British Land loss widens as retail rents trickle in and valuations fall
UK property giant British Land said on Wednesday that it has collected less than half the rent due on its retail properties and that its retail portfolio’s valuation has fallen by more than 26%.
The news came as the firm delivered its full-year results and also said that it's well capitalised and fit enough to weather the Covid-19 storm.
The firm’s underlying profit in the year to March 31 fell 10% to £306 million while its IFRS loss after tax widened to £1.114 billion (due to its valuation decline) from a loss of £320 million in the previous 12 months.
During the last year in retail, the company that owns Meadowhall and Drake Circus, among other retail destinations, said it has been “pragmatic in our approach to leasing, accepting lower rents and shorter leases where it makes sense to maintain occupancy”.
Overall last year, deals of more than one year were 4% below previous passing rent. CVAs and administrations impacted 118 units in the year and rent reductions resulted in a loss of £5.5 million in contracted rent, with store closures accounting for a further £5.8 million. Several of its customers entered administration post-year-end, accounting for a further £5.1 million of lost contracted rent.
But the firm has the funds to get through this tough time. It said it has £1.3 billion in undrawn facilities and cash, with no requirement to refinance until 2024. And the group said it “could withstand a further valuation fall of 45% before any mitigating actions”.
The company has taken a number of steps to ease the burden on its tenant during the crisis, including smaller retailers being released from rental obligations for the three months to June and around £35 million of rent being deferred by customers experiencing financial challenges as a result of Covid-19. At present, while it has collected 97% of the rents due on offices, it has gathered-in only 43% of retail rents.
But the firm said it’s “well prepared for the future [and] well placed to respond to new ways of shopping”.
The company believes that “many of the macro trends that have informed our strategy will accelerate”. This includes the growth of online shopping, “reinforcing our focus on delivering a smaller, more focused retail business. We continue to believe there remains a role for the right kind of retail within our portfolio especially assets that can play a key role for retailers in terms of fulfilment of online sales, returns and click & collect”.
And it thinks that “this will particularly be the case for well located, open air retail parks, which lend themselves to more mission-based shopping and people may feel more comfortable visiting, as well as those London assets located conveniently in-and-around key transport hubs.”
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