British Land’s half-year net rental income rose by 9.2% to £238mn, driven by like-for-like net rental growth of 4% and acquisitions.
Underlying profits rose by 8.4% to £155mn helped by revenue growth and lower admin costs, partly offset by higher finance costs due to higher development investment.
Estimated Rental Value (ERV - property income under ideal conditions) rose by 2.4%. Total occupancy across the portfolio was 95%.
The portfolio value grew by 1.2% to £9.8bn over the half. The portfolio’s loan-to-value ratio rose from 38.1% to 39.1%, reflecting higher development investment.
For the full year, like-for-like net rental growth is expected to be around 5%, with underlying earnings per share of at least 28.5p (consensus: 28.7p).
An interim dividend of 12.32p per share was announced, up 1%.
The shares fell 1.2% in early trading.
Our view
British Land had a good first half, with constructive lettings progress and a strong outlook for next year. The direction of travel is positive, giving management the confidence to reiterate profit guidance for this year and next.
London campuses remain a priority, with demand for high-quality, well-connected office spaces driving strong leasing activity. British Land already operates some prime real estate in the City, and here demand for new space is improving with office usage back to pre-covid levels.
The science & technology sector is a key part of this strategy. It accounts for about 20% of British Land’s campuses, but that could rise to 50% by the end of the decade. Recent progress at key sites like 1 Triton Square and The Optic in Cambridge shows the company is successfully attracting tenants in this fast-growing field, especially as AI fuels the sector’s momentum.
Urban logistics is another exciting growth area. The company is focusing on central London, where demand for warehouse space is high and supply is tight. Projects like the recently completed Mandela Way multi-storey warehouse show British Land is adapting to trends like e-commerce and same-day delivery.
Its retail parks have also been a strong asset of late, in terms of both rental growth and capital appreciation. These parks are popular with retailers because they are affordable, easily accessible, and adaptable, which has led to occupancy rates rising to 99%. The group’s growing portfolio in this area is well-positioned to benefit from continued demand for out-of-town shopping locations.
Development is making a comeback, with a focus on urban logistics and campuses. Work is progressing on key sites like 2 Finsbury Avenue and Regent’s Place. With rents rising, the outlook for new developments is improving after a tough period, although signs of build cost inflation returning should be watched carefully.
The company’s finances remain strong, with enough funding available to help support future growth and a respectable 6.3% forward dividend yield on offer. However, the new development focus and the risk that new sites don’t perform as planned could limit the pace of dividend growth moving forward. As ever, no returns are guaranteed.
British Land is well-positioned for the future. Its focus on retail parks, urban logistics, and campuses reflects a shift to areas with the strongest potential for growth. As market conditions improve, the bold investment strategy should yield results. But the uptick in developments adds operational risks. And if economic conditions deteriorate in the meantime, British Land could be stuck developing properties with a lack of tenants lined up to move in.
Environmental, social and governance (ESG) risk
Broadly, real estate is relatively low risk in terms of ESG. One of the principal drivers of this risk is the capacity to integrate material ESG considerations into decision-making, risk management and public reporting; the most material ESG considerations are environmental, like carbon emissions reduction, energy efficiency and physical climate risk. The rise of hybrid working has also reduced demand for commercial property, making product governance and customer satisfaction a top priority. Other risks to monitor include labour relations, business ethics, and emissions & waste.
According to Sustainalytics, British Land’s overall management of material ESG issues is strong.
British Land Co. Plc has a robust environmental policy, with a portion of executive remuneration explicitly tied to sustainability performance targets. The company also has an effective whistleblower program. Additionally, board-level oversight is in place for ESG matters. However, its ESG reporting does not yet fully align with leading industry standards.
British Land key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. 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 LSEG. 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.