16 November 2022
If you are covering British Land’s latest results, please find below a comment from Oli Creasey, equity research analyst at Quilter Cheviot:
“British Land reported HY results this morning, just a day after close peer Landsec. As we’ve come to expect, the results are similar, and reflect an all-round worsening environment for commercial property owners.
“British Land is a diversified REIT with its fingers in a number of pies. However, just about every single one is cooling at present. The company reported a -4% fall in NAV over the six months, driven by a -3% fall in the value of their property assets. That fall occurred across the board of their £9.6bn property portfolio, with the exception of the small (£100m) exposure to Central London residential. Everything else, from retail to office to urban logistics saw a mid-single digit drop in valuation. Notably, even though the rent grew fastest in the urban logistics sector, this was also where yield shift has been the most significant, meaning overall values fell furthest for these assets (-6% in the period).
“The big question is what happens next? The past six months have seen BLND’s property yields shift outwards by 17bps on average. However, our concern is that this is nowhere near enough – the bank of England base rate rose 1.5% over the same period, and a further 75bps since, suggesting that property values across the country and across all sectors have considerable valuation correction still to come. British Land appear prepared for this outcome – the company has reduced debt to a sensible 31% LTV – but that doesn’t mean the coming period will be easy for this company or any others. However, investors appear to have largely accepted this outcome – British Land’s shares are trading at a c. 40% discount to today’s reported NAV, pricing in much more significant capital value falls than we have seen so far.”
