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British Land values rise

The landlord’s portfolio continues to straddle smart developments and wobbly legacy assets
British Land values rise
  • Asset values up 5 per cent on a per-share basis since March
  • Recent acquisitions highlight group’s planning edge

Is the market playing catch up with prospects for British Land (BLND)? That’s one possible conclusion from the real estate giant’s half-year results, which included confident noises on the group’s unique campus strategy, legacy retail parks and urban logistics development.

Over the next 12 months, the group expects rents on its campus sites to grow by up to 3 per cent, and for values to rise. A flight to quality is helping to underpin demand for office space, rents are either stabilising or rising slightly in retail parks, and the decline in shopping centres valuations are forecast to slow.

In the round, this suggests the 5 per cent rise in net asset value in the six months to September should continue into second half of the year. On average, analysts have pencilled in a tangible book value of 685p per share for March 2023, just 0.6 per cent above the latest reported figure. Like Land Securities (LAND), the landlord and its investors may feel the pessimism is overwrought.

As ever, a key attraction of British Land’s investment case is its ability and willingness to take on complex developments. Take its push into urban logistics and last mile delivery within the M25: although suitable space is both constrained and highly sought after by tenants and investors, few players possess the group’s track record of planning and delivery in central London.

Two acquisitions in the period – the £82m purchase of Thurrock Shopping Park and a £20m deal for a car park in Finsbury Square – underline this. To the former, British Land plans to add a double-height warehouse and develop an urban logistics hub on the latter. Few Reits would take on these kinds of jobs, meaning it is not an exaggeration to say the group’s skill set gives it a market edge.

But as we have previously argued, the greater challenge facing British Land is what to do with those retail parks and shopping centres in its portfolio where development opportunities are less tangible.

Analysts at RBC see this is a doubly risky, given the challenges of exiting unwanted retail properties on attractive terms and the downward pressure retail assets will continue to have on group-wide rents. The brokerage pegs the latter at around 57 per cent of annual rent collection.

In time, Thurrock-style retrofits could help address the dilemma e-commerce poses to its legacy portfolio. Whether this can inspire sustainable growth in property valuations is a harder call, meaning shareholders need to keep their hopes in check. Hold.

Last IC View: Hold, 511p, 30 Sep 2021

BRITISH LAND (BLND)   
ORD PRICE:533pMARKET VALUE:£4.9bn
TOUCH:532-533p12-MONTH HIGH:551pLOW: 424p
DIVIDEND YIELD:3.4%TRADING PROP:nil
DISCOUNT TO NAV:21.7%NET DEBT:38%
INVESTMENT PROP:£8.9bn*   
Half-year to 30 SepNet asset value (p)**Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2020687-757-78.78.40
202168137339.910.32
% change-1--+23
Ex-div: 25 Nov   
Payment: 7 Jan   
*Includes investments in joint ventures **EPRA NTA