British Land Co plc (BLND) Ordinary 25p
HL comment (13 July 2021)
Since 17 May, British Land's footfall and sales have been running at 86% and 94% of pre-pandemic levels across its Retail portfolio.
85% of total rents have been collected for June, and rent's being collected at a faster rate than the previous two quarters.
The shares rose 1.1% following the announcement.
Conditions are improving at British Land.
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. 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. The combination of sales and falling property values mean retail made up just a touch over 28% of the portfolio at the last count, and it should steadily decline as times goes on. Many tenants are now on very short-term agreements, and recent renegotiations have not tended to go in British Land's favour. Things could get worse before they get better - the group still has a chunk of rents it never expects to recoup from struggling tenants.
The second macro-trend British Land is fighting against is the sudden increase in remote working, and that's perhaps more concerning.
The group had 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 have been 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 retail, and requires significant investment.
However, the pandemic has upset plans. While we can expect a level of normality to return as restrictions lift, long term demand for office space will still be dented if we see a permanent shift to working from home. While British Land's flagship assets should be some of the most resilient office assets out there, lower demand is still likely to hit rental rates and property values across the spectrum.
The group's doing what it can to future proof itself though. The retail portfolio's been shrunk through property sales, with a focus on larger, higher quality out of town sites that have performed better in terms of footfall. It's also upping exposure to logistics and fulfilment assets - think warehouses servicing digital demand.
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 is building in room for flexibility if conditions deteriorate.
Given the uncertainty, the current discount to book value seems reasonable, especially as property values have been written down as rent reviews drive lower rental value. We think the quality of British Land assets probably means it's one of the better placed property companies in the UK, but the disruption won't leave it unscathed.
British Land key facts
- Price/book ratio: 0.85
- Ten year average Price/book ratio: 0.80
- Prospective dividend yield (next 12 months): 3.7%
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.
99% of Offices have made rent payments for June, and for Retail this stands at 71%.
Retail parks are reporting footfall at 96% of pre-pandemic levels, and sales have almost fully recovered. The group said retail park values are rising, with the value of these assets up 0.7% in the quarter to June. The group's let 38,000 sq ft of retail space since 1 April, with rents in line with March levels overall.
British Land bought Thurrock Shopping Centre for £82m, which it hopes will be an ''urban logistics development opportunity'', thanks to its proximity to the M25. Current tenants include Pets at Home and TK Maxx.
There has been increased demand for existing and refurbished office space, with enquiries for its flexible working space, Storey, above pre-pandemic levels. Restaurant sales within the portfolio are up 6% on 2019.
British Land has also committed to building its first residential property in Aldgate. It will comprise of rental flats, office space and retail and leisure space.
The group also refinanced its site at 100 Liverpool Street, and raised a £420m ''Green Loan''.
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.
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