British Land holds up as retail falls but London offices firm

By Oliver Haill

Date: Wednesday 14 Nov 2018

British Land holds up as retail falls but London offices firm

(Sharecast News) - A decline in retail property values hit British Land in the first half of the year, but the offices and shopping centre developer reported flat earnings as it grew rents and bought back shares.
The FTSE 100 group's net asset value per share fell 2.9% to 939p as of the end of 30 September as retail property values declined and further retail assets were sold.

High street landlords across the UK have been hit this year by retailers arranging CVAs to slash rents or collapsing into administration.

Over the past 12 months, British Land has sold or agreed to sell £634m of retail assets, with the past 18 months seeing sales of £1.2bn of income producing assets.

Since March, the portfolio value shrank 1.9% to £12.86bn, with retail valuations down 4.5% and offices up 0.7% with new developments up 7.2%. Occupancy improved to 97.8% from 97.4%.

Underlying earnings per share fell 10% to 17.2p, primarily due to one-offs in the prior period, but were flat otherwise as strong like-for-like rental growth in offices and the benefits of the share buyback offset the retail shake-up.

The interim dividend was lifted 3% to 15.5p.

Chief executive Chris Grigg said the financial performance was "robust despite ongoing uncertainties caused by Brexit and a particularly challenging retail environment", with the results reflecting net asset sales.

Reinvestment in the development programme will add approximately 4p annualised to future EPS once income-producing, he said.

In May, he outlined a strategic plan to deliver an increasingly mixed-use business, with three key elements: a campus-focused London office business; a smaller, more focused retail business; and residential, primarily build-to-rent.

He said "good progress" had been made against each of these in the half.

"Our London office developments are letting up ahead of schedule and on better terms than expected - a clear endorsement of our campus offering and the quality of space we are delivering. In a particularly challenging retail market, we remained focused on delivering operationally day-to-day while at the same time progressing our strategy and refining our portfolio. We remain thoughtful in our capital allocation, extending our share buyback after selling 5 Broadgate at book value."

Looking forward, he expected demand for the highest quality London office space would persist, "but we remain alert to potential uncertainties as the Brexit process unfolds", with retail expected to remain challenging in both the occupier and investment markets.

Shares in the company were up 1.1% to 626.8p mid morning on Wednesday.

Analyst Nicholas Hyett at Hargreaves Lansdown said: "British Land's destination shopping centres may be faring better than the wider high street, but they're still feeling the squeeze as footfall and sales fall. That's denting property values, and CVAs and administrations are hitting rents as well."

In the longer term, he suggested larger shopping destinations like British Land's Meadowhall have some defence against online retailers, with shopping "a pastime as much as a necessity", with the closure of other retail destinations likely to help.

He added: "The fact British Land continues to reduce leverage clearly suggests it's cautious at the moment. But with share buybacks adding to NAV per share and relatively low debt piles, it's also building up some significant firepower to invest as and when it sees opportunities."


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