British Land has said that it has agreed to exchange to sell 12 superstores from its Sainsbury’s JV for GBP 429 million, which represents a modest premium to its September 2018 book value. The GBP 193 million which represents its share of proceeds contributes about 1.5% to its September portfolio value.
The deal was greeted positively by analysts. Julian Livingstone-Booth, an analyst with RBC Europe, said:
“We believe British Land’s announcement shows positive progress in delivering on its plans to reduce exposure to retail. However we expect limited positive impact on its share price given the size of this disposal and the properties sold. The 5% net initial yield implies these are British Land’s better quality superstores. Further significant declines in retail exposure will likely be more dependent on some retail parks and/or shopping centre disposals, in our view.”
Analysts and investors are obviously keen that British Land is not too heavily exposed to what is anticipated to be an ongoing decline in the health of the UK bricks and mortar sector, highlighted most recently by problems with Debenhams and discussed in detain in the latest Armchair Trader podcast.
British Land has now reduced its superstore portfolio from over 10% to just under 2%, which is a significant reduction by anybody’s measure. The net initial yield of British Land’s superstore portfolio was 5.7% as at September 2018, suggesting the remaining stores have a somewhat higher valuation yield.
British Land shares have been staging something of a comeback since the beginning of the year when they were trading at just north of 520. The share price rallied in the first couple of the months of the year and has reached a high of 614 on 19 March but has been more range bound since then.
British Land shares have seen a steady decline in the last few days of trading, dropping from 614 to 587. The stock is nowhere close to its 52 week highs of close to 700.
British Land has now exchanged or completed on nearly GBP 646 million since April 2018, marginally ahead of book value. These disposals include the sprint pub portfolio and the Debenhams store in Clapham. The valuation of its superstore portfolio was down 0.7% in the first half of FY 2018/19, compared with the 5.2% hammering its buy to let portfolio took.
According to Royal Bank of Canada, 49% of the valuation of British Land’s portfolio at the end of September 2018 was in retail property, with 40% in multi-let property like shopping centres and retail parks and another 9% in leisure property like department stores. RBC says the disposals to date are increasing British Land’s exposure to shopping centres and retail parks overall, but this is in line with its strategy.
