Add British Land to your Christmas shopping list

This is one reason for buying stock in British Land (BLND), the company that owns these two shopping centres as well as a host of retail parks and supermarkets. As society has become cash-richer but time-poorer, such one-stop shops have superseded the high streets that once catered to leisured housewives. E-commerce is, if anything, accelerating the structural shift. Retailers are developing multi-channel strategies that involve web or app-based sales alongside big stores in key shopping hubs - like Meadowhall.

For landlords like British Land, this long-term growth story has for the past few years been overwhelmed by a protracted period of falling real incomes. Yet the cycle now seems to be turning, and shop valuations with them. Having fallen over the previous 18 months, British Land’s retail portfolio was marked up 1.5 per cent over the half year to 30 Sep. Since retail accounts for about 60 per cent of the total portfolio, this turnaround had a transformative impact on the company’s book value, which jumped 4.5 per cent to 623p after a protracted period of stasis.

It will be some years before retailers start competing for space again, pushing up rents as they did in the 2000s. Yet as long as rents in British Land’s standing portfolio are no longer falling, investors should benefit from the growth potential of its office development pipeline. This is substantial. With very little debt available for building but ferocious demand for prime property assets, the current environment is proving extremely lucrative for those (typically listed) companies with the balance sheets to invest, particularly in London. The two offices British Land finished this summer, 10-30 Brock Street at Regent’s Place and 10 Portman Square, are worth 50 per cent more than they cost to build.

Development gains should continue to boost British Land’s book value. The company launched a wave of London office projects in 2010. Some of these have already finished; others in the City are due to complete next year (the Leadenhall Building or ‘Cheesegrater’) or in early 2015 (the new UBS office at 5 Broadgate).

And the company has replenished its pipeline over the past 18 months by buying new projects, still mainly in London. The Clarges Estate on Piccadilly, Mayfair - an opportunistic purchase in July 2012 after a previous buyer pulled out - will be rebuilt with offices on the lower levels and very high-end flats above. A more typical British Land deal was the acquisition this summer of Paddington Central, the office estate behind the London station. Costing £470m - more than the landlord had spent in a single deal since 2005 - the complex consists both of tenanted buildings and development sites.

With growth re-emerging in the retail portfolio and no sign that London development is losing its momentum, you might expect British Land’s shares to factor in future growth by trading at a premium to book value. On the contrary, their stock market rating has slipped this year, so that they now trade 5 per cent below even the historic NAV figure announced for Sep 30. By comparison, the shares of Land Securities, its closest peer, trade at parity. Perhaps more importantly, British Land’s shares should yield 4.5 per cent in dividends this year (Land Securities: 3.3 per cent).

This weakness may reflect investors’ expectations of rising interest rates and debt costs. This is certainly a long-term worry for property companies. British Land’s average interest rate fell to 4.2 per cent in the half year to 30 Sep, as it benefited from drawing down cheap pre-crisis facilities. These will expire over the next two years, probably causing debt costs to rise again. Yet there is little to worry about over a three-year investment horizon. The average maturity of British Land’s debt is nearly 9 years, and three quarters of it is fixed. Besides, central banks remain very dovish and are unlikely to let economies' funding costs rise suddenly.