Should I Buy British Land?

Published in Company Comment on 30 November 2012

Harvey Jones sizes up British Land (LSE: BLND).

It's time to go shopping for shares again, but where to start? There are loads of great stocks to choose from, and I've got my wallet out. So here's the question I'm asking right now. Should I buy British Land (LSE: BLND)?

Land gains

I first considered buying UK property giant British Land several years ago, in the aftermath of the financial crisis. With its share price more than halving from £10 to around £4, it looked a promising recovery stock. In retrospect, I'm glad I didn't bother. Although it has clawed its way back to today's price of £5.46, the last three years has been pretty humdrum. Steady, but humdrum. Yet recent first-half results were pretty decent, prompting me to ask whether now is the time to make a land grab.

Lie of the Land

British Land is a massive real-estate investment trust (REIT) with total assets of around £16 billion, including retail parks, superstores, shopping centres and department stores, and offices in the City of London and West End. It's a high-quality blend of prime retail and office space, and many of its customers have committed to long leases. This has been a mixed year for the UK property market, but British Land has performed well. Its underlying profit before tax rose 3.7% from £5 million to £137 million in the first six months, while net income rose 1.1% to £272 million. British Land hopes to add more than 200,000m of office space in London over the next couple of years, a confident move that chief executive Chris Grigg says is justified by demand. Markets were happy, and the stock is up 6% since then.

Land slide?

Roughly two-thirds of the group's property is retail, the remainder London office space. That leaves it exposed to a further downturn in consumer spending. If the City of London does see its talent and influence drain overseas -- due to higher tax rates, punishing EU regulation and competition from the Far East -- then British Land could also suffer. But with London residential property prices up 7% this year, the nation's capital is still a big draw for the internationally mobile and wealthy.

Grab it now

The board also announced a 1.5% dividend hike, which means that British Land now yields an attractive 4.8%. That's higher than Land Securities Group (LSE: LAND), the other property stock I considered three years ago, which currently yields just 3.6%. Its efforts to cut vacancies and boost rents are also paying off nicely. I don't regret failing to buy British Land back in the summer of 2009, but I like the look of it today. It has battled doggedly through the downturn and should enjoy its day in the sun when the recovery finally comes. And while we wait (and wait...), British Land's yield will reward you with a higher rate of interest than any savings account I'm aware of.

You might prefer this

There are risks to investing in British Land. If you think consumers are going to cut and run, swiftly followed by London bankers, you might want to look elsewhere for your yield. Happily, there are plenty more dividend heroes to choose from, and you can discover some of the best by downloading our free, in-depth report, "Eight Top Blue Chips Held By Britain's Super Investor".

This report by Motley Fool analysts is completely free and shows where Neil Woodford, the UK's top dividend investor, believes the best high-yield stocks are to be found today. Availability of this report is strictly limited, so click here.

> Harvey doesn't own any shares mentioned in this article.

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theredflag 02 Dec 2012 , 7:38pm

Surely there are better bets in this sector? LSP, UKCM for instance? Higher yields and low gearing (esp in UKCM case), with LSP heavily south east/london focussed.

I'm currently drip feeding money into both, good income and eventual recovery play when (if!) asset prices start to increase again (may be some years off but happy to hold).

Milet 28 Jan 2015 , 7:16am

Great post! Though this entry was posted a long long time ago, I can still find it informative and can enlighten every readers.

I am going to share this one to my friend, I believe that she can learn a lot from reading this one. Right now, she is exploring her options on investing on an office space in Singapore. She also contacted the guys from this page and I am still waiting a news or heads up from her.

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