British Land doubles down on retail park market with £441m profit

British Land has agreed to buy Brookfield retail parks worth £441m, as the FTSE 100 owner doubles down on the booming sector.

The Broadgate owner has raised its investment in retail parks since 2021, as its core office-focused campus business struggles to recover from sharp valuation falls following the Covid-19 pandemic and the 2022 mini-budget.

The group has launched a share placement to raise around £300m from investors to help pay for the latest acquisition, alongside using existing cash and borrowing facilities.

British Land said it was a “non-preemptive” placing of a £293m and £6.7m retail offering, both priced at 422 pence per share, representing a 3.6 per cent discount to the last closing.

Simon Carter, chief executive of British Land, said: “We are delighted with the outcome of this significant capital placement for British Land, which we are using to acquire this attractive portfolio of retail parks with strong rental growth prospects.”

Matt Britzman, senior equity analyst at Hargreaves Lansdown, said the current shift of consumers from high streets to out-of-town retail stores “is clearly a trend that companies are trying to capitalize on”, noting that Greggs is adopting a similar approach. for new locations.

The FTSE 100-listed company, which expects to post an underlying profit of £142m to £144m for the half-year to September 30, said it consulted with a number of its major shareholders ahead of the share placement.

British land shares fell sharply at the open, but regained ground to trade 0.59 per cent lower at 435.2 pence by late morning, having risen more than 40 per cent in the last year.

Oli Creasey, property analyst at Quilter Cheviot, said: “The retail park sector is currently very active, with British Land’s existing retail parks increasing in value by 5 per cent in the last six months, outperforming the retail park index. “.

‘This suggests that British Land owns some high-quality assets. Expanding this portfolio appears to be a smart move as they are buying into a sector with momentum.’

Creasey added that the capital was raised at a discount to British Land’s net asset value of around 25 per cent, which is “normally only done in emergency scenarios”.

He said: ‘However, British Land could argue that this is a once-in-a-cycle opportunity to improve exposure to its preferred asset class, making the NAV dilution worthwhile. The transaction is not huge, so the dilution impact is not significant and they are getting a decent deal.

‘The share price initially fell, possibly reflecting market nervousness about the new capital raise.

‘While it is still not a full sign of approval from the stock markets, nor is the initial reaction too harsh, this may simply reflect the physical dilution effect of the capital increase. Therefore, this acquisition may still prove to be a good deal for British Land.’

Andrew Saunders, analyst at Shore Capital, added: ‘British Land shares have enjoyed a good run since we became buyers in March and the repositioning of the portfolio to focus on campuses, business parks and urban logistics has moved further ahead. .

‘This year, we have also overlooked the concerns we previously had about discounted share issuance… where there is a strong story of earnings growth, but in this case it looks much less compelling in the medium term.

“Along with the recently announced departures of the senior leadership team, including CFO Bhavesh Mistry, who is moving to Kingfisher, and real estate director Darren Richards, we believe now is an opportune time for the stock to take a pause to take a breath and, consequently, move our recommendation from buy to hold”.