British Land CFO on diversifying in the face of Brexit uncertainty

“Many people might have thought there was a grand master plan for me to return to British Land, but there wasn’t, says Simon Carter, who became CFO of one of the UK’s largest property groups a year ago.

Observers might have reason to think of Carter as the prodigal son. After all, his arrival at the £5.6bn group, which features many of the best-known retail sites in the UK including the Meadowhall Shopping Centre in Sheffield, followed a previous ten year stint at the FTSE-100 group.

So when Lucinda Bell stepped down from the role in 2018, Carter says he was keen to bring to the role his abilities as a strategist and dealmaker he had developed as CFO of Quintain Estates and pan-European logistics group Logicor.

Now those skills are being put to the test as British Land looks to de-risk its position in retail sites in favour of office developments as ecommerce and the onset of Brexit impact the retail space.

“When you have potential economic and political disruption, risk management comes to the fore,” says Carter. As a result, he says British Land has reduced its loan-to-value ratio, the measure of total loans to the value of assets purchased, to 27%- a record low for the group.

At the same time, the group is continuing on a path of changing its investment profile away from a majority retail-focused approach. Last month British Land continued that trend when it sold 12 superstores from its joint venture with Sainsbury’s to Realty Income Corporation for £429m.

“We will reduce our retail weighting, we have done so over the last 4-5 years, selling about £2.5bn of retail assets. At one time we were two thirds retail and one third offices, we’re now 50/50,” he says.

Over the next five years the pure retail side of the business is set to reduce to a third of British Land’s portfolio as the group pursues mixed-use developments which cater to a set of new expectations from clients, which include many global corporations.

“They want buildings where their employees can work in an area of more than just offices, where there’s also retail, residential and leisure uses,” says Carter. “Our campuses in London’s Paddington, Regents Place and Broadgate sites play to that mixed use idea. Increasingly the business will become more mixed use, less about thinking about offices and retail, and more about the combined,” he adds.

The evidence-based arguments for making these investment decisions are very much what Carter brings to the equation, as a strategist using insights captured from data.

Building the skillset

Having studied economics at Cambridge University, Carter gained his accountancy qualification at Arthur Andersen, where he focused on real estate before joining investment bank UBS, before Andersens collapsed in the wake of the Enron scandal in 2001.

Following a lucky break he was offered the chance to be a fixed income trader at the bank, which he describes as good fun, despite high pressure and punishing 11-hour days. He says in that environment “you learn quite a lot about yourself, what you do well and what you don’t do so well.

“In accountancy things tend to be relatively slow-moving and you have quite a lot of time to collect the analysis, interpret the analysis and make a decision- but on a trading floor you don’t. You’ve got to make the best with the information available to you in the timescale you’ve got to make a decision- that’s part of the art of trading. I found that experience quite valuable for the rest of my career,” he says.

Despite the excitement of the trading floor, he says a move to British Land where he became an executive in treasury, was spurred by a desire to work for a corporate where he could blend accountancy experience with an understanding of complex financing. “Compared to other sectors, the financing side tends to be important in real estate,” he says.

In a decade at British Land Carter went from treasury to corporate finance, before running both departments, and then taking over strategy of the group. But a desire to become a group finance chief took him to rival Quintain Estates, which was burdened by its giant Wembley Park project featuring the rebuild of the national stadium.

“They were looking for someone who had transaction and strategic experience because it was obvious there would need to be some kind of liquidity event for shareholders. The company had been in distress , but the management team had turned it around. To take forward its development it needed some kind of capital activity,” he says.

“Our access to capital was not really sufficient to maximise the value of Wembley so effectively finding more capital to move Wembley forward was where you could unlock value- for our shareholders and shareholders of a purchaser as well,” he says.

In the event, Quintain Estates was acquired by US private equity group Lone Star in 2015, but not before activist fund Elliott Capital Advisors made a dusk raid on Quintain shares, that provoked a higher bid from Lone Star.

Carter stayed with the new owners but then left to join Logicor- a fast growing European logistics group that private equity owners Blackstone was looking to offload. “They were looking for a CFO to assist with that sale process- it was a dual track IPO and private sale. It was a great opportunity as I hadn’t worked in a pan-European business before. “

Logicor was bought by China Investment Corporation (CIC), the country’s largest sovereign wealth fund, in June 2017. Carter stayed on with the new owner but then the opportunity to rejoin British Land as CFO came up within a matter of months.

Raising the bar

When he arrived at British Land for a role he describes as “pretty much the only opportunity in real estate that would have taken me away from Logicor,” the transactions and strategy were key areas, but so was building on the reputation for capital discipline Lucinda Bell had developed.

When it comes to the finance function itself, Carter says he is looking to upgrade and enhance the group’s systems. “We’ve got good systems, but the pace of change is quite rapid in that area, so making sure we have the right KPIs on a live basis, that are as forward-looking as possible, is important.

“Understanding the performance of the organisation, but also its likely future trajectory, is also really important and introducing dashboards and that type of thing is something we are very focused on bringing to the business,” he says.

“Like like many modern finance functions, increasingly it’s about the forward-looking and underlying drivers of the business and understanding those. AI is one of the things we are looking at the moment in getting our dashboards as automated as possible,” he reveals.

Ultimately a finance function that is more agile and able to work more closely with other areas of the group through business partnering will be more able to help drive growth of British Land in a fast-changing sector, says Carter.

“Real estate has sometimes been regarded more as an investment class than actually the underlying occupation or fundamentals, so increasingly you need a different type of person and a different set of skills within a real estate business,” says Carter.

“Space as a service is something you will definitely hear more of, so seeing demand from tenants for increasing flexibility, is something we’re well-positioned to provide because we can price it. We have a big portfolio around campuses, so we move occupiers around,” he adds.

An example of this is offered in the form of a recent initiative by British Land at its Broadgate site. “A tenant asked us to help build a women’s network as they didn’t know anyone else in their building. We had an event to bring them all together,” he says.

Carter says he sees the two key aspects of his role- running the finance function and helping drive strategy- as going hand-in-hand. “I don’t think the two are mutually exclusive, they’re both important and they’re almost sort of different sides of the same coin.

“There’s the hygiene stuff a CFO needs to do, which is make sure we prevent fraud and we’ve got good controls around protecting our assets and our revenues. Then there is making the right strategic decisions, so that we create value for our shareholders,” he adds.

Key to the latter is understanding risk appetite, which as chair of the group’s risk committee, he is very close to.  “We have thresholds for the amount of leverage we should have, the development’s risk, the amount of market-letting risk, we manage all of that according to what we think is the external environment and long term strategy,” he says.

“It’s about delivering strategic objectives without taking unnecessary risks, through keeping a constant dial on how the external environment is evolving. Having KRIs (key risk indicators) is a really good discipline,” he says.

Referring to Brexit, Carter says: “Obviously we feel the external risks are a little high at the moment”. But he insist the group has plenty of opportunities it has identified, “we can press the button on if the world turns out to be in line with our base case or a bit better. If things turn out to be uglier, we can just sit on our hands for a period of time,” he adds.

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