British Land Co. PLC's new CEO Simon Carter highlighted four key priorities for the major U.K. landlord in the years ahead, as he officially took over from outgoing CEO Chris Grigg during the company's fiscal 2021 first-half earnings call.
The company, which owns a property portfolio of mostly London office assets valued at around £10.3 billion, will focus on mixed-use property, progressing development opportunities, mitigating its exposure to retail, and increasing capital recycling through acquisitions and disposals.
Carter, who was British Land CFO since 2018, takes over as the company absorbs the impact of the COVID-19 pandemic on its property assets. The value of the landlord's portfolio fell by 7.3% in the six months to the end of September. Retail, which accounts for around 30% of its total portfolio value, fell by 14.9%, while offices decreased by 3.1%.
Looking ahead, Carter said the company's financial strength and other attributes developed during Grigg's time as CEO would underpin the priorities. "We'll be smart in our approach, we'll act at pace, and already we're delivering in each of these areas," said Carter.
British Land's focus on mixed-use aims to build on its experience developing the 5 Broadgate campus in Central London, which was completed in 2015 and sold to Hong Kong's CK Asset Holdings for £1 billion in 2018.
The company is in the early stages of developing a 53-acre site at Canada Water in East London, which will include 2 million square feet of workspace; 1 million square feet of retail, leisure, entertainment, education and community space; and 3,000 new homes.
"Our mixed-use specialty will remain at the core of what we do," said Carter. "It complements our skills, is what our customers and their people increasingly want, and it gives us the ability to tilt our offer to the sectors with the best fundamentals."
British Land's Canada Water scheme is a key part of its plans to progress "value-accretive development." The company has 8 million square feet of development opportunities that focus on its mixed-use campuses and Canada Water.
"We can progress them rapidly when it makes sense," said Carter. "This combination of optionality and flexibility is key — and most are in and around our campuses, so it's another way to further enhance our core business."
Carter's plans to "address the challenges in retail" will involve a combination of active asset management and capital recycling. The company sold £456 million worth of retail assets in the six months to the end of September as it moves to reduce exposure to the beleaguered sector and recycle capital into its mixed-use business.
British Land collected just 62% of quarterly rent due in September from its retail tenants as occupiers struggle to stay afloat amid the ongoing impact of the COVID-19 pandemic.
The company's exposure to retail has dragged on its share price in recent years as brick-and-mortar retailers struggled to adjust to the rapid growth of e-commerce. Retail and leisure comprised almost 50% of the company's total portfolio value as recently as 2018.
British Land will focus on delivering sustainable retail rents as part of its approach to the sector, but expects them to fall by another 10% to 15% before bottoming out, Carter said. The company is also exploring opportunities for repurposing retail space or adding other uses to its retail assets where possible, he added.
"It will not work in all locations," said Carter. "But our initial assessment is that we have more than 1 million square feet of retail space and surrounding land which we could convert into nearly 2.5 million square feet of logistics, residential and office space."