3 October 2024
If you are covering British Land's recent acquisition and equity raise, please see the following comments from Oli Creasey, property analyst at Quilter Cheviot:
"British Land, which was recently re-added to the FTSE 100 replacing Darktrace, has made a significant move by agreeing to purchase approximately £400m worth of retail parks from Brookfield.
“These parks offer a healthy income return with a yield of around 7.2% from the outset. Brookfield acquired these assets from Hammerson about three years ago and has maintained them well, so British Land's primary task will be rent collection.
“The retail park sector is currently very hot, with British Land's existing retail parks increasing in value by 5% over the past six months, outperforming the retail park index. This suggests that British Land owns some high-quality assets. Adding to this portfolio appears to be a smart move, as they are buying into a sector with momentum.
“The parks are currently 'over-rented', meaning that if rents reverted to market prices tomorrow, they would decrease by about 5%. However, with expected rental growth, this issue should resolve itself by the time most leases are up for renewal.
“To fund this acquisition, British Land has raised new equity rather than increasing leverage. This equity was raised at about a 25% discount to its NAV, which is typically only done in emergency scenarios. However, British Land might argue that this is a once-in-a-cycle opportunity to enhance exposure to its preferred asset class, making the NAV dilution worth it. The transaction is not enormous, so the dilution impact is not significant, and they are getting a decent deal.
“The share price has initially dropped, possibly reflecting market nervousness about the new equity raise. While it is not yet a full sign of approval from equity markets, nor is the initial reaction too punishing, this may simply reflect the physical dilution effect of the equity raise. As such, this acquisition may still turn out to be a good deal for British Land."
