British Land (BLND) is perhaps best known for having pieced together Broadgate, the vast office complex next to London's Liverpool Street Station. The entrepreneurial brilliance of that and other achievements under long-time chairman Sir John Ritblat earned the company's shares a permanent premium rating to peers.
Its star has faded since Sir John retired in 2006. Yet the company's portfolio is still widely acknowledged to be the best in the industry, and British Land is the most profitable of the big reits. If you need a low-risk place to park capital for three years or so while collecting a reasonable income, British Land's shares fit the bill.
Most of the return will come from dividend income. This is where British Land stands out - it pays a conspicuously higher share of its book value in dividends than its rivals. That's mainly because of clever debt management. After a number of financing deals over the past 18 months, British Land pays an average interest rate of just 4.4 per cent on its £4.79bn debt - half a percentage point below the rental yield of its portfolio, net of operating and administration costs.
This means British Land's debts do not just magnify the capital returns from its portfolio - they also boost recurring profits. Contrast that with arch-rival Land Securities (LAND), whose debt, costing 5.1 per cent on average, dilutes its rental income.
Real estimate investment trust British Land said that its half-owned Leadenhall Building in the City of London is to be 51 per cent pre-let.
British Land's 50:50 joint venture with Oxford Properties has agreed non-binding heads of terms with FTSE 250 insurance company Amlin for a 111,000 square-foot pre-let at the building, with options to take up to further 36,500 square foot.
The building, located directly opposite Lloyd's, is still under construction and is scheduled to be finished by mid-2014. The 736ft building will be one of the tallest buildings in London.
"We are delighted that Amlin has chosen The Leadenhall Building for its new offices" said British Land's Head of Offices Tim Roberts.
"This will be our second major pre-letting at the building and it shows the considerable appeal of our offer - highly specified and well located buildings of strong architectural quality coupled with a commitment to occupier service."
Real estate investment group British Land has let 24,392 square foot of office space at its new West End development at 10 Portman Square, the company announced on Friday.
Aramco Overseas Company UK Ltd, the UK affiliate of the Saudi Arabian oil company, has leased the fifth and part fourth floors at a headline rent of £92 per sq ft on the fifth floor and an overall average rent of £90.76 per sq ft, on new 15-year leases, without break, and with 24 months rent free.
The news means that British Land's Central London committed development programme is now 57% pre-let.
"We are delighted that Aramco Overseas Company and Aspect Capital have chosen 10 Portman Square as their new London home, and we look forward to welcoming them to the building next Spring," said British Land's Director of London Leasing, James Danby.
"British Land has long had a reputation for providing high quality buildings and we pleased to be attracting such world leading firms to 10 Portman Square."
Hence, they indicated that; "Historically, we have been concerned about British Land's ageing portfolio. However, although the company's lease lengths have shortened, the company has been turning these from a threat into an opportunity. We (...) note management's success in potentially timing the lease expiries in harmony with the delivery of new space."
UBS also saw developments adding up to £71m of annual rent, although medium term NAV growth is forecast to be driven more by improving rental values, particularly from fiscal year 2015 onwards. There is also reversion to be captured from the existing portfolio from rent reviews, index-linked leases, and letting up vacancy, they added.
Furthermore, British Land's average cost of debt is just 4.4% they pointed out, materially lower than its peers, whilst its marginal cost is approximately 1%. It also has £2.3bn of available facilities, giving it a competitive advantage in terms of speed of response to opportunities and minimising earnings dilution if those come with little rental income (e.g.: Clarges).
UBS has raised its target price by 3.5% to 580p and its recommendation to buy from neutral.
Gibson-Smith, who joined the board in January 2003, would be stepping down on December 31st after his second three-year term as Chairman.
He will replaced by John Gildersleeve, who joined the board in 2008 and is currently serving as Senior Independent Director.
Chris Gibson-Smith said: "I have had a fascinating 10-year journey with British Land, and the last six years as Chairman have been deeply rewarding. The company is in an excellent position with a first rate team, portfolio and strategy. We are delighted that he has agreed to deepen his connection with the company. His broad range of experience makes him an ideal Chairman for British Land."
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