British Land warns of further decline in rents

British Land (BLND) shareholders are going to need much patience. The commercial landlord is hurrying to dispose of non-core assets and reinvest the proceeds under two broad themes that it hopes will drive rental growth: office-led mixed use campuses and retail parks and logistics. 

It sold £1.2bn in assets at an average 6.2 per cent ahead of book value during the 12 months to March. Yet it retains noteworthy ownership of struggling shopping centres, which suffered the heaviest decline in estimated rental values at 20 per cent. 

There is also the question of how wise the decision to position retail parks as a core part of the portfolio will turn out to be. These assets may have fared better than shopping centres and high street stores during the pandemic, but still carry exposure to tenants with highly strained cash flows. The rental value of its retail parks declined by just over 15 per cent during the period. 

Management has guided to a further decline of up to 5 per cent in rents for offices and retail parks and said shopping centres would likely take longer to stabilise. Unsurprisingly, Panmure Gordon forecasts a further decline in group net asset value to 624p a share at March 2022. The discount embedded in the shares is warranted. Hold. 

Last IC View: Hold, 481p, 3 Dec 2020