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British Land Hit by Retail Weakness

FTSE 100 REIT makes a loss for the full year as its retail property portfolio is valued lower, but the dividend has been increased

James Gard 15 May, 2019 | 10:37AM

City of London

FTSE 100 real estate investment trust British Land (BLND) reported a loss in its most recent financial year as it took a £620 million hit from property revaluation.      

In the year to the end of March, British Land made a pre-tax loss of £319 million, compared with a £501 million profit the year before.

A lower valuation of its retail portfolio dragged on profits and chief executive Chris Grigg said the retail market remained “challenging”, although he said the pressure on the sector is showing signs of easing.

British Land has recently disposed of 12 Sainsbury’s superstores, netting nearly £200 million for the firm, as part of its plan to reduce exposure to retail. Within the portfolio, retail values fell by 11%, office values rose by 1.1%, and developments by 11%.

Emma-Lou Montgomery, associate director from Fidelity Personal Investing said that, as one of the UK’s largest listed landlords, British Land is “closely watched when it comes to the state of the retail sector”.

“With its retail exposure now reduced by 11% the question is whether that 1% of its portfolio that’s still in superstores was the right move considering that yields are down in other sectors.”

The company, as well as leasing commercial property, manages a range of retail outlets such as Sheffield’s Meadowhall shopping centre.

Despite the annual loss, Grigg was upbeat about the London office market despite the looming threat of Brexit: “We expect the London market to remain active, as occupier demand for the highest quality space continues to be firm.” Offices comprise 45% of the company’s portfolio and banking and finance firms account for 16% of office demand. London remains the company’s most important city, with £16 billion of transactions recorded in the last financial year, slightly down on 2017. The company, in its market outlook, noted concerns over business sentiment, weak consumer spending and low economic growth.

British Land declared a final dividend of 7.75 pence, bringing the total pay-out to 31.00p, up 3.0% from 30.08p the prior year. For the year ahead, the group has proposed to increase its full-year dividend by another 3.0%. According to Morningstar data, the share currently yields a healthy 5.3%. Before the Brexit vote, the firm’s share price traded above 800p but has struggled to break through 700p since and is now trading at 555p.

Real estate investment trusts (REITS) have a number of advantages over traditional investment trusts. REITS must pay out 90% of their rental income to investors to avoid paying capital gains or corporation tax on their property investments. The REIT deducts tax at basic rate before paying out dividends, but certain groups are entitled to receive gross dividends: managers of ISAs, UK companies, charities, local authorities and UK pension schemes.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
British Land Co PLC565.00 GBX1.18

About Author

James Gard  is content editor for Morningstar.co.uk

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