Investment bank uncovers long term risk to British Land strategy

Investment bank UBS examined 50 UK shopping centres owned by several real-estate investment trusts (Reits) including British Land, who they found had up to 20 per cent of their total shopping-centre floor space let out to retailers classed as either in administration or with a company voluntary arrangement in place [CVA].

CVAs are arrangements that not only enable struggling companies to repay debts at reduced levels or over longer periods, but also can result in forced rent reductions on landlords, or in some instances allow retailers to back out of leases altogether.

UBS said the floor space impact is ‘significantly higher than the companies’ reported rent impacted by CVAs, which ranges from 2.7 to 4 per cent of rental income.’

“In our view, this poses long-term risks to the retail Reits, including lower rental growth prospects and higher vacancy. Store closures in malls could lead to less pleasant shopping experience, reduced foot traffic and a vicious circle of that could lead to further store closures,” the bank said in its report of the analysis.

They did add, however, that ‘some of the companies may have recovered and come out of administration, or have been bought by other businesses’

But the bank added that it considers ‘these business models to have an above-average level of risk.’

As recently reported in the Times, British Land has been restructuring its business over the last 12 months, combining its retail and commercial office arm into one department.

The company has also sold off 12 Sainsbury’s superstores to Realty Income Corporation for £429million in order to reduce its retail exposure.

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