British Land has become the second major property company to write down the value of its portfolio by almost £1bn after the Covid-19 pandemic led to a sharp fall in the rental income it receives from retailers.
The owner of the Meadowhall shopping centre in Sheffield and Drake Circus in Plymouth cut the value of its property portfolio by 7.3% to £11.2bn. Its write-down mirrors the one undertaken by Land Securities (Landsec), which owns Trinity Leeds shopping centre, Bluewater in Kent and the One New Change shopping centre in the City of London, last week.
British Land said its retail assets have declined in value by almost 15% while its offices have lost 3.1%. It collected only 62% of shop rents due at the end of September (compared with 97% of office rents), as a further 16 retailers fell into administration or opted for a company voluntary arrangement, an insolvency procedure that allows retailers to close shops and renegotiate rents.
As a result, British Land’s underlying profits before tax fell 30% from a year ago to £107m in the six months to 30 September, and its after-tax loss widened from £404m to £730m.
The pandemic has changed the way people work and shop, with many people now working from home.
Simon Carter, British Land’s former finance chief who has taken over from Chris Grigg as chief executive, said: “There is a clear preference from shoppers and retailers for out-of-town, open-air retail parks.” Almost half the company’s retail assets are in such retail parks, which shoppers drive to and which have larger shops where it is easier to avoid contact with other people.
Like its rival Landsec, British Land is betting on a revival in the office market and said overseas investors, mainly from Europe, were still looking to buy prime London offices. It will focus on building mixed-use campuses with flexible workspace, such as the huge 21.4 hectare (53-acre) project at Canada Water in east London, where up to 3,000 new homes are planned alongside offices and shops.
Susannah Streeter, a senior analyst at Hargreaves Lansdown, said: “British Land is trying to get its house in order, to prepare for potentially long-term changes to the way we use office and retail space in the future.
“Trying to second guess the extent to which pandemic habits will stick won’t be easy, but it is becoming clear office space and how we shop is undergoing a major rethink.”
British Land has offloaded £675m worth of properties since April, including £456m of retail assets, and expects to sell at a similar rate going forward. Landsec plans more drastic changes and intends to sell £4bn of assets – a third of its portfolio – in the next four to five years, including its hotels, leisure properties and retail parks, which have been badly affected by the pandemic. Both companies have resumed dividend payments to shareholders.