British Land Co PLC on Wednesday turned to a loss in the first half of its financial year as higher interest rates hurt property values, it said.
British Land said of recent Bank of England rate hikes: ‘This has directly impacted property yields with the effect most pronounced in lower yielding assets. Looking forward, yields will be heavily influenced by where medium-term interest rates settle, which is difficult to forecast, but we currently expect to see yield expansion across our business in the second half. However, this impact will likely be cushioned by rental growth across our key markets.’
The London-based commercial property development and investment company reported a pretax loss of £22 million for the six months to September 30. This is down from a profit of £373 million last year.
Revenue grew 13% to £215 million from £191 million a year before, as British Land’s shopping centres are seeing higher occupancy.
Operating profit increased 13% to £136 million from £120 million, which British Land said was driven by rental growth and cost control.
However, revaluation of properties brought a loss of £189 million in the recent half-year, swung from a profit of £220 million in the first half of financial 2022. Rising interest rates are ‘dampening’ investor demand for real estate and lowering valuations, British Land said.
Investment activity reduced over the half year, with a slowdown in stock coming to market as sellers are delaying sales, the company said.
Looking ahead, British Land expects to achieve higher rents on remaining spaces, due to a lack of new supply, improving its yield on cost.
The company said it is unlikely to make major new investment commitments in the next 12 months.
British land maintained its construction cost inflation forecast at 8% to 10% in calendar 2022, moderating to 4% to 5% next year.
British Land said it see greater prospects for making opportunistic property purchases in the South East of England as yields on prime property have widened by 50 basis points or more, meaning lower prices.
British Land declared a dividend of 11.60 pence, up 12% year-on-year from 10.32p.
British Land shares were down 1.5% to 390.09 pence on Wednesday morning in London.
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