British Land proves harder sell than its shop space

British Land’s boss, Chris Grigg, must be a good salesman. In the real estate group’s half-year results he said he’d managed to offload £236m of shop space, at prices 6 per cent ahead of their book value. And this in a retail environment where the net asset value of his better shops had fallen a 10th in just six months.

His skills of persuasion were not enough to prevent British Land recording a £440m loss for the period as the retail portfolio revaluation wiped out a 0.4 per cent improvement in office values and a 4.6 per cent uplift from new developments. Still, they allowed him to say the company could see “early signs that some liquidity may be returning to the market” — reinforcing a message he began selling in May.

Would-be consumers — of the message and the shares — were given plenty of other reasons to buy in.

Mr Grigg reminded investors that, having successfully sold all those “off-strategy” shops at advantageous prices, British Land now planned to sell another £1.3bn-worth to cut its retail exposure to 35 per cent. He noted that his remaining retail tenants were still enjoying positive like-for-like sales and unchanged footfall, encouraging them to sign up for 230,000 sq ft of long-term leases at rents 15 per cent higher than before. He pointed out that even among those stores relinquished under company voluntary arrangements, two-thirds were re-let, under offer or the subject of negotiations. He emphasised the strategic shift to multi-use developments, epitomised by the 53-acre Canada Water development of work, retail, leisure and residential space that has enjoyed a 12 per cent valuation uplift. And he reassured those with longer memories that the group had maintained a low loan-to-value ratio of 30.8 per cent.

However, sellside analysts whose job is to push the shares were not buying all of it.

Selling £236m of retail space at more than book value had mainly been achieved by offloading 12 Sainsbury superstores for £194m, Jefferies’ analysts pointed out — and these had their leases extended, which helped lift their valuations. Retail tenants signing up for 130,000 sq feet of short-term leases actually secured 20 per cent rate cuts, noted analysts at Numis — with “short-term pop-up shops filling voids”, according to those at Jefferies.

Stores given up under CVAs may well be re-let but CVAs appear a bigger problem for British Land than for other UK landlords — it is second only to Intu in its exposure having been hit by 15 of them against seven for New River, six for Hammerson and five for Land Sec, say Liberum’s research team. Multi-use developments are the future, all agree, but Canada Water for now is just “circa 3 per cent of gross assets”, say Stifel’s analysts. And that 30.8 per cent LTV is up 270 basis points since the end of March, mainly because of valuation declines worse than rival Land Secs.

For all Mr Grigg’s success in selling supermarkets, it may take a lot more positive messaging for his shares to shift like hot cakes.


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