ii view: British Land shares extend rally after latest update

First-half trading update to 30 September

• Expects adjusted earnings per share (EPS) up 5% to 16.1p
• Expects like-for-like net rental growth of 12%

Guidance:

• Continues to expect full-year adjusted EPS of at least 30.5p (6% growth year on year)
• Continues to expect EPS growth of 3-6% per annum in subsequent years

Chief executive Jo McNamara said:

“Since joining British Land in mid-September, my views on the quality of the portfolio, the expertise of our teams and the opportunities ahead of us have been reinforced and this is reflected in a strong first half.

“Despite the ongoing macroeconomic volatility, demand for our space has driven double-digit like-for-like net rental income growth and an excellent leasing performance across the portfolio.

“I am focused on building on this momentum to capture demand and drive rents forward, while ensuring the business is as efficient as possible and allocating capital to deliver the best returns.”

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ii round-up:

British Land Co (LSE:BLND) today maintained guidance for growth in annual earnings, underpinned by ongoing strong demand for lettings at its office campuses and retail parks.

Like-for-like net rental growth of 12% in the first half supports expansion in adjusted earnings of 5% for the period to 16.1p per share. As such, the real estate investment trust (REIT) continues to expect full-year adjusted EPS of at least 30.5p. That’s potentially up 6% year over year.

Shares in the FTSE 250 company rose 2% in UK trading having come into this latest news up by a tenth over the last year. That’s similar to the mid-cap index itself over that time. Rival Land Securities Group (LSE:LAND) is up less than 5% over the last year.  

British Land properties range from London located campus developments holding a mix of offices, shops and restaurants, to retail parks, edge of town logistical warehouses and even an under construction residential housing development.

Campuses leasing deals totalled 689,000 square feet during the period with those for retail outlets coming in at 438,000 square feet.

Property values overall grew 1.5% during the half, led by a gain of 2.4% for retail parks, with those for office campuses up 1.6%. As such, management flagged a net asset per share of 599p as of late September, up from 590p in late March.

The group sold £247 million of assets during the period, buying Telford Bridge Retail Park for £30 million, and with a further £202 million of assets under offer.

A net debt-to-adjusted profit (EBITDA) ratio of 7 times as of late September is down from 7.7 times in late March.

First-half results to late September are scheduled for 18 November. 

ii view:

British Land owns or manages a property portfolio valued at around £15.8 billion. Group properties include the Broadgate campus in the City of London, retail parks and shopping centres across the UK, logistical warehouses in outer London, as well as up to 4,000 homes being developed at Canada Water, London.

For investors, elevated inflation following the war in the Middle East now casts a shadow over future interest rate policies globally, providing uncertainty for the group’s many business tenants. Likely higher interest rates could impact British Land’s own financing costs. Although on the decline, a net debt-to-adjusted profit ratio of seven times continues to warrant consideration, while the group’s relatively recent move into urban logistical developments leaves it competing against established players Segro (LSE:SGRO) and Tritax Big Box Ord (LSE:BBOX).

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To the upside, the share price continues to trade at a discount to the net asset value of 599p per share. The acquisition of the Life Sciences REIT, completed in April, strengthens its existing focus on life sciences and tech tenants as well as differentiating it from rivals. Occupancy levels across the group’s portfolio remain robust, while credit rating agency Fitch gave it an ‘A’ rating in February with a stable outlook.

In all, and despite ongoing risks, a discounted valuation and a forecast dividend yield of around 6% continue to give grounds for investor interest.

Positives:

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

Negatives:

• Uncertain economic outlook
• Elevated net debt to adjusted profit ratio

The average rating of stock market analysts:

Cautious buy