British Land shares are trading lows of the day, extending a mid-June downtrend to trade their worst since mid-April. This comes in spite of another 3% hike in quarterly dividend and Office occupation holding firm at a healthy 98%. Furthermore, in terms of Office outlook, 64% of the pipeline has already been pre-let or under offer. This represents an improvement of almost 10pts since May and suggests that the division is doing just fine in spite of mounting economic uncertainty related to Brexit.

What sticks out, however, and weighing on sentiment this morning, is not the observation that Retail remains challenging – it’s no secret that he UK high street faces tough times and management even highlights “The impact of long-term structural change driven by the internet being compounded by short term trading headwinds”.

For us it’s the Retail occupation level of 96.4% down from the 98% published in full year results, coupled with the even more worrying clarification that CVAs (company voluntary arrangements for restructuring) now account for 1.6% of rents. Not a huge figure, granted, but it’s up 60% from the 1.0% rate the company says it was running at in May when FY results to end-March were published. However, even that flatters the situation, as it represents a 2.6x increase from the 0.6% rate reported in the FY results themselves.

While the high street landscape and shopping trends continue to change, investors are sure to keep a beady eye on both occupation levels and CVAs rates going forwards, especially if they continue to diverge unfavourably. Even if Offices can handle the divisional strain, for now.

Mike van Dulken, Head of Research, 17 Jul 2018