11th Jul 2023 14:20
(Alliance News) - British Land Co PLC failed to impress analysts at Shore Capital with its most recent trading update on Tuesday, despite seeing "strong operational momentum" over the first quarter.
The London-based commercial property development and investment company leased 552,000 square feet of space in the first quarter and 11% ahead of estimated rental value, with 1.2 million square feet under offer at 16% ahead of ERV.
Office campus occupancy was at 96%, with 164,000 square feet of leasing completed in the recent quarter at 11% ahead of ERV, with 102,000 square feet under offer at 5.7% ahead of ERV.
While Peel Hunt's Matthew Saperia and James Carswell praised the firm's "good operational performance", analysts at Shore Capital were less than impressed by British Land's failure to mention Broadgate, a key piece in its portfolio.
"While the company talks to new leasing activity with 164,000 square feet of space at 11% ahead of ERV and particular notes with The Priestley Centre, Guildford and Paddington but no mention of Broadgate (29% of the [British Land] portfolio) and one of our key concerns where we forecast further pressure on occupancy/rents," noted Shore Capital.
In retail, the firm has completed 387,000 square feet of leasing, including 227,000 square feet of deals across retail parks at 14% ahead of ERV. A further 738,000 square feet are under offer at 18% ahead of ERV.
Shore Capital was more optimistic about the British Land's "brighter" future in retail, arguing that its performance is consistent with its "best-in-class" status in the retail parks sector.
Progress has also been achieved across smaller operations in life sciences, London urban logistics and the company's wider redevelopment opportunity at Canada Water, Shore Capital analysts noted.
Peel Hunt's Saperia and Carswell agreed that British Land's move into life sciences "seems to be gaining momentum". The analysts noted a 48,000 square feet pre-let at The Priestley Centre, as well as planning progress at Peterhouse in Cambridge and SouthGate in Bath. A memorandum of understanding has also been signed with UCL to promote Regent's Place as a life science and innovation campus.
"We continue to see strong operational momentum in the business, despite ongoing macroeconomic uncertainty, with good leasing activity reflecting our focus on execution and the exceptional quality of our portfolio," Chief Executive Simon Carter is due to tell the AGM.
However, Shore Capital analysts warned otherwise:
"The shares currently remain among the most highly discounted in the sector – trading on a forecast 48% discount to our FY24F NTA forecast of 584p. Our concern here is that asset values probably have further to fall in the wake of the latest rate increases and expectation of more to come. The greater exposure to City offices at BL leads us to believe it is likely to underperform other London office peers in the event of a further markdown in valuations and we believe there are more compelling investment opportunities for capital allocation elsewhere in the sector."
British Land shares were trading 3.1% higher at 312.60 pence each in London on Tuesday afternoon.
By Holly Beveridge, Alliance News reporter
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