British Land REIT (LON: BLND) shares were worth 630p at the start of 2020. Three months later, they had fallen to 314p as the covid-19 pandemic hit.

And despite recovering to 530p, the FTSE 100 REIT is still down 16% over the past five years.

But this might be a buying opportunity for position investors.

British Land REIT: investment case

British Land has £13.3 billion of assets under management and owns £9.8 billion of this portfolio. It boasts an overall 95.5% occupancy rate over its 21.6 million square feet of floor space, and a weighted average unexpired lease term of six years.

The REIT classifies its assets into two investing themes: campuses and retail & fulfilment.

The three London campuses, in Broadgate, Regent’s Place and Paddington Central, account for 70% of its portfolio, with a fourth currently in development at Canada Water. Retail and Fulfilment, which comprises the remaining 30%, mostly consists of out-of-town retail parks and shopping centres.

The FTSE 100 REIT’s 53-acre Canada Water is its ‘most significant development,’ which will deliver a ‘compelling commercial and retail offer alongside a range of public and leisure spaces and up to 3,000 homes.’

In May’s full-year FY22 results, the REIT posted a profit of £960 million and saw rent collection rise to 97%, nearing pre-pandemic levels. This compares favourably to its £1.08 billion loss in FY21, and to further losses in the two years prior.

Moreover, its portfolio value rose by 6.8%, driven by a 20.7% jump in the valuation of its retail parks, as EPRA Net Tangible Assets jumped by more than 12% to 727p.

Further, British Land lauded its £2.2 billion of capital activity, including the £694 million sale of its stake in Paddington Central to GIC, £350 million investment into retail parks, and an ‘urban logistics development pipeline with a gross development value of £1.3bn, focused on London where the supply-demand imbalance is most acute.’

CEO Simon Crater told investors ‘we have delivered a strong performance across all parts of our business as we continue to execute against our strategy.’

British Land: FTSE 100 defensive stock?

Carter enthused that ‘In London, demand continues to gravitate towards the best, most sustainable space where our Campuses are at a distinct advantage.’ Further, he thinks that the ‘fundamentals of Urban Logistics in London are compelling given the chronic shortage of space,’ creating an excellent investment case for the REIT’s £1.3 billion development pipeline.

The key risk for British Land is sustained lower demand for office space as companies move towards hybrid models of working. The Office for National Statistics noted that this included 24% of the entire UK workforce in May, with the tight labour market making it difficult for employers to insist on a full employee return.

But Remit Consulting data shows that London’s office weekly occupancy rate hit 29% in the week ending 13 May, the highest level since the pandemic began. Of course, this is still far below pre-pandemic levels.

However, Carter told the Guardian that ‘we have had the best year for London leasing in 10 years… London will need less space because of working from home, but it is going to need better space…that is what we are seeing in our leasing activity.’

Mark Allan, CEO of rival LandSec, echoed his thoughts, saying its own successful full-year results demonstrate ‘strong demand for high-quality space,’ with ‘record leasing in our London office portfolio.’

While some office leasers are struggling, the central location and modernity of British Land’s campuses mean that it could benefit from higher demand from companies determined to make coming back to the office an easier choice for reticent employees.

Still significantly below its pre-pandemic share price, and with demand, valuations, and rental income up, now could be a buying opportunity for FTSE 100 British Land shares.

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