ii view: British Land losses grow

A 26% fall in the value of its retail properties and a suspended dividend. But the shares rally?

Full-year results to 31 March 2020

• Loss after tax of £1.1 billion, up from a loss of £320 million last year
• Net Asset Value per share down 14.5% to 774p
• Dividend payments suspended

Chief Executive Chris Grigg said:

"Like businesses around the world, in recent months our focus has been on responding to the unprecedented challenges brought about by Covid-19.  We have acted quickly and effectively to support our customers, partners and local communities and to protect the long-term value of our business.

“Near term, we are expecting the offices market to be more cautious, but we continue to conduct virtual viewings and are encouraged by negotiations we are having.  In Retail, given current valuations and the lack of liquidity in the investment market, our focus is on delivering value though asset management, working to keep our places full and exploiting demand for assets which support an online offer. 

“Our financial position is robust with debt low, significant covenant headroom and access to £1.3 billion of undrawn facilities and cash so we are well placed to weather today's challenges and succeed in the long-term."

ii round-up:

Shop and office property owner British Land (LSE:BLND) reported a steepening in full year losses as the coronavirus extended difficulties for its retail shop portfolio. 

Hit by a 26% drop in the value of its retail properties to £3.9, losses rose to £1.1 billion from last year’s £320 million loss.  The March year-end coinciding with the peak of the Covid-19 outbreak in the UK was thought by management to have magnified the loss. 

Over four-fifths of its retail properties remain closed under the government’s lockdown. In order to assist its tenants, £35 million of rents relating to the March quarter have been deferred. It previously suspended dividend payments under measures to conserve cash.

Given the trend toward online shopping, the group is now targeting a more focused retail business. It completed £296 million of retail sales in the year. 

The share price gained by more than 9% in afternoon UK trading having fallen by more than 30% year-to-date. Shares for rival shop and office owner Land Securities (LSE:LAND) are down by more than 35% during 2020, while shares of warehouse owner Segro (LSE:SGRO) have fallen by less than 10%. 

Office property values for British Land rose by 2.3% to £6.8 billion. All its office properties are in London and include Broadgate off Liverpool Street train station.

Management expects office demand to further polarise towards its own offering of safe, modern, sustainable and well-located workspaces. 

Dividends are expected to resume at an appropriate level as soon as the outlook becomes clearer. 

ii view:

A combination of long-term changing preferences towards online shopping and the hit from the coronavirus have seen Retail properties accounting for a reducing proportion of its overall portfolio. Retail now accounts for just under 35% of its overall £11.16 billion total portfolio, down from 45.3% this time last year. Offices on the other hand now account for 60.7% of the overall portfolio, up from 51.2% this time last year. 

Management is responding to the structural change in shopping habits. A move towards destination shopping centres with lots of parking and eating outlets was made some time ago. Now a more focused portfolio is being pursued, although management believes there remains a role for the right kind of retail property. Assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click and collect.

For investors, the potential to withstand a 45% fall in asset values before breaching banking covenants offers some comfort. A near 50% discount between the share price and the Net Asset Value (NAV) is also noteworthy. But with the dividend suspended and any timing on the end of the corona crisis unknown, a sit tight and wait approach may still be the most sensible.  

Positives: 

• A diversity of office, retail and residential property 
• £1.2 billion of available cash and undrawn facilities

Negatives:

• The value of its retail portfolio fell by 26%
• Dividend payment suspended

The average rating of stock market analysts:

Strong hold