Why completion, not conviction, matters

EDITOR’S COMMENT You’ve got to give kudos to anyone who has actually managed to splash a decent amount of cash this year. It has not been the greatest vintage when it comes to dealmaking, let’s face it. But that kudos does have to go to British Land. While its peers may have been pretty bullish on their convictions this year, outlining how much cash they have to invest, British Land has just quietly got on and done it. The REIT has faced a bit of a bashing over recent months – years, perhaps – for being a bit bland when compared with its rivals. Simon Carter is a sensible finance man. Quiet. Mark Allan is a bit more vocal, a bit riskier perhaps. No less sensible, but a different personality. But with both REITs reporting results over the past week, there is a clear difference in activity. While Landsec reported £690m of divestment and investment activity over the first six months of its financial year, BL reported almost £1.2bn of activity. Both were pretty even when it came to disposals – £464m for Landsec and £456m for BL – but when it came to buying, BL was streets ahead. Landsec, which in May said it was ready to spend around £600m on its conviction class – major shopping centres – managed to invest just £140m over the six-month period, with most of that being spent upping its investment in the 1.6m sq ft Bluewater shopping centre in Kent. British Land, on the other hand, has spent some £711m on its conviction call: retail parks. Since outlining that it wanted out of shopping centres and more heavily into retail parks, the REIT has increased the number of its assets in that sector by around one-third. Retail parks now make up 32% of BL’s portfolio, compared with 15% when it set out its strategy back in 2021. The conviction is paying off too. BL’s parks are 99% occupied; the segment recorded the biggest uplift in portfolio value, up by 5.1% to £2.5bn; delivered the largest shift in ERVs, up by 3.7%; and delivered the highest returns across its portfolio at 9.2%. Since 2016, there have been more than 5,000 net store closures on the high street, more than 1,200 in shopping centres but 733 new openings on retail parks, according to BL. And it expects these numbers to continue to grow in their respective directions, particularly post-Budget when more retailers are expected to shift to a more “cost-efficient format”. “These strong occupational fundamentals combined with low capital expenditure requirements, pricing below replacement cost and 6-7% cash yields on day one, make retail parks an attractive investment,” says Carter. His conviction on retail parks isn’t getting any lighter. And while space is sparse, the REIT reckons there is still plenty of opportunity to buy out there. Competition might be tight, but BL says it is ready, willing and able to roll up its sleeves and asset manage where some other potential buyers aren’t. Landsec, despite the not overly impressive volume of done deals, has at least been trying to stand by its conviction. The REIT has thrown its hat into the ring on all the of prime malls that have come to market and is expected to be victorious in its second attempt to acquire the Liverpool One development – this time taking the whole asset for around £500m, rather than just ADIA’s stake. But, with such a small volume of properly prime shopping centres in existence and zero chance of any more being built, should Landsec switch its conviction to resi? With a potential £3bn portfolio of 6,000-plus homes in its pipeline, it might be a safer bet. Talking the talk is fine and very much expected and encouraged in this industry, but you’ve got to be able walk the walk too. It’s all very well having a conviction, but you have to put your money where your mouth is. And that is exactly what British Land has done.