17th May 2023 12:00
(Alliance News) - British Land Co PLC may be bruised from a high interest rate environment and falling property values, but analysts can see reasons why the firm's long-term strategy might have legs.
On Wednesday, British Land said it swung to an annual loss in the financial year that ended March 31, as the value of its portfolio saw a double-digit fall.
The commercial property developer and investor swung to a pretax loss of GBP1.03 billion from GBP963 million profit, as total revenue was little changed at GBP418 million from GBP412 million.
The firm recorded GBP798 million in negative valuation movements, compared to a gain of GBP475 million the year prior. It also recorded a GBP467 million loss from joint ventures, compared to GBP247 million a year prior.
"British Land has taken a big hit from the ratcheting up of interest rates, and risk adverse attitude to commercial property," said Hargreaves Lansdown's Susannah Streeter.
The firm's CEO Simon Carter said high interest rates had hit property yields, leading to a 12.3% decline in its portfolio.
"The balance sheet remains in relative health with financing also in place for the medium term, while the group's recycling of capital continues to be part of the strategy," considered interactive investor's Richard Hunter.
However, the fall in valuation is "clearly a disappointment", according to Streeter.
"But the company is stressing it's playing a long-game and investing in campus-style developments and retail parks where it sees sustainable growth," she added.
Its campus-style developments include Regent's Place, a mixed use business, retail and residential quarter near Warren Street tube station. In a joint venture with GIC, it also owns Paddington Central, an 11-acre mixed use campus next to the railway station and Grand Union Canal.
Portfolio estimated rental value growth was 2.8% overall, and 2.6% in Campuses and 2.8% in Retail Parks.
"In terms of rental growth, we expect Campuses to continue to outperform as demand gravitates towards best in class sustainable space and the disparity between "the best vs the rest" continues to widen," British Land said.
Its campus model shows "signs of promise", according to ii's Hunter, despite the fact that hybrid working is increasingly "entrenched" in working practices.
"The market is acutely undersupplied, and the group's strategy to invest in supply constrained segments with pricing power is one where London in particular fits the bill, with the likes of a renewal from Meta indicating future demand," Hunter continued.
The facilities for shopping, dining and socialising are also a lure for potential tenants, and office-shy workers, he noted.
"A move towards life sciences and innovation companies is also appearing on the radar as a new potential win," Hunter added.
The firm also noted some GBP203 million in acquisitions during the year, increasing its exposure to retail parks, life sciences and London urban logistics.
"The company has been taking the opportunity of weaker real estate prices to snap up more properties in areas it sees as high future potential for the urban logistics life science sectors," HL's Streeter said.
Whilst noting macroeconomic challenges, British Land said upward yield pressure "appears to be easing", noting "early signs of compression" in Retail Parks.
It declared a final dividend of 11.04 pence per share, bringing the full-year total to 22.64p, a 3.3% increase from the previous year.
"There is also a strong pipeline in place for new developments, while from an investment perspective, the dividend yield of 6% provides some consolation for shareholders who have seen a decline in recent share price fortunes," ii's Hunter said.
Shares in British Land were down 5.1% to 358.50 pence each in London on Wednesday around midday.
"The group is well placed to benefit over the longer term from improving economic fundamentals and the market consensus of the shares as a cautious buy could reflect some willingness to look through the current challenges," Hunter concluded.
By Elizabeth Winter, Alliance News senior markets reporter
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