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We already knew times were tough for the retail sector, long before Coronavirus shuttered practically the entire sector. And we were also becoming aware that shop and shopping centre landlords were fast-becoming collateral casualties of the retail rout - effectively caught between a rock and a hard place when it came to demanding rent due or agreeing more lenient terms with struggling retailers; many of whom were eventually set to go bust anyway.
Shuttered shops were an increasingly familiar sight on Britain’s high streets before the pandemic closed down the rest, for the foreseeable future at least.
It’s hardly surprising then that the likes of British Land (BLND) has seen its share price decimated in recent months.
These are tough times for British Land. Some 61% of its portfolio is in London property, from City-based sites like Broadgate to Canada Water, across the river from Canary Wharf and at Paddington.
When the retail sector failed to pick up it started revising its strategy; retail makes up around 41% of its portfolio but it has already said it aims to reduce this to around 30-35% over the next five years. Increasingly, it has been assuring itself and its investors, its multi-let retail and office spaces are the way forwards.
But it’s not just shops that are shuttered now. Many offices have also temporarily had to close. As the nation’s army of white collar workers find they can work just as well from home and meetings are perfectly feasible via Zoom, question marks are starting to be asked about whether the ‘new normal’ is now here for good. And that begs the big question as to whether the skyscrapers that dominate city skylines and the large multi-use hubs of which, which British Land owns a large number, are going to become empty corporate relics from the years before coronavirus.
The very real worry is that demand for both retail and desk space will be permanently lower after the UK reopens. And that’s a concern when, like British Land, more than half of the value of your portfolio is in office space.
In March, British Land said it was suspending future dividends, including the 2020 third quarter dividend due for payment in May, in order to preserve its balance sheet and delay its March quarter rent for retail tenants.
At that time, around 200 individual retail units, 12% of the total, were open. And it said it was prepared to defer the March quarter day rents and spread repayment over the six quarters from September 2020. British Land said it estimated the aggregate amount of March deferrals across the group would be about £40 million.
It also said that underlying earnings for the year to 31 March 2020 were currently expected to be “broadly in line with previous expectations”, however it added that the independent valuation of its asset portfolio is “likely to include a statement from the valuers highlighting the material uncertainty”.
Brokers seem to have mixed views. Morgan Stanley recently repeated its overweight investment rating but cut its price target from 540p to 450p. Peel Hunt has upgraded its investment rating to buy from hold, but cut its price target from 575p to 470p, while JP Morgan Cazenove maintains its neutral investment rating and has cut its price target from 490p to 460p. HSBC meanwhile is more bearish still and has downgraded its rating to hold, from buy and sliced its price target from 643p to 385p.
British Land’s full year results are due out on Wednesday.
More on British Land
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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