Office workers have flooded back into their workplaces following the end of Covid-19 lockdowns. And pleasingly for FTSE 100 stock British Land (LSE: BLND) — a property stock with a large focus on London — the level of returnees has been particularly strong in the capital. Around 70% of its portfolio is comprised of its assets in Broadgate, Paddington Central and Regent’s Square.
London is the economic heart of the country and a city with global appeal. So it’s no surprise that British Land investors expect the FTSE 100 stock to get back to winning ways as the threat of the pandemic recedes.
I’m not one who sits in this camp, though. Use of office space is recovering, as I say, but the long-term future of this sector is uncertain as flexible working takes off. The need for people to come into the office five days a week (if at all) could be nearing extinction for many many businesses. This raises the prospect of weak rents and empty premises for the likes of British Land.
A debt-laden FTSE 100 stock
But British Land is about more than office blocks. I like the company’s attempts to increase exposure to urban logistics and retail parks, property segments that look set for strong and sustained growth as e-commerce takes off. Last month the FTSE 100 business paid £157m to purchase three warehouse assets in North London, for example.
However, office space is the bread and butter of British Land and will remain so. I’m also concerned about the company’s exposure to other non-retail-park retail assets, which stand to suffer as online shopping continues to grow.
It’s also worth remembering that British Land has acres of debt sitting on its books following the pandemic. Latest financials in November showed this sitting at above £2.9bn as of September. Such a huge burden is likely to damage the company’s expansion into other fast-growing parts of the market. It could also hold back dividend growth in the near term and beyond.
Speaking of dividends…
Having said that, it’s worth mentioning that British Land carries a fatty dividend yield for the upcoming financial year. City analysts reckon the firm will pay a 20.75p per share dividend in the 12 months to April 2023. That results in an 3.9% dividend yield, a decent distance above the 3.5% average for FTSE 100 stocks.
I’m concerned though that this predicted payout is barely covered by anticipated earnings. Dividend cover sits at 1.2 times, well below the widely-considered safety benchmark of 2 times+ earnings. This is particularly concerning given that British Land’s massive debts mean it has little balance sheet wiggle room to meet these estimates.
Today British Land trades on a forward P/E ratio of 20.8 times. I think this is far too high given the threats it faces from flexible working and e-commerce. And that dividend yield isn’t enough to enourage me to buy, either. I’d much rather buy other FTSE 100 dividend stocks in April.