More on British Land
British Land: 2006 results
British Land reported that Net Asset Value (NAV) per share rose 32% to 1486p in the year to March 2006.
Now 150 years old, British Land traces its origins the electoral Reform movement of the mid-19th century, when few people had the vote, but ownership of an interest in land worth £2 in rent per year conferred voting rights. British Land bought tracts of land, mostly in and around London, which could be sub-divided into plots on which houses could be built and votes obtained. However the company’s political significance did not last for very long and it was soon operating as a conventional property management company.
After a period of rapid expansion in the recent past, the company, which owns and manages some £18bn of prime property, has grown to be Europe’s largest quoted property company by value of assets under management.
The company’s pre-tax profit rose 117% to £1,696m for the year to March 2006, helped by large revaluation gains. Net revaluation gains (including profits on disposals) reached £1,462m for the year.
The company attributes the stronger earnings to rental growth (which it says was ahead of the market overall); strong gains in fee and other income from the acquisition of Pillar and its subsequent outperformance and dividends from Songbird (an investment company that owns 60% of Canary Wharf); and a lower average interest rate (due to the Broadgate debt refinancing last year).
The company has benefited from booming property markets, with strong increases in property values to reflect higher levels of rent (what is called a ‘yield shift’ the property development parlance). The company admits that overall property values now fairly reflect rental growth prospects so growth will start flatten off.
Further, the property market as a whole is likely to cool, with higher levels of interest rates and lower levels of consumer spending working to keep prices down, something British land itself admits.
The company expects that the property market will “pass from its period of ’super-normal’ returns and future success will be determined by the ability to add value in a lower growth, more demanding environment”.
The company however, takes a very long-term view on investment in land, for example buying ownership of the 30 acre Broadgate Estate in stages over a 20 year span and the Regent’s Place Estate, half purchased in 1984, the other half in 1986, which is still in course of redevelopment and revitalisation.
Investors taking similar views are likely to find value in the stock, although those with a shorter-term investment horizon might find the share overpriced.
Proposed legislation on Real Estate Investment Trusts (REIT’s) although not finalised, are thought to confer tax advantage to investors and could add some upside to the sector. British Land is expected to benefit from this and management says it will “in principle to apply for this status from the earliest possible date”.
The share trades at 1207p, at an 18.7% discount to its NAV with a yield of 1.7%.
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