ii view: income play British Land optimistic on outlook

First-half results to 30 September

• EPRA net tangible assets per share down 3.9% to 565p
• Adjusted profit up 3.4% to £142 million
• IFRS loss of £61 million, up from £32 million
• Interim dividend up 4.8% to 12.16p per share

Chief executive Simon Carter said:

“We are benefitting from our decision to pursue a value-add strategy across campuses, retail parks and London urban logistics. These submarkets have the strongest occupational fundamentals and highest rental growth within the office, retail and logistics sectors.”

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ii round-up:

Office and retail property owner British Land Co (LSE:BLND) today detailed a smaller decline in property values, with good leasing activity now pushing expected full-year growth in rental values toward the top end of management’s prior hopes. 

The adjusted net asset value (NAV) fell 3.9% year-over-year compared to a near 20% fall reported in May, taking its overall property value to £8.7 billion, or 565p per share. Meanwhile, an acceleration in rental growth now leaves full-year forecasts for its core campuses and retail properties at potential rental improvements of 4% and 5% respectively, up from prior forecasts for as little as 2%.

Shares in the FTSE 250 real estate investment trust (REIT) rose more than 3% in UK trading having come into this latest news down around a fifth year-to-date. That’s similar to Safestore Holdings Ordinary Shares (LSE:SAFE) and in contrast to a 5% gain for warehouse owner Tritax Big Box Ord (LSE:BBOX).  

British Land's properties range from offices within mixed campus developments in London to out-of-town retail outlets and London focused urban logistics properties. 

Adjusted profit rose 3.4% year-over-year to £142 million, helping it declare a 4.8% increase in the interim dividend to 12.16p per share. The unadjusted first-half loss increased to £61 million from £32 million a year ago. 

Broker UBS repeated its ‘buy’ stance on the shares post the results. 

ii view:

British Land is a major UK real estate investment trust. Fellow UK listed REITs include both Segro (LSE:SGRO) and Land Securities Group (LSE:LAND). Its three campus developments, accounting for 63% of its assets, are located at Broadgate in the City, Paddington Central and Regent's Place in London, with a fourth being built at Canada Water. Retail and London Urban Logistics properties account for the balance of 37% in assets. 

For investors, the ongoing difficult economic backdrop, including possible further hikes in interest rates, cannot be ignored. The group’s property values continue to fall, and a ratio of group net debt to adjusted profit of 6 times, although improved from 6.4 times, still warrants consideration. So does the ability to work from home and its future impact on office/campuses developments. 

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More favourably, the share price currently trades at a significant discount to reported NAV of 565p per share, and occupancy levels across its portfolio remain robust at an average of 96%. A concentration on growing its exposure to innovation and life science occupiers at its campuses is also being made. Administrative costs remain under tight management control, while its debt gets a Fitch ‘A’ credit rating with a stable outlook. 

On balance, and while room for caution persists given concerns around recession and property sector valuations, an attractive discount to net assets and forecast dividend yield of over 6.5% is likely to keep investors interested. 

Positives: 

• A diversity of property types 
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Established work from home trend

The average rating of stock market analysts:

Strong hold