Is British Land turning a corner?

There are tentative signs of progress in British Land’s (BLND) strategic pivot towards retail parks and office “campuses” (offices plus retail and leisure amenities) after something of a lost decade.

Underlying EPS growth of 1 per cent in the six months ended September versus the prior year was modest, but the fundamentals were supportive. Like-for-like net rental income rose 4 per cent to £224mn, aided by new leasing that was 5 per cent higher than the previously estimated market value. The company has agreed a further 300,000 square feet of leases since the period-end, supporting leasing momentum.

Occupancy of the company’s retail parks and warehouses is nigh on full, but could be better in its office campuses (92 per cent).

The portfolio’s value increased by 1.2 per cent to £9.8bn, supporting a 4 per cent total accounting return (net asset value per share growth plus dividends) that was at the bottom end of the company’s annualised 8-10 per cent target, but superior to peers LandSec (LAND) and Great Portland Estates (GPE).

The continued recycling of capital out of offices and into retail parks is key to its strategy. “We have improved confidence in our ability to execute disposals of mature office assets,” finance chief David Walker told Investors’ Chronicle, despite the subdued current market.

“We always look at disposals through the lens of forward returns. We will be pragmatic on price,” he added. This suggests the company could sell down offices at a loss if retail parks are sufficiently attractive.

Leverage levels are a slight concern, with net debt to Ebitda elevated at 8.9 times, albeit down from March levels. The company’s finance costs increased 30 per cent versus the prior year to £60mn, weighing on EPS growth. This will continue in the coming years, as the company uses its undrawn facilities to replace maturing debt. “We will fund further investment into the business through capital recycling,” said Walker, “not from taking leverage too high”.

British Land is guiding for annual EPS growth of 3-6 per cent from 2028 onwards to support that total accounting return target. The company is undoubtedly cheap, trading on 12 times analysts’ 2027 earnings estimates and at a 35 per cent discount to net asset value. But so are gilts, and a 6.5 per cent dividend yield does not sufficiently compensate investors for the incremental risk. We await further evidence of earnings growth and value-accretive capital recycling. Hold.

Last IC view: Hold, 399p, 22 May 2025