More on British Land
British Land
London based real estate company British Land reported improved rental income and operating profits, driven by improving rental returns. British Land is fairly evenly split between Central London offices (40% including a major development in Broadgate) and retail (48% including the Meadowhall Shopping Centre, 88 supermarkets and 66 retail warehouses). The remainder of British land’s properties are split between smaller operations including industrial and residential developments as well as properties being developed. As at end September, the portfolio was valued at £9.8 bn.
British Land’s net assets grew by £450m in the first half of 2004 to £5,485m, the main increases being in retail warehouses (up 9%, representing £125.9m of the increase in net assets) and London offices (up 3.2%, contributing £110m), largely due to new developments. Developments completed since 31 March have added over 1.1m sq ft to the portfolio, mainly in the City of London.
British Land’s net rental income rose 10.7% (to £231.9 million) mainly due to the buyout of GUS’s interest in British Land’s subsidiary BL Universal (£20.1 million) and new lettings and rent reviews (£7.2 million). Share of joint venture operating profits reduced by 13.6% to £33.8 million (2003: £39.1 million), reflecting changes in ownership.
Higher borrowing costs (£171.7m against £163.9m last year) and a lower level of profits from property disposals (£4.7m against £15.9m last year) resulted in British Land’s pre-tax profits declining to £80.1m (2003: £86.9m).
British Land announced in February that it was acquiring 23 freehold and long leasehold Debenhams department stores totalling 3.28 million square feet for a value of some £495m which increase the value of British Land’s retail property portfolio to over £6.4bn (based on September 2004 values and subsequent acquisitions). The stores are located in prime positions on high streets in major cities and are leased to Debenhams for a term of 30 years from March 2004
The stores were taken at a total rent of £27.9m per annum from March 2005. The rent increases annually by 21/2% compound (except for the four years from March 2010 when it increases annually by 3%), with a review in March 2019 and five yearly thereafter to the higher of market rent or the initial rent as grown by 21/2% per annum.
This follows British Land’s purchase of Princes Square and Southgate in East Kilbride Shopping Centre for over £60m, (in January)cr eating one of the largest shopping centres in the UK and the largest in Scotland. It is part of British Land’s strategy to increase its exposure to retail assets (currently around half its portfolio) which are believed to be less risky, although poor christmas sales have put retailers under pressure.
British Land is bullish on its outlook for the market, the chairman remarking that “more and more investors recognise the long-term attractions of investing in property”, which is precisely why we believe that the market is now over valued.
At 885p British Land share are at fair discount (16%) to the net assets per share and on this basis looks rather cheap, albeit in a sector where the growth prospects look poor. The prospective yield is not attractive at 1.7%.
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