Land Securities (LSE: LAND) and British Land Company (LSE: BLND) have used up plenty of newspaper ink over the past year. With Brexit uncertainty smacking consumer confidence, and retailers going out of business at an alarming rate, these FTSE 100 retail property giants have seen profits evaporate and debts soar out of control.
While Brexit hastened their misfortunes, these firms have been in danger long before the referendum even took place in 2016. Why? The rocketing growth of e-commerce that has put the future of bricks-and-mortar operators in increasing peril.
It’s clear that the coronavirus crisis has boosted the rate at which internet shopping is being adopted by the masses too. With Britons banged up in their homes, the only way to hit the shops is via virtual means.
Physical retail is losing relevance
According to commerce platform Poq, retail app downloads in the final fortnight of March matched levels seen during the peak shopping season around November’s Black Friday. It notes that “with more shoppers downloading apps, we anticipate seeing them spend more time interacting with brands through this channel.”
Shopping with mobile devices has been the major driver of internet retail sales in recent years. Rising app adoption during the pandemic thus gives the likes of Land Securities and British Land even more to worry about.
The UK-wide lockdown is playing havoc with these FTSE 100 companies’ operations. Only one of British Land’s shopping sites (the Valentine retail park in Lincoln) is shuttered, sure. But only 12% of the company’s units remain up and running. It looks likely, then, that more rent deferral requests will come in, and the number of its tenants experiencing intense financial distress will balloon too.
Earlier this month, Land Securities took steps to help its beleaguered clients by establishing an £80m rent relief fund. LandSec says that it had received just 65% of the rents it had been expecting by March 25 too. This compares with 96% a year earlier.
Incidentally, both these blue-chips have taken the decision to bin dividends in response to the current crisis.
FTSE 100 firms in a fix
Don’t think that these firms’ troubles are confined to the issues facing the physical retail sector though. The coronavirus crisis has led to an explosion in the number of people working at home. It’s a phenomenon that has possibly hurried the longer-term adoption of remote working in this country.
Its London office empire accounts for a whopping 55% of British Land’s asset values. Exactly half of LandSec’s come from its offices too. So their troubles look set to be far and wide.
Neither of these FTSE 100 companies are expensive. Both trade on a forward P/E ratio of around 12 times, far below their historical averages. These readings are still not enough to encourage me to invest though. Even if they survive the Covid-19 breakout and the imminent recession, their long-term earnings outlooks still remain quite shaky. I’d rather invest my hard-earned cash elsewhere.