British Land reports half-year loss as property values dip

By

Nigel TAYLOR

Published
Nov 16, 2022

Property giant British Land Co on Wednesday followed its bigger peer Landsec the previous day to report a slide into half-year losses as the valuation of its assets also dipped.

It shows the effects of rising interest rates, inflation, and the broader economic weakness are already hitting the commercial property sector.

The company owns Meadowhall and Broadgate but is generally retail park-focused. It said the loss after tax came in at £34 million for the six months ended 30 September, compared with a profit of £370 million a year earlier.

EPRA (European Public Real Estate Association) net tangible assets, a key measure that reflects the value of its properties, fell 4.4%. Overall portfolio value was down 3% with Retail & Fulfilment (retail parks and shopping centres) dipping 3.6%.

But it did deliver 5% like-for-like net rental growth and leased 1.5 million sq ft of space in the period, well ahead of expectations. As a result, underlying profit increased 13%.

Like Landsec, British Land remains upbeat. Its CEO Simon Carter said: “Our good operational performance in the half reflects the high quality of our portfolio and reinforces our conviction in our value-add strategy which is focused on sectors with pricing power.”

And he expects to see yield expansion across its business in the second-half period, although the impact would likely be cushioned by rental growth.

So what were the key details? Its Retail & Fulfilment portfolio “continues to benefit from retailers' focus on omnichannel and affordability”. Following a record year in FY22, it said leasing remained strong across the portfolio covering 1 million sq ft, 10.3% ahead of estimated retail value (ERV).

Its “high-quality” retail parks, which account for 60% of the portfolio making it the largest owner and operator of this format in the UK, saw lettings just 2.9% below previous passing rent.

The value of its Retail Park portfolio fell by 3.7% in the period, driven by yield expansion of 20bps. The sector has been impacted by the recent increase in interest rates. Encouragingly, it generated positive ERV growth for the first time in four years, up 0.8%. Meanwhile, rents on Retail Parks have effectively rebased with occupancy at 97.5% up 10 bps.

And for Shopping Centres (23% of the portfolio) there are indications that ERVs are stabilising, down just 1%, and yields were flat, it said.

“We continue to actively manage our Shopping Centres improving occupancy and driving rents forward. We have completed 478,000 sq ft of deals across our shopping centre portfolio, on average 13.4% below previous passing rent but encouragingly 15.3% ahead of ERV. Yields have remained relatively stable over the period despite a more challenging macroeconomic backdrop and we expect the outlook for the best centres to become more attractive as confidence improves”.

Overall, it added: “Occupational markets continued to strengthen over the period with more retailers recovering to pre-Covid trading levels and online reverting to its trajectory, now at 24% of retail sales vs 38% at the height of the pandemic. With many weaker brands having already exited the market pre pandemic, today's more successful retailers have typically established more resilient business models which include an effective omni channel strategy.

“These businesses are performing well and are selectively taking space, particularly on retail parks. They include more general retailers such as Marks & Spencer and Next and specialists such as Lush, Rituals and Pandora”, it said.