British Land Co PLC on Wednesday said that falling inflation has led to markets anticipating interest rate cuts as it noted that higher interest rates impacted its property yields.
The London-based commercial property developer and investor said it swung to a pretax profit of £15 million in the financial year ended March 31, from a loss of £1.03 billion a year prior.
‘Our operational momentum continued, with strong leasing, additional fee income and tight cost control offsetting the temporary dilutive impact on earnings of buildings moving into development, resulting in 2% underlying profit growth. Leverage is well within our target range, especially at this stage in the cycle,’ British Land said.
Revenue grew 38% to £575 million from £418 million.
Rent receivable edged up to £309 million from £306 million, while service charge income remained flat at £59 million.
The company noted £152 million in revenue via surrender premia for financial 2024, compared to just £1 million in financial 2023. In September 2023, the company completed a deed of surrender regarding an in-force lease of one of its investment properties. The consideration for the surrender was a £149 million premium paid by the tenant on the completion date.
Costs increased 51% to £146 million from £97 million.
British Land noted higher interest rates affecting yields, saying: ‘Increases in market interest rates in the first half of the year caused property yields to move out, impacting our portfolio values which declined by 2.6% over the year.
‘However, in the second half of the year the pace of yield expansion slowed significantly with values down only 0.2%, as a ten basis points increase in yields was offset by 2.6% rental growth.’
British Land declared a final dividend per share of 10.64p, down 3.6% from 11.04p a year prior. As its interim dividend had been 4.8% higher year-on-year, it brings the total payout to 22.80, up 0.7% from 22.64p paid for financial 2023.
Looking ahead, British Land expects estimated rental value growth of 3% to 5% in each of its markets, after climbing 5.9% in the just posted financial 2024, up from 2.8% a year prior.
The company said inflation ‘has declined, and markets are now anticipating interest rate cuts,’ adding that ‘our base case is that we will be operating in a more supportive economic environment over the next 12 months than we have seen in the last two years.
‘With inflation lower, the next move in the base rate is likely to be down rather than up and although UK GDP growth is expected to be modest at best, most forecasts are for it to be positive.’
British Land shares rose 2.2% to 403.40 pence each on Wednesday morning in London.
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