Property developer and investor British Land PLC (LON:BLND) reported a 2.9% decline in net asset value in the first half as a downturn on the high street weighed on its retail portfolio.
The company, which develops and lets offices, retail space and residential properties, said its net asset value per share fell to 939p on September 30 from 939p on March 31 with property valuations down 1.9%.
The valuation of its retail portfolio dropped 4.5% while office valuations increased 0.7% and property developments gained 7.2%. The company blamed the decline in the retail portfolio on a “challenging market”.
CVAs and administrations hit retail business
Weak consumer confidence and online competition have hit bricks and mortar retailers, leading to the collapse of a number of chains including Maplin and Toys R Us.
Other retailers such as Mothercare plc (LON:MTC), Carpetright PLC (LON:CPR), New Look and House of Fraser have used an insolvency process known as a company voluntary arrangement (CVA), which allows companies to close stores and negotiate lower rents on remaining sites.
READ: CVAs explained: What is a company voluntary arrangement?
British Land said in the past 18 months CVAs and administrations have had an annualised rental impact of £14.7mln, including a £9.5mln hit related to space that has become vacant.
In the first half, CVAs and administrations in the retail portfolio reduced net rents by £6mln. Excluding the impact of CVAs and administrations, like-for-like rental growth was 2.3% across the portfolio, led by a 5.8% increase in the offices business.
Total net rental income fell to £267mln in the first half from £297mln last year while underlying profit dropped to £169mln from £198mln.
Adjusted for IFRS accounting measures, the company swung to a pre-tax loss of £42mln from a £238mln profit a year ago.
British Land makes progress on strategy but outlook uncertain as Brexit looms
In May, the group announced a strategy to improve its performance by reducing the size of its retail business, focusing on London campuses in the offices division and making its residential unit primarily build to rent.
British Land said it was making progress on the strategy but remained cautious on the outlook.
“Looking forward, demand for the highest quality London office space is expected to continue, but we remain alert to potential uncertainties as the Brexit process unfolds,” said chief executive Chris Griggs.
“We expect retail to remain challenging in both the occupier and investment markets as the impact of long-term structural change is compounded by short-term headwinds. Against this backdrop, our strategy is clear, consistent and focused on the long term. We have created attractive options across our business to drive future growth and benefit from the expertise, financial strength and flexibility to deliver them."
British Land raised its interim dividend by 3.0% to 15.5p. The group completed £94mln of its £200mln share buyback on Tuesday.
Nicholas Hyett, equity analyst at Hargreaves Lansdown said: "The fact British Land continues to reduce leverage clearly suggests it’s cautious at the moment. But with share buybacks adding to NAV per share and relatively low debt piles, it’s also building up some significant firepower to invest as and when it sees opportunities."
In the longer term, Hyett believes larger shopping destinations like British Land’s Meadowhall will have some defence against online retailers. He said shopping at such centres is a pastime as much as a necessity and the closure of other retail destinations will help.
Shares rose 2.9% to 638 in mid-morning trading after an initial decline.