British Land swings to a loss as retail troubles hit property values

British Land became the latest in a string of property giants to reveal a fall in the value of its assets today, swinging to a loss amid turmoil in the retail sector.

The FTSE 100 group, which owns developments such as Broadgate campus in the City of London, reported a £300m loss in the 12 months to the end of March.

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The figures

The company’s portfolio value slumped 4.8 per cent from £13.7bn to £12.3bn, dragged down by an 11.1 per cent drop in the value of its retail assets.

The company said that like-for-like rental growth of £15m was enough to offset the £14m impact of retail CVAs (company voluntary arrangements).

Losses before tax hit £319m, swinging from a profit of £501m over the same 12-month period in the previous year.

Underlying profits dropped 10.5 per cent from £380m to £340m in the year to 31 March.

Meanwhile, underlying earnings per share fell from 37.4p to 34.9p

Why it’s interesting

Yesterday property giant Landsec revealed a £500m dent to the value of its empire as a result of retail woes. Today it was the turn of British Land, which has shown that it too has been exposed to the recent spate of closures in the retail world. The group might not have taken the knocking in the City that some of its more exposed property peers have done, but shares have still fallen by more than a third since highs of 886p in May 2015.

Nonetheless, under the steer of boss Chris Grigg, the group has sought to bolster its resilience with a mix of campus estates like Broadgate and a greater role in residential property. As Hargreaves Lansdown equity analyst Sophie Lund-Yates notes: "To British Land’s credit, it isn’t sitting on its hands while problems unfold, it’s working hard to lower debt levels and is taking strides to streamline the retail portfolio, including the sale of 12 Sainsbury’s stores in the year."

"Declines in net rental income, average lease length and net asset value per share, as well as an increase in the vacancy rate, are likely to attract far more attention than an increase in the dividend and a drop in net debt," according to Russ Mould, AJ Bell investment director.

He added: "The shares still look cheap, on a 39 per cent discount to their historic net asset value per share figure of 905p and a forwards dividend yield of 5.7 per cent, but the risk remains that the gap to NAV is closed by the NAV going down rather than the shares going up."

What the company said

Chief executive Chris Grigg said: "This has been another year of good strategic and operational progress in an uneven market, as retail remained challenging but the London office market continued to be healthy. We delivered further on our strategy to build an increasingly mixed-use business by investing in our campuses, progressing developments and reshaping our retail portfolio."

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"Looking ahead, retail is likely to remain challenging as structural change continues but there are early signs on parts of our portfolio, that some of the short-term operational headwinds impacting retailers are easing. We expect the London market to remain active, as occupier demand for the highest quality space continues to be firm and supply is relatively constrained. We are mindful of the ongoing Brexit uncertainty, but our business is well positioned and financially strong."