British Land’s Portfolio Declines on Sharp Retail Writedowns

(Bloomberg) -- British Land Co. saw its property holdings decline in value as sharp writedowns of the company’s malls and stores outweighed gains in its development portfolio.

The value of British Land’s property portfolio fell by 4.3% to 11.7 billion pounds ($15 billion) in the six months through September, the developer said in a statement on Wednesday. Retail values plunged by 10.7%, reflecting the woes of U.K. malls and high-street stores that are getting battered by the growth of online shopping, rising minimum wages and tax hikes.

“We expect retail to remain challenging, so we’ll focus on driving operational performance and maintaining occupancy,” Chief Executive Officer Chris Grigg said in the statement.

Shares in British Land fell as much as 2.7% in London on Wednesday.

British Land has been attempting to reduce its exposure to stores that have been hit by the upheavals in the way consumers shop. It plans to reduce the share of retail in its portfolio to as little as 30% from the current level of 41%.

Rent Cuts

Like-for-like rental income in the company’s retail portfolio declined by 3.2%, primarily as a result of retailers undertaking so-called Company Voluntary Arrangements, a form of bankruptcy protection that allows them to negotiate rent cuts and closures. About two-thirds of the stores that have been vacated by retailers in British Land’s portfolio since 2017 have since been re-leased, with the company increasingly willing to offer short-term leases to keep occupancy high.

“U.K. regional shopping centers are being indiscriminately written-down by about 10% for the past six months, bearing the brunt of major tenant failures like Arcadia and Debenhams,” Bloomberg Intelligence senior analyst Sue Munden said. “The added distraction of a general election during the upcoming peak festive sales period makes the outlook even more uncertain, so valuers are being cautious.”

At the same time, the company has persevered with new office-led projects despite Brexit uncertainty, and has been rewarded with resilient demand from tenants and scarce competition among developers that have helped keep rents high. The value of its new developments rose 4.6% in the six-month period, helped when the company won planning approval for the largest project in its history in London’s Canada Water district.

About 87% of the company’s recently completed and committed developments are already leased or in advanced negotiations, according to the statement.

British Land sold 289 million pounds of property in the period, including a large portfolio of supermarkets. The company sees early signs there may be more willing buyers for certain retail properties, Grigg said in the statement.

Earnings per share dropped by 6.4% in the period to 16.1 pence following a string of property sales. The company’s net asset value declined by 5.4%, with buybacks partially offsetting the falling values.

To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net

To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, Patrick Henry

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