RBC downgrades British Land in face of Covid and disposal challenges
Analysts at RBC Capital Markets have downgraded British Land’s stock to “underperform” on the back of the ongoing Covid-19 pandemic and an ambitious disposal programme.
An equity research team led by Julian Livingston-Booth said in a 14 January note that British Land faces a “challenging outlook” across various markets, as well as questions over its ability to meet goals of selling properties.
British Land shares have gained 41% since late September, the bank said, versus just 15% for shares in UK REITs in general. They closed yesterday at 453p. RBC is keeping its price target for the company’s shares at 400p and downgrading its rating to “underperform” from “sector perform” given the recent rise.
Analysts at RBC Capital Markets have downgraded British Land’s stock to “underperform” on the back of the ongoing Covid-19 pandemic and an ambitious disposal programme.
An equity research team led by Julian Livingston-Booth said in a 14 January note that British Land faces a “challenging outlook” across various markets, as well as questions over its ability to meet goals of selling properties.
British Land shares have gained 41% since late September, the bank said, versus just 15% for shares in UK REITs in general. They closed yesterday at 453p. RBC is keeping its price target for the company’s shares at 400p and downgrading its rating to “underperform” from “sector perform” given the recent rise.
“We believe the size of the positive re-rating in British Land’s share price multiple in recent months is at odds with a still challenging outlook for its real estate markets,” the team’s note read.
“A higher pace of retail property disposals appears challenging in our view, while London office disposals increase its exposure to retail property.”
In interim results announced last November, new British Land chief executive Simon Carter said the company had offloaded more than £450m of retail assets and £220m of offices during the six months to October. He told EG at the time that he expected that pace of disposals to continue and for the company to take “a more active approach to capital recycling”.
Since then, British Land has struck a deal to sell a majority stake in a trio of West End offices to Allianz Real Estate for £401m, and has also sealed smaller deals to offload retail sites including the Debenhams store in Chelmsford.
RBC argues that the office disposals will, in the near-term at least, increase British Land’s exposure to retail property.
“Having successfully sold most of its single-let retail property in recent years, its remaining retail property outside of central London is predominantly retail parks and shopping centres,” the analysts wrote. “Disposing of such properties would likely benefit investor sentiment, but is likely to be challenging in our view. We believe the limited number of disposals of these types of property by British Land over the last decade is supportive of our view.”
RBC sees “negative trends” in British Land’s key markets, anticipating peak-to-trough rent falls of up to 27% for central London offices and 38% for average-quality shopping centres. “While we expect British Land’s campus-focused office portfolio and retail park-heavy retail portfolio to fare considerably better, the trends we forecast across its business as a whole are still clearly negative,” its note added.
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Photo: British Land’s Broadgate Campus © HayesDavidson
