British Land Co plc (BLND) Ordinary 25p
HL comment (18 May 2022)
Full year underlying profit rose 24.9% to £251m, reflecting a significant reduction in provisions set aside in the event rents couldn't be collected. This year the group collected 97% of its rent, which is near pre-pandemic levels.
British Land's overall portfolio value rose 6.8% to £10.5bn, driven by a 20.7% increase in Retail Parks which offset a 6.1% decline in Shopping Centres. The value of Campuses and Retail & Fulfilment also rose.
The group announced a 11.6p final dividend, bringing the total for the year to 21.9p.
Shares were broadly flat following the announcement.
British Land is a corporate landlord - focussed on the retail sector. Its's strategy to focus on the pockets of retail that are thriving appear to be paying off. The group's been tempering its exposure in London, snapping up out-of-town retail park real estates and increasing exposure to logistics. Retail Parks were a bright light in the full year results, suggesting these out-of-town shopping havens have escaped the retail apocalypse for now.
The reopening of offices has also alleviated some of our concerns about the impact of an uptick in remote working. Footfall and sales are approaching pre-pandemic levels across the retail portfolio. 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. Occupancy's on the rise and businesses are signing longer leases, suggesting most employers see employees returning for the most part.
London "campus" portfolios have been an area of focus recently. 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. The group's decision to sell 50% of its stake in the project means it can offload some of the investment obligations while still keeping a finger in the pot. Similarly, the group's getting rid of the majority of its Paddington Central obligations. 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.
There is something to consider when it comes to inflation. We're mindful of the impact of squeezed household incomes could have on the sector. So while we can't deny British Land has done very well so far, we can't rule out some further challenges in the medium term.
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.
A recovery among tenants means British Land's now trading in line with the long-term average. But there are still some potential risks ahead with inflation on the cards. The group's pivot should continue to bear fruit, but it won't be immune if rising costs hit the retail sector.
British Land key facts
- Price/Book ratio: 0.79
- 10-year Average Price/Book: 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.
Full Year Results
The estimated value of the Campuses portfolio was up 5.4% to £7.0bn, driven by leasing and development activities. Occupancy rose from 94.1% to 96.7% and the weighted average unexpired lease term (WAULT) is now 7 years, up from 5.6. The group collected all of this year's rents, and 555,000 sq ft in rent reviews added £1.6m to rents with average prices up 6.7% from previous passing rents.
The Retail & Fulfilment portfolio is now worth £3.5bn, up from £2.5bn last year. Retail Parks made was the major contributor, more than offsetting a £96m decline in Shopping Centres. Transactions were 21.2% below previous passing rents, as the group prioritised improving occupancy, which rose from 94.4% to 96.3%. Footfall and sales were at 91.9% and 98.4% of pre-pandemic levels, with Retail Parks sales fully recovered. The group collected 95% of rent for the year and the WAULT fell from 5.1 years to 4.6 years.
Within the Development portfolio, 1Triton Square, a 639,000 square ft zero carbon development that's now fully let to Meta was completed. 1.7m square feet have been committed at Canada Water, Phase 2 at Aldgate Place and the Priestley Centre. The near-term pipeline comprises of 1.9m square feet and the medium term pipeline of 7.8m square feet is mostly relating to further phases at Canada Water and urban logistics opportunities.
The group acquired more assets than were sold, which meant net debt increased from £2.9bn to £3.5bn.
The sale of British Land's majority stake in Paddington Central is expected to complete within two months for £694m, 1% below September 2021 book value.
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 disclosure for more information.
Previous British Land Co plc updates
The London Stock Exchange does not disclose whether a trade is a buy or a sell so this data is estimated based on the trade price received and the LSE-quoted mid-price at the point the trade is placed. It should only be considered an indication and not a recommendation.
Trades priced above the mid-price at the time the trade is placed are labelled as a buy; those priced below the mid-price are sells; and those priced close to the mid-price or declared late are labelled 'N/A'.