No. of Recommendations: 8
How do you think British Land (REITS) would perform in such an environment?
They are pretty much purely local. If the pound loses 10% of its value on a trade weighted basis, their revenue and expenses and profits will all fall about 10% on a trade weighted basis. At least there is no material unbalanced currency exposure. To a first approximation one would expect the price to be flat in sterling terms.
The other big input is of course interest rates. If the UK economy takes a steeper turn downwards, it's pretty likely that an interest rate cut could happen and one might see a period of lower [re]financing rates for them. On the other hand, if the economic slide is precipitated by a bond market crisis like a buyers' strike, then all refinancing interest rates will rise and that's bad for them.
Overall, their profits (and any share price gains) come from selling properties for more than they cost because the great majority of their current income is simply paid out as dividends. A weak currency could in theory make real estate more attractive to foreign buyers (good), but perhaps more likely is that it would be accompanied by a weak economy which isn't good for real estate prices as a rule (bad).
British Land (BLND.L)'s stock price was about 870 pence a decade ago, and is 335 now, so without the dividends the price has been falling 9.1%/year. Buyers today are optimists who think the pain is over, the price having fallen more than the value, and at least that the yield will offer a positive return from here. I'm among them, though I can't say the investment case is flawless. My position looks good measured in shrunken US dollars, because I sold US dollars to buy the position when the US dollar was a lot higher than it is now.
Jim
