-for-like net rent off the back of higher prices, and lower relative costs.

British Land's portfolio value fell 3.0% to £9.6bn, as higher interest rates impacted demand with a knock-on effect to valuations.

The groups weighted average lease length increased from 5.8 years to 5.9 years, whilst occupancy rose 0.2 percentage points to 96.7%.

Underlying net debt fell from £3.5bn to £3.0bn as the group sold more property than it acquired.

Yields are expected to continue rising across the business over the second half (higher yields mean lower portfolio values). That's expected to be somewhat offset by higher rental growth across key markets.

The board have proposed an interim dividend of 11.60p per share, up 12.4%.

The shares fell 1.7% following the announcement.

View the latest British Land share price and how to deal

Our view

Higher interest rates have impacted British Land in two ways. From a positive perspective, higher rates meant rents pushed higher and that's been a driving force behind the underlying profit growth over the half. On the other hand, higher rates pushed down demand for property and that had a negative effect on valuations.

British Land is a corporate landlord - focussed on the London area. Its strategy to focus on the pockets of retail that are thriving appear to be paying off.

London "campus" portfolios have been an area of focus recently and were the standout performer over the first half. These combine topflight office facilities, with retail, leisure and hospitality facilities as well as carefully designed public spaces. Occupancy for campuses has recovered well, back in the high 90% bracket and significant renewals from the likes of Meta show demand for high quality space remains.

The 53-acre Canada Water development is the latest venture for the campus portfolio. It's a significant undertaking, with a total cost estimated to be in the range of $4bn, and a step to further diversify away from retail. The group decided to sell 50% of its stake in the project, allowing it to offload half of the investment obligations, while keeping a finger in the pot.

Similarly, the group's disposed of most of its Paddington Central stake. Of course, future revenue from the projects will also be impacted, but British Land is hoping to reinvest cash from the sale into new developments.

Urban logistics sites are another source for future growth, the London market is heavily undersupplied, and the growth of e-commerce and same day delivery needs should be a longer-term tailwind to demand. It's retail parks and shopping centres we're most concerned on, which account for over half of total rents. Should economic conditions get materially worse these tenants, and their ability to meet rental payments, could come under pressure.

British Land's balance sheet is in reasonable condition. That should give the group the cash it needs to invest in its pipeline of new developments and helps support the 5.5% prospective dividend yield. 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 although of course there are no guarantees.

The weakening economic outlook and higher interest rate environment mean the valuations will likely come down this year. The group has a collection of strong assets and a pipeline that looks promising, in areas the group has expertise and pricing power. But it won't be immune if rising costs hit the retail sector.

British Land key facts

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 16th November 2022