A British Land divided... office wins, retail loses
BRITISH Land tells a tale of two property markets. On the one hand, the group’s super premium London office portfolio has performed remarkably well through the pandemic.
Despite the shift to remote working, the group collected 95 per cent of the rent it was due in December.
However, the story in its retail estate is far less positive.
As lockdowns bite, shops are increasingly struggling to pay rent and British Land collected just 46 per cent of its December retail rent roll.
To be fair, the company has been looking to adapt to that trend for some time. It’s been selling off more marginal retail sites and focusing on larger, higher-quality sites with the potential for mixed use.
The combination of sales and falling property values mean retail now accounts for just a touch over 30 per cent of the portfolio. Occupancy remains high, but many tenants are now on very short lease agreements.
Proceeds from retail sales have been recycled into mixed use London “campus” portfolios – combining top-flight office facilities with retail, hospitality and public spaces.
Property values and rents in these new developments have been growing steadily and are expected to drive future growth. The 53-acre Canada Water development, in particular, is crucial to the transition away from retail.
The good news is that British Land’s balance sheet was in relatively good shape going into the current crisis.
Dividend payments have resumed, with a current yield of 4.4 per cent (although the new policy of paying out 80 per cent of profits could mean it rises and falls in the future).
All the uncertainty around retail means the shares trade on a price-tobook ratio of 0.6 (compared to a 10-year average of 0.8). That seems reasonable to us, since property values could well be written down if rents fall on review.
While we think British Land’s one of the better placed property companies in the UK, the current disruption will not leave it unscathed.