British Land Co plc (BLND) Ordinary 25p

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British Land’s estimated rental value rose 2.4% in the first half, towards the top end of its 3-5% growth guidance on an annual basis. Portfolio values rose 1.2% in the period and occupancy rates have been improving.

Underlying profit is expected to rise by around 8% to £155mn when half-year results are announced in November. This translates to underlying earnings per share (EPS) of 15.4p, 4% ahead of market forecasts.

As a result, full-year underlying EPS guidance has been upgraded to “at least” 28.5p (previously: 28.5p).

The shares rose 3.6% in early trading.

Our view

British Land had a strong start to its financial year, with a few one-off items helping underlying profits land ahead of market expectations. And with a favourable demand outlook, management felt comfortable enough to nudge full-year profit guidance higher.

London campuses remain a priority, with demand for high-quality, well-connected office spaces driving 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 Mandela Way- multi-storey warehouse set to open this year - show British Land is adapting to trends like e-commerce and same-day delivery.

But its retail parks that have been a standout performer, in terms of both rental growth and capital appreciation. Over £700m was spent acquiring retail parks last year, including a major £441mn deal for seven new sites. These parks are popular with retailers because they are affordable, easy to access, and adaptable. 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 dividends. But with development back in focus, dividend growth is taking a back seat and no returns are guaranteed. If the new sites don’t perform as expected, the scope for further growth in shareholder payouts could be impacted.

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 it certainly adds risks. If economic conditions deteriorate, sentiment and demand for commercial property could be impacted.

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.

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.

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