ii view: property play British Land beats City forecasts

Full-year results to 31 March

• EPRA net tangible assets per share down 4.4% to 562p
• Adjusted profit up 2% to £268 million
• Adjusted earnings per share (EPS) up 1% to 28.5p
• IFRS profit of £1 million, up from a loss of £1.03 billion
• Final dividend of 10.64p per share
• Total dividend for the year up 1% to 22.8p per share

Chief executive Simon Carter said:

“Our strategy of focusing on campuses, retail parks and London urban logistics is delivering.

“Although the geopolitical and economic landscape remains uncertain, with a portfolio net equivalent yield over 6%, 3-5% forecast rental growth and development upside, we expect to generate attractive future returns.” 

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ii round-up:

Office and retail property owner British Land Co (LSE:BLND) today detailed profits that beat City expectations, aiding a 1% increase in the total dividend payment for the year to 22.8p per share.

Adjusted profit up 2% to £268 million generated a 1% rise in earnings per share of 28.5p, surpassing analyst expectation of 27.9p, a result of the property company’s strategic push to focus down on campus complexities, retail shopping parks and London urban logistics sites.

Shares in the FTSE 250 real estate investment trust rose 1% in UK trading having come into this latest news up around 11% over the last year. That’s similar to sector giant Segro (LSE:SGRO) and ahead of a 7% improvement for the FTSE 250 index.

British Land’s overall owned property portfolio valuation fell to £8.68 billion from £8.89 billion this time last year, dropping its net tangible asset value per share by 4.4% to 562p per share. However, that is better than the 19.5% slump suffered a year ago.

Profit on a fully reported IFRS basis of £1 million contrasted with a loss the year before of £1.03 billion. 

Accompanying management comments point towards a hopefully more supportive economic environment over the next 12 months than we've seen over the last two years.   

Adjusted earnings for the year ahead were forecast by management to come in at 27.9p per share, a potential 2% decline, although in line with City forecasts. That’s partly a result of its recent 50% stake sale in Sheffield shopping centre Meadowhall for £360 million as part of a push towards out-of-town retail parks.   

Broker UBS repeated its ‘buy’ stance on the shares post the results, flagging an estimated fair value of 455p per share.  

ii view:

British Land is a major UK Real Estate Investment Trust (REIT). Fellow UK listed REITs include Land Securities Group (LSE:LAND) and student accommodation owner UNITE Group (LSE:UTG). Its three campus developments, accounting for 62% 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 38% in assets. 

For investors, the tough economic backdrop including uncertainty over the timing of expected interest rate cuts cannot be ignored, and the company’s property values are still falling. A ratio of group net debt to adjusted profit of 6.8 times warrants consideration, while a relatively recent move into urban logistical developments leaves it competing with more established players. 

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On the upside, the share price still trades at a discount to net asset value of 562p per share. Occupancy levels across its portfolio remain robust at 97%, it’s growing exposure to innovation and life science occupiers at its campuses, while 93% of its portfolio is now within its favoured area of retail parks, campuses, and London urban logistics.

For now, and while stubbornly high interest rates and reduced need for physical office and retail spaces are reason for caution, a discounted valuation and forecast dividend yield of over 5% look to offer grounds for longer-term optimism.  

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:

Cautious buy