Foundations are still strong at British Land

WITH a £9.5billion property portfolio that ranges from the City of London to the Glasgow Fort shopping centre, British Land has a stake in pretty much every square on the monopoly board.

As a result, it’s closely tied to the fortunes of the British economy, not least London. That exposure led the shares to fall almost 30 per cent in the immediate aftermath of the EU referendum, amid investors’ fears that Brexit would damage the British economy.

Despite rental yield on its properties continuing to improve in the immediate aftermath of the vote, November’s half-year results showed a 3 per cent fall in the net asset value of the portfolio, suggesting those fears might be realised. Last week’s full-year results should help to calm those worries. While property valuation still slipped compared with a year ago, it was down just 0.4 per cent.

Occupancy remains high, at 98 per cent, with 1.7m sq ft of letting and renewals agreed across the portfolio. That came at an average 8 per cent ahead of the previously estimated rental value.

Full-year underlying profits, essentially rental income minus expenses, rose 7 per cent in 2016/17 to £390million.

This strong rental performance allowed the group to increase the dividend by 3 per cent in the year to 30.08p, and management expect it to rise by a further 3 per cent next year.

It’s this ability to pay a substantial and steadily growing divided that makes British Land an attractive investment to many of its shareholders. The shares currently offer a yield of 4.8 per cent.

For all the good news, British Land is clearly uncomfortable with the outlook for the future. Speculative developments have been reined right back and leverage is falling as the group sells some high-profile assets, including a 50 per cent stake in London’s Leadenhall Building, aka the Cheesegrater.

Shares are trading at less than 70 per cent the value of the underlying property and well below the historical price/book ratio. For investors with a long-term investment horizon, this could prove a fantastic opportunity to pick up some Mayfair assets for Old Kent Road prices.

“This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”