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LONDON: London landlord British Land intends to sell assets in the City financial district as it takes a more trading-focused investment strategy, adding an uptick in its exposure to prime offices may not last long.
The company said its £1 billion (RM5.04 billion) share in developing 2.1 million square feet of prime offices in central London would see its portfolio exposure to the sector rise to about 40%, from 33%.
"We will be driven, to some extent, as we see opportunities going forward," CEO Chris Grigg said on Tuesday, Nov 16.
"We would intend over time to be more trading orientated in the City, so in a way that you could see that (portfolio weighting) going up in the short term, but potentially down longer term as we seek to take advantage of the value we create by development," Grigg told Reuters.
His comments came as British Land posted improved results for the six months to Sept 30, with portfolio value, net asset value (NAV) and occupancy all rising, while the company's interim dividend remained flat.
By 0928 GMT, British Land shares were down 2.6% at 494 pence, underperforming a 1.4% fall in the broader index of UK property stocks.
Collins Stewart analyst Nan Rogers kept her "Sell" rating and 450p price target on British Land, preferring Great Portland Estates and Land Securities for their higher exposure to London's West End and better performance.
British Land's 2.6% hike in portfolio value to £8.9 billion was below the 7.3% reported by Great Portland and 3.4% booked by Land Securities.
Nomura analyst Mike Prew said British Land's portfolio returns were in line with the IPD benchmark, but were "disappointing for such a long-leased 'uber-prime' portfolio, with 10 year gilts at 3% at the time of valuation."
British Land's NAV rose 4.2% to 525p a share in the six months to Sept 30, against 504p at end-March 2010. In the prior first-half period, its NAV was 372p, it said.
"We've had a good start to the year with strong letting activity improving occupancy to 98% and driving a further increase in (portfolio) valuation," Grigg said.
During the period, British Land completed nearly 500,000 square feet of new lettings and renewals in the retail sector, while it signed off 350,000 square feet of lettings and lease re-gears in its London office portfolio.
"Looking forward, we expect to be able to exploit the growing demand supply imbalance in London offices and to benefit from a growing need from a significant number of retailers to take new space in the best locations," Grigg said.
Supply of newly-built London offices is expected to undershoot demand in the next three years following a three-year hiatus in construction in the wake of the global banking crisis.
The bluechip has a two-thirds financial exposure to £1.5 billion worth of developments in London, including Baker Street, Broadgate Estate, Regent's Place, Leadenhall Street, and Bishopsgate.
Despite concerns on potential occupier demand for the flurry of office construction projects in progress, Grigg said British Land's programme was expected to generate "attractive returns".
Yields on cost (including tenant incentives) of more than 7% on the basis of contracted rents and estimated rental values were expected, he said.
At Sept 30, British Land had £2.8 billion of committed undrawn debt facilities, with £1.1 billion having a maturity of more than three years. It also has £429 million of cash, short-term deposits and liquid investments.
British Land's underlying first-half pretax profit was £127 million, against the year earlier's pre-tax profit of £129 million. It maintained its second-quarter dividend at 6.5p, contributing to a total first-half dividend of 13p. — Reuters
The company said its £1 billion (RM5.04 billion) share in developing 2.1 million square feet of prime offices in central London would see its portfolio exposure to the sector rise to about 40%, from 33%.
"We will be driven, to some extent, as we see opportunities going forward," CEO Chris Grigg said on Tuesday, Nov 16.
"We would intend over time to be more trading orientated in the City, so in a way that you could see that (portfolio weighting) going up in the short term, but potentially down longer term as we seek to take advantage of the value we create by development," Grigg told Reuters.
His comments came as British Land posted improved results for the six months to Sept 30, with portfolio value, net asset value (NAV) and occupancy all rising, while the company's interim dividend remained flat.
By 0928 GMT, British Land shares were down 2.6% at 494 pence, underperforming a 1.4% fall in the broader index of UK property stocks.
Collins Stewart analyst Nan Rogers kept her "Sell" rating and 450p price target on British Land, preferring Great Portland Estates and Land Securities for their higher exposure to London's West End and better performance.
British Land's 2.6% hike in portfolio value to £8.9 billion was below the 7.3% reported by Great Portland and 3.4% booked by Land Securities.
Nomura analyst Mike Prew said British Land's portfolio returns were in line with the IPD benchmark, but were "disappointing for such a long-leased 'uber-prime' portfolio, with 10 year gilts at 3% at the time of valuation."
British Land's NAV rose 4.2% to 525p a share in the six months to Sept 30, against 504p at end-March 2010. In the prior first-half period, its NAV was 372p, it said.
"We've had a good start to the year with strong letting activity improving occupancy to 98% and driving a further increase in (portfolio) valuation," Grigg said.
During the period, British Land completed nearly 500,000 square feet of new lettings and renewals in the retail sector, while it signed off 350,000 square feet of lettings and lease re-gears in its London office portfolio.
"Looking forward, we expect to be able to exploit the growing demand supply imbalance in London offices and to benefit from a growing need from a significant number of retailers to take new space in the best locations," Grigg said.
Supply of newly-built London offices is expected to undershoot demand in the next three years following a three-year hiatus in construction in the wake of the global banking crisis.
The bluechip has a two-thirds financial exposure to £1.5 billion worth of developments in London, including Baker Street, Broadgate Estate, Regent's Place, Leadenhall Street, and Bishopsgate.
Despite concerns on potential occupier demand for the flurry of office construction projects in progress, Grigg said British Land's programme was expected to generate "attractive returns".
Yields on cost (including tenant incentives) of more than 7% on the basis of contracted rents and estimated rental values were expected, he said.
At Sept 30, British Land had £2.8 billion of committed undrawn debt facilities, with £1.1 billion having a maturity of more than three years. It also has £429 million of cash, short-term deposits and liquid investments.
British Land's underlying first-half pretax profit was £127 million, against the year earlier's pre-tax profit of £129 million. It maintained its second-quarter dividend at 6.5p, contributing to a total first-half dividend of 13p. — Reuters
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