British Land said its stated focus on campuses, retail parks and London urban logistics is delivering in full-year results to end of March, with strong rental growth and take-up, and stable values coming through in the second half.
In 2021 the real estate investment trust set out a value-add strategy focused on what it said are the three segments with the strongest operational fundamentals – campuses, retail parks and London urban logistics. Today it said its assets are showing robust occupancy, with London offices, for instance, at pre-COVID levels of utilisation, and rental growth at its retail parks the strongest in 20 years.
In full-year 2024 it outperformed the MSCI All Property total return benchmark by 300 basis points, something it said was driven by strong estimated rental growth in campuses and retail parks. It said it is delivering this outperformance versus the market because "we have deep development and asset management capabilities, continue to execute well, and are in the best parts of the market".
The portfolio slipped 2.6% to £8.684 billion, with values stabilising in the second half of the financial year.
Speaking to CoStar News, Darren Richards, head of real estate at British Land, said: "One of the key themes is the strength of the occupational fundamentals across the the three strategic prongs we have. The big headline is the rental growth of 5.9% across the board. Every single sector is in excess of our guidance, with campuses at 5.4% rental growth, retail parks 7.2%, the strongest since 2005, and London urban logistics at 10%. We are seeing every one of those sectors enjoy really strong occupational activity."
Richards said the period saw 134,000 square feet taken at its Storey flex office platform, which is at target occupancy at above 90%.
"The measure for these deals is the premium to the traditional [estimated rental value], which is 30% higher than traditional. The beauty of owning campuses is you can expand as you want. Space has come up at 201 Bishopsgate recently where we have put 30,000 square feet of Storey space in, and we are looking at putting some Storey space into 1 Triton Square, where Meta had taken space. The developments are leasing very well. Two obvious ones are are 2FA where 250,000 square feet has been prelet to Citadel with further options to take up to 50% of the development, and 3 Sheldon Square in Paddington, an ultra-low carbon refit which is already 86% let or under offer to companies including Virgin Media."
Richards says there are really positive stats about London offices emerging beneath the headlines.
"You will see reports on overall take-up for London from many saying it is around 13% down but if you just take new and refurbished space it is 12% up in the City and wider West End. In the City you have the highest level of under offers in 24 years. The total amount of active demand is 13 million square feet across London – over half of that in the City – and that is four times the amount of currently available new sustainble stock."
On back-to-work data, BL said for the peak three days of Tuesday, Wednesday and Thursday it is now between 70 to 80% utilisation which is "where we were roughly pre-COVID", Richards said.
"Occupiers are making decisions based on peak occupancy, not on Friday, for instance and London is at the top of global charts."
Retail parks have performed "incredibly well". "There were 2.6 million square feet of deals and very very strong fundamentals. Our parks are 99% full, so that is 865 retail units with only 15 vacant and six in discussions."
"In London urban logistics there has been 10% rental growth and we are building the footprint."
Richards said also critical is values stabilised in the second half. "Values are stable for the second half and down 2.6% overall. It brings us to the maths of British Land as a REIT with a very attractive overall equivalent yield of 6.3% with some alpha from the developments."
Simon Carter, the chief executive said in a statement that 93% of its portfolio is now in its chosen markets.
"Although the geopolitical and economic landscape remains uncertain, with a portfolio net equivalent yield over 6%, 3-5% forecast rental growth and development upside, we expect to generate attractive future returns.”
Analysts at JPMorgan described the net asset value performance as better than expected. "We saw the potential for a 3% beat on [net asset value] today, but it came in 5% ahead at 562p. This means NAV is down just 1% in the second half as values fell 0.2%."
The REIT posted underlying profit of £268 million, up 2%, and is paying a dividend per share of 22.8p, up 1%.
Its EPRA net tangible assets per share are 562p, down 4.4% in the year while the full year loan to value nudged up to 37.3% (FY23 36.0%) It has £1.9 billion of undrawn facilities and cash, with £1 billion of financing activity in the year.
The full year saw disposal proceeds of £410 million, 11% above book value on average. The sale of its 50% stake in Meadowhall Shopping Centre – announced yesterday – to Norges for £360 million, an 8% yield, is expected to complete in July 2024, bringing down the loan to value. The transactions include the joint venture with Royal London to accelerate returns and share risk at 1 Triton Square and disposing of non core assets including an office and data centre portfolio.
The period saw the acquisition of Westwood Retail Park, Thanet for £55 million at a net initial yield of 8.1%.
The portfolio occupancy is at 97%, with campuses 96%, retail parks 99%, and London Urban Logistics 100%. It leased 3.3 million square feet of space, 15.1% ahead of estimated rental values.
Campus leasing of 679,000 square feet was 8.7% ahead of ERV, and a further 316,000 square feet has signed since 31 March 2024, 13.1% ahead of ERV.
Campus under offers as of 17 May 2024 are at 544,000 square feet, 9.3% ahead of ERV, with a further 806,000 square feet in negotiations.
Retail and London urban logistics leasing came in at 2.6 million square feet, 17.8% ahead of ERV, and with 493,000 square feet under offer, 17.9% ahead of ERV.
In FY24, disposals totalled £410 million from assets sold at 11% above book value on average.
As BL continues to recycle capital, BL says priorities remain unchanged.
It said it will continue to buy retail parks opportunistically. Developments have created significant value over the years and it has adjusted its return and yield on cost requirements to reflect the higher interest rate environment, which has also increased exit yields and finance costs.
The pipeline is focused on campuses and London urban logistics. In the year it committed to The Optic, a lab enabled building at our Peterhouse campus in Cambridge and Mandela Way, a multistorey urban logistics scheme in Southwark. More recently it committed to 2 Finsbury Avenue, the office scheme at the Broadgate campus.