ii view: 'strong operational momentum' at income play British Land

Its share price is significantly below its net asset value and it offers a highly attractive dividend yield. Buy, sell, or hold?

First-quarter AGM trading update

Chief executive Simon Carter said:

"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.”

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ii round-up:

Office and retail property owner British Land Co (LSE:BLND) today pointed to good leasing activity despite the tough and uncertain economic backdrop. 

A total of 552,000 square feet of space had been leased during its first quarter trading period from the start of April at levels 11% above their Estimated Rental Value (ERV). A further 1.2 million square feet of space also remains under offer at levels 15.5% above their ERV.  

Shares in the FTSE 250 real estate investment trust rose more than 2% in UK trading having come into this latest update down a third over the last year. That’s similar to warehouse owners Segro (LSE:SGRO) and Tritax Big Box Ord (LSE:BBOX), while the FTSE 250 index itself is down nearer 4%. 

British Land’s properties range from offices within mixed campus developments in London to out-of-town retail outlets and London focused urban logistics properties. 

Management believes that its Campus developments are benefiting from the trend towards best-in-class space, while retail parks continue to be the winning retail format given their affordability, omni-channel compatibility and low capex requirements.

The group’s push towards laboratory lets for life science companies also made progress during the period, with a major letting for its Guildford property made and the launch of modular lab space at its Canada Water development. 

Access to £1.7 billion of undrawn facilities and cash underpins its balance sheet, with no group refinancing required until early 2026 and credit agency Fitch rating it as an 'A' rating and stable outlook. 

Broker UBS reiterated its ‘buy’ rating on the shares post the update. 

ii view:

British Land is one of Europe's largest stock market listed real estate investment companies, with a portfolio valued at £8.9 billion at its year-end in late March. Its three campus developments, accounting for 63% 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 37% in assets. 

For investors, the rise in interest rates and its impact on the property market cannot be forgotten. The value of British Land’s properties fell 12.3% over its last financial year to the end of March, contributing towards a pre-tax loss of £1.04 billion. The increase in working from home since the pandemic warrants consideration, as does sustainability and the impact of its properties on the wider environment. 

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On the upside, the share price currently trades at a significant discount to the 588p per share NAV and occupancy levels across its portfolio remain high. The lab facilities improve diversification, administrative costs remain under tight management control, while no refinancing of its debt is required until early 2026. 

For now, and while some caution looks sensible given the tough backdrop, an estimated future dividend yield of over 7% is likely to placate income investors with a long-term investment horizon. 

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