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British Land held back by retail portfolio

The commercial landlord was forced to write-off £44m in unpaid rent, largely from retail tenants
November 18, 2020
  • The declining value of retail assets and provisions for unpaid rent have pushed the group further into a loss.
  • The interim dividend has been reinstated at 8.4p a share.
IC TIP: Hold at 491p

British Land (BLND) is shedding retail assets, but exposure to the troubled sector looks set to wreak havoc on the commercial landlord’s bottom line for a while longer. The value of the retail portfolio declined 15 per cent during the first half, partly reflecting a rise in company voluntary arrangements and tenants entering administration, and was the main culprit of £44m in provisions for unpaid rent. 

It has sold £456m in retail assets since April at an average 6.7 per cent ahead of book value. That is an impressive feat given leases of greater than one year signed during the period were at an average 11 per cent below previous passing rent and 8 per cent below estimated rental values. Newly-installed chief executive Simon Carter is looking to the mixed-use developments, including a 53-acre project in Canada Water, and the existing London office portfolio to drive rental growth. 

That is understandable. Although office lettings and renewals were subdued, they were completed at an average 9.4 per cent ahead of estimated rental values and rent collection rates remained high at 97 per cent for the final quarter. 

Asset disposals meant the loan-to-value ratio rose to only 35.7 per cent, from 34 per cent at the end of March. Numis is forecasting this year as the trough for the group’s NAV, anticipating an adjusted NAV of 655p at the end of March, rising to 678p the same time in 2022. However, that will depend on the group maintaining the pace in selling down its retail portfolio and leasing activity for London offices improving. There is a high level of uncertainty in both, which is reflected in the 25 per cent discount attached to the shares, versus forecast NAV. Hold.

Last IC view: Hold, 484p, 9 Oct 2020

BRITISH LAND (BLND)    
ORD PRICE:491pMARKET VALUE:£ 4.55bn
TOUCH:490.8-491.4p12-MONTH HIGH:648pLOW: 309p
DIVIDEND YIELD:1.7%TRADING PROP:£20m
DISCOUNT TO NAV:29%  
INVESTMENT PROP:£7.5bnNET DEBT:52%
Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2019860-440-42.915.97
2020687-757-78.78.4
% change-20---47
Ex-div: 07 Jan   
Payment: 19 Feb