Sharp falls in retail property hit British Land – Over the year ended 31 March 2021, British Land’s NAV fell by 16.3% to 648p. The full year dividend totalled 15.04p, based on 80% of its earnings per share, pre-COVID the dividend for the year ended 31 March 2019 was 31.0p.
Headlines are:
Financial performance reflects the impact of Covid-19
- Underlying profit reduced 34.3% primarily reflecting an increase in provisions for rent receivables
- 83% of FY21 rent collected. 99% Offices; 71% Retail
- Portfolio value down 10.8%; Offices down 3.8%, with moderate decline of 0.8% in the second half; Retail down 24.7% with the rate of decline slowing in Retail Parks; Developments broadly flat
Strong and flexible balance sheet
- £556m retail assets sold since April 2020, 7.0% ahead of book value
- £643m of standalone offices sold, 5.2% ahead of book value
- £1.8bn undrawn facilities and cash with no requirement to refinance until early 2025
- LTV down 200bps at 32%; 46% headroom to Group debt covenants
- Fitch Ratings affirmed unsecured credit rating at ‘A’
Encouraging performance on reopening
- In the period since reopening, footfall and sales on our Retail portfolio were 88% and 104% of pre pandemic levels respectively; 100% and 109% for retail parks (all excluding F&B)
Good progress against 2030 sustainability strategy
- Delivered first net zero carbon development at 100 Liverpool Street
- Supported 364 people into employment at our places
- GRESB 5* and awarded a green star rating for the 11th consecutive year
- AAA MSCI rating, ranking within the top 11% overall
Realising the potential of Campuses:
- 168,000 sq ft of deals greater than one year in the period; lettings and renewals on the standing portfolio 2.3% ahead of ERV; occupancy at 94%
- Total lettings and renewals at 395,000 sq ft; further 161,000 sq ft deals agreed post period end, including pre-let of 134,000 sq ft to JLL at 1 Broadgate; total leasing since 1 April 2020 of 556,000 sq ft
- Recently completed and committed developments 50% pre-let; generating £85m of rent when fully let
- Under offer and in negotiation on a further 474,000 sq ft
- Storey operational across 348,000 sq ft; launched at 100 Liverpool Street
- Completed headlease drawdown at Canada Water; signed TEDI-London, a higher education provider
- Progressing value accretive development
- Commitment to develop 882,000 sq ft across 1 Broadgate and Norton Folgate
- Commenced enabling works for the first phase of our Canada Water masterplan with main build contracts to be placed in the coming months
Targeting the opportunities in Retail & Fulfilment
- 962,000 sq ft of deals greater than one year; 19% below previous passing rent; occupancy at 94%
- 737,000 sq ft of short and temporary deals, bringing total leasing to 1.7m sq ft, our highest ever
- 583,000 sq ft under offer, 5.8% below March 2021 ERV and 29% below passing rent
- First urban logistics acquisition: 216,000 sq ft warehouse in Enfield with development potential, acquired for £87m
- Exploiting value opportunity in retail parks: commitment to acquire the outstanding interest in HUT based on a GAV of £148m and £49m acquisition of The A1 Retail Park in Biggleswade
[the emphasis above is ours – rents are falling in the retail portfolio]
Active capital recycling
- £1.2bn assets sold, including £556m retail sales and £643m offices sales
- Reinvesting proceeds into value accretive acquisitions and development
- £1.6bn financing, including facility extensions and new loans
New business model
There is a new business model & strategy – “to more actively focus our capital on our competitive strengths in development, active management and repositioning assets. We are investing behind two strategic themes:
- Campuses – Dynamic neighbourhoods focused on growth customers and sectors; and
- Retail & Fulfilment – Retail Parks and urban logistics aligned to the growth of convenience, online and last mile fulfilment“
Here is what they have to say about each:
Campuses
“At Broadgate, Regent’s Place and Paddington Central, we provide modern, high quality and sustainable space in some of the most exciting parts of London. The buildings and the spaces between them support wellbeing and are aligned to the changing ways people work. They have excellent transport connections, an engaging public realm and offer an authentic sense of community. We are delivering an exciting, 53 acre, fourth campus at Canada Water.
Our campus proposition is a key differentiator and an important advantage post Covid as occupiers focus on the best space for their businesses where supply is most constrained. That means space which supports recruitment, training, collaboration, culture and wellbeing. Our development pipeline includes opportunities on all our campuses, enabling us to increase investment in these unique assets, deliver attractive returns and refresh our offer with high quality, modern and sustainable space so we are well placed as demand polarises. All our developments will be net zero carbon and with sustainability now seen as a differentiator between the best space and the rest, our ability to deliver buildings which help occupiers reduce their own carbon footprint, is a key advantage.
The proximity of our campuses to hubs of growth and innovation is a further advantage which we will more actively pursue. Already, we have successfully repositioned Broadgate to appeal to a wider range of growing businesses, including creative and technology companies, benefitting from its proximity to areas like Shoreditch as well as its links to the City. Building on this, we are evaluating other opportunities to align our campuses to innovation sectors and see a similar opportunity in life sciences at Regent’s Place, given its proximity to the academic and scientific institutions in the Knowledge Quarter. Our ability to deliver bespoke space for our customers and our track record of providing environments in which fast growing businesses can expand, for example through Storey, position us well in this market.
At Canada Water, our permission is deliberately flexible. We can deliver between 2,000 and c.4,000 residential units and from 500,000 sq ft to 2.5m sq ft of workspace enabling us to evolve our offer in line with demand. Already we have signed an engineering, higher education provider and are exploring other opportunities in this sector.”
Retail & Fulfilment
“In Retail, we are expanding our approach to include fulfilment, building on our market leading position in high quality, out of town retail parks which already play a key role in retailers’ fulfilment models, and complementing this with development led investment in urban logistics, primarily in London. Retail parks account for 53% of our retail portfolio. These are increasingly preferred by retailers, because they are affordable and support an online offer by facilitating click & collect, returns and ship from store. They are also preferred by business which are more online resilient, including discount food and homeware retailers. We see a clear value opportunity in this space to leverage our asset management expertise to deliver attractive returns as rents and values stabilise. This rationale underpins our acquisition of the A1 Retail Park in Biggleswade and commitment to acquire the remaining 22% interest in HUT, which comprises ten prime retail parks, together totalling £197m.
We are complementing our retail parks with development led investment into urban logistics warehouses, primarily in London. These are in town or edge of town warehouses with good infrastructure connections and access to residential areas to support effective last mile delivery. This particular part of the market, where customer requirements are evolving rapidly and demand is strong but supply of the right kind of space is highly constrained, will require innovative solutions, such as multistorey and underground warehouses as well as potentially incorporating into mixed use schemes. This plays very well to our skill set in site assembly, planning and delivering complex development in Central London.
This is the rationale for our acquisition of a 216,000 sq ft logistics warehouse in Enfield. It is an 11-acre site within the M25, with low coverage for an urban scheme of 40% providing the opportunity to build up as well as out. We benefit from a supportive planning environment in Enfield and in the meantime the scheme is fully let and highly reversionary.”
BLND : Sharp falls in retail property hit British Land