British Land Co plc Ordinary 25p (BLND)

Company overview

British Land is one of Europe's largest Real Estate Investment Trusts (REITs) with total assets, owned or managed, of £15.2 billion (British Land share £9.9 billion), as valued at 30 June 2011. The group's property portfolio is focused on prime central London offices and out-of-town retail developments and is home to over 1000 different organisations. Retail assets account for 64% of its portfolio, around 80% of which are located at prime out-of-town sites. Central London offices currently comprise 33% of the portfolio - rising to an estimated 38% on completion of current developments. British Land is headquartered in London, listed on the London Stock Exchange and is currently a constituent of the FTSE 100 Index.

HL Comment (9 February 2012)

Occupancy, income, estimated rental value and, importantly, underlying profits all rose in the third quarter for property group British Land. Profit before tax in the October to December quarter rose 6.3% to £68 million, while the valuation of the group's portfolio moved up 0.1% to £10.3 billion. Management reported progress in its office development programme, with locked in future annual rent of £32 million through a series of binding pre-lets. This equated to 50% of the group's office development programme being pre-let, with completion envisaged between 2013 and 2014. Given the uncertain economic outlook, the company reaffirmed its defensive position in preparation for when economic growth returns.

Negative Points:

• A key downside risk for the group's City of London office exposure would be a major setback in the financial markets, and hence a demand for space.
• A reduction in investment market liquidity due to a lack of debt funding could lead to a fall in values, which would negatively affect loan to value (LTV) ratios.
• An increased regulatory environment and potentially higher taxes could see financial businesses moving elsewhere in the world.
• As a Real Estate Investment Trust (REIT), the group lacks the geographical diversification which competitors such as Hammerson enjoy.

Positive Points:

• Demand for space across the group's UK retail portfolio remained robust. The group has started a £64 million development of 300,000 sq ft Whiteley Shopping Centre; already over 50% let. Furthermore, a 45,000 sq ft extension of Glasgow Fort is fully let or under offer.
• British Land completed a pre-let lease to Insurer Aon who will occupy 191,000 square feet in the tower, known as the Cheesegrater, when the property opens in the City of London in mid-2014. It will be the company's HQ.
• The group confirmed last month that it had completed a 700,000 sq ft pre-let agreement with Swiss bank UBS at 5 Broadgate, to be built by the fourth quarter of 2014.
• The company declared an unchanged third quarter dividend of 6.5p.

Consensus:

On balance, market consensus remains a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.