3rd Quarter Results - Part 1

RNS Number : 8557G

British Land Co PLC

09 February 2010

 



THE BRITISH LAND COMPANY PLC

THIRD QUARTER REPORT - THREE MONTHS TO 31 DECEMBER 2009 

Good performance demonstrates quality of portfolio and active asset management

Third Quarter Results

·     NAV¹ up 18% to 438p.  IFRS Net Assets £3.6 billion

·     Portfolio valuation up 8.2% with strong growth in all main subsectors

·     Underlying profit before tax² £58 million, Underlying EPS² 7 pence (Q3 2008/9: £63 million; 10 pence³) includes effects of portfolio re-balancing during 2009

·     IFRS pre-tax profit £611 million (Q3 2008/9: loss £1,614 million)

·     1.4% like for like rental income growth compared to Q3 2008/9

·     Quarterly dividend of 6.5p

Business Highlights

·     Over 250,000 sq ft under offer at Ropemaker Place and Broadgate Tower

·     £3.6 million pa of new retail rent generated from 1.7 million sq ft of lettings and rent reviews

·     Broadgate JV with Blackstone commenced

·     £240 million of new investments and £128 million of development spend in the year to date

·     370,000 sq ft of West End office developments now complete

£8 billion prime portfolio resilient and positioned to deliver growth

·     Retail portfolio 99% let and offers growth from 750,000 sq ft of potential extensions

·     Q3 footfall up 5% across retail parks & Meadowhall, exceeds UK average (3%⁴)

·     Over 650,000 sq ft of new London office space available to benefit from market upturn

·     Rent contracted in 3 years time already at 97% of current rent

·     Strong balance sheet with substantial capacity to invest over next 18 months

¹ EPRA (European Public Real Estate Association) basis

² see Note 1 to the accounts

³restated for Rights Issue

⁴ as reported by British Retail Consortium

Chris Grigg, Chief Executive, comments: 

"Our third quarter performance saw a continued recovery with strong valuation growth right across the portfolio. The significant increase in our property valuation reflects the quality of the portfolio and focus on asset management. Our retail estate is virtually 100% let and characterised by prime locations and strong customer relationships. Our office portfolio is well positioned as London letting activity picks up. We have over 250,000 sq ft of space under offer, including nearly 220,000 sq ft to Macquarie, and have over 650,000 sq ft of additional new space available from recent development activity.

"During the quarter we commenced the Broadgate JV with Blackstone, an important part of our long-term plan to re-balance the portfolio. We are investing in high quality opportunities such as Surrey Quays, where we can add considerable value, and we expect further attractive assets to emerge over the next 18 months. We're well placed: British Land combines a prime portfolio, strong income profile, talented people, and significant financial firepower."

REVIEW BY THE CHIEF EXECUTIVE

The early signs of recovery seen in the second quarter extended right across our portfolio during the last three months of 2009, with a significant increase in property valuation of 8.2%.  The net asset value is now 438 pence per share, up 18% since September 2009. The investment market has improved; with buyers outweighing sellers.  Inward yield shift, rather than rental growth, was the main driver of improved valuation.  Like for like rental income was up 1.4%, ahead of IPD (-0.3%), reflecting the quality and attractiveness of our £8 billion prime portfolio and focus on asset management.

Our retail portfolio is 99% let.  It is principally in prime out of town locations and characterised by very strong customer relationships. Its appeal to both retailers and consumers is demonstrated by over 280,000 sq ft of retail lettings achieved in the quarter, and the 5% increase in footfall across our retail parks and Meadowhall shopping centre.  This exceeded the national average of 3%.  We also have some 750,000 sq ft of extensions with planning consent in our out of town retail parks offering organic growth potential.

Our office portfolio is well positioned in the context of improved letting activity and, in particular, we currently have over 250,000 sq ft under offer on terms ahead of valuation, including nearly 220,000 sq ft to Macquarie Group at Ropemaker Place.  We also have over 650,000 sq ft of available Grade A space from our recent office development activity and we anticipate that future lettings will also be value-accretive.

In November, we commenced the Broadgate joint venture, an important part of our long-term plan to re-balance our portfolio and we look forward to working with Blackstone to maximise returns from the estate.  So far this year we have invested £240 million and spent a further £128 million on development.  The acquisition of a 50% interest in Surrey Quays Shopping Centre and Clifton Moor Retail Park established our fifth JV with Tesco plc and provides considerable opportunities to add value. The Sainsbury's store purchased in Macclesfield also offers sustainable growth prospects.  We expect further opportunities to add to our £8bn prime investment portfolio to emerge over the next 18 months.

Stephen Smith and Charles Maudsley have now joined our executive team. They bring significant property expertise and experience and will make a strong contribution to the business.  We are also pleased to welcome Richard Pym and Dido Harding, who have joined the Board as non-executive directors.

We have made a number of key decisions to ensure our portfolio is resilient and capable of performing well in a variety of potential market conditions.  This approach is appropriate in the context of uncertainty of the timing and strength of UK economic recovery.  British Land is now well positioned, combining a prime portfolio, strong income profile, talented people, and significant financial firepower.  Intense asset management lies at the heart of our approach to real estate and enables us to realise value from strong relationships with occupiers, locate good quality opportunities, and maximise value.

BUSINESS REVIEW

Portfolio Valuation

Our portfolio valuation rose by 8.2% in the quarter and contributed to an overall uplift of 6.1% for the 9 months to 31 December 2009.  The capital return from the UK portfolio of 6.2% over the 9 months, as measured by IPD (calculated on average capital employed and excluding capitalised interest), outperformed the IPD Benchmark by 1.0%.

The retail portfolio increased 8.4% in value during the third quarter (7.5% for the 9 months), with retail warehouses, superstores and department stores performing particularly strongly, reflecting the depth of investor appetite for this product.  Rental value decline in the third quarter was 0.5% (-3.6% over the 9 months).

The office portfolio performed well over the third quarter, up 8.2% (3.3% for the 9 months).  Rental values in Central London began to stabilise over the last 3 months, with the City portfolio exhibiting a decline of 1.2% (-11.4% for the 9 months) and West End unchanged (-12.5% for the 9 months).  Since the beginning of 2010, there is evidence of improving rental values.

The gross top-up initial yield on the portfolio is now 6.7%.  The initial yield for the portfolio has shown a like for like inward shift of 41 bps over the three months to 31 December 2009, whilst the net equivalent yield has moved inwards by 55 bps to 6.5% as yields improved.

Asset Management

Our asset managers have continued to focus on maximising occupancy and cash flow within the existing estate, generating an additional £5.0 million per annum of rent (taking into account letting incentives) in the quarter, from:

·  53 rent reviews covering 1.4 million sq ft at 19% ahead overall of previous passing rent.  Among these, the strongest performers continue to come from within our retail warehouse and superstore portfolios.

·  69,000 sq ft of lease renewals and 276,000 sq ft of new lettings, with a combined average lease length of 8 years to first break.  In total, 80% of lettings and renewals had a new lease term of more than five years to first break.

In offices, we have let nearly 60,000 sq ft in the last quarter.  Liberum Capital has taken 21,000 sq ft at Ropemaker Place and we have let some 38,000 sq ft at Broadgate Tower to Itochu and Greenlight Marketing.  Since December we have completed or placed under offer a further 278,000 sq ft at Ropemaker Place and Broadgate Tower, including terms agreed with Macquarie Group for the letting of 217,000 sq ft at Ropemaker.

In the quarter we completed a total of 282,000 sq ft of lettings and renewals within our retail warehouse and shopping centre portfolios.  At Meadowhall, we have exchanged some 48,000 sq ft of lettings bringing in new retailers such as Aldo, Cult, Firetrap, Lipsy and Office. 

Footfall increased by 5%, year-on-year, across our retail parks and Meadowhall shopping centre for the three months ended 31 December 2009.  This compared with a national average of 3% (as reported by the British Retail Consortium).

The strength of our retail team has been acknowledged by being voted Landlord of the Year 2009 and Service Charge Provider of the Year 2009 by UK retailers at the Property Managers Association (PMA) Awards.  In addition, British Land was named National Property Company of the Year at the Estates Gazette Awards.

Income

Our portfolio's income profile continues to be one of the strongest in the sector with rent contracted in 3 years time already at 97% of current rent, taking into account lease expiries and future contracted income.  Occupiers in administration have marginally decreased since September 2009 from 0.8% to 0.7% of total rent.

	Retail	Offices	Total Portfolio
Occupancy rate1	99%	84%	94%
Average lease length2	14 years	9 years	13 years
% of rent subject to break or expiry over next 3 years	5%	13%	7%

¹ underlying occupancy including accommodation subject to asset management and under offer

² weighted average lease length to first break

Retail occupancy increased from 98% to 99% in the three months to December 2009 as a result of active asset management and our focus on destinations where retailers trade profitably.  In the office portfolio, the movement in occupancy to 84% reflects the completion of Regent's Place One & Two, NW1.  655,000 sq ft (94%) of our available office space is brand new and therefore well placed to benefit from the improving occupier market and we anticipate that future lettings will be value-accretive.  Excluding recent developments, office occupancy increased from 98% to 99% in the third quarter.

Investment

We have made £240 million of new investments during the last 9 months in our main retail and office segments, including £121 million since September 2009. 

This included the acquisition of a 50% interest in Surrey Quays Shopping Centre, South East London and Clifton Moor Retail Park, York.  The property value attributable to the 50% interest was £87 million, representing a net initial yield of 5.3% for the two Tesco anchor stores, 8.5% for the shopping centre and 8.2% for the retail warehouse units.  Both schemes offer attractive asset management opportunities to improve the retail mix and enhance footfall over the short and medium term.  In addition, we will be working with our JV partner on the long-term future development of this important suburb of London. 

We have also purchased a £31 million superstore in Macclesfield at a 5.0% net initial yield.  The 75,000 sq ft store is leased to Sainsbury's for 29 years and is the town's main food store.  The income is subject to annual RPI reviews with a floor of 2% and ceiling of 4% per annum. 

Development

Our 490,000 sq ft West End office and residential scheme at Regent's Place has completed.  The residential element has already been sold ahead of our expectations and we are seeing encouraging occupier interest for the office space.  

With sites valued at £143 million, offering a potential for approximately 4 million square feet of development we have been positioning ourselves so that projects can be activated quickly as market conditions improve. 

We will shortly be submitting planning application for the substantial refurbishment of 4 & 6 Broadgate, EC2 which would position us to deliver the buildings by early 2013.

In addition, we are actively reviewing some 750,000 sq ft of retail park extensions which, given the tough planning environment in this sector of the market, would offer exciting growth prospects as and when we see positive market rental growth.   

FINANCIAL RESULTS

(Data presented on a proportionally consolidated basis - Table A - unless otherwise stated)

Income Statement	Q3 2009/10	Q3 2008/9
Underlying pre-tax profit	£58m	£63m
Net rental income	£128m	£151m
Net interest costs	£54m	£76m
IFRS pre-tax profit/(loss)	£611m	£(1,614)m
Underlying earnings per share	7p	10p1
Balance Sheet	December 2009	September 2009
Diluted EPRA Net Assets	£3,813m	£3,200m
EPRA NAV per share	438p	372p

¹ restated for the Rights Issue

The results for the third quarter 2009/10 have been dominated by an acceleration of the valuation increase seen in the previous quarter.  The Group's underlying profits and cash flows reflect our completion of the re-balancing of the portfolio through property disposals.  Letting our brand new office space at or ahead of the December valuer's assumptions would replace the earnings dilution from disposals in the year to date.  Additional property acquisitions would also add to underlying profit.  The timing of these lettings and re-investment remains subject to market conditions.

Underlying profit before tax for the quarter was £58 million, 8% lower than the corresponding period in the prior year.  This reflects a 15% reduction in net rental income to £128 million, due to property disposals made over the last 15 months, mostly offset by a 29% reduction in net financing costs to £54 million (net of interest capitalised on development of £3 million).  Fees and other income at £1 million were reduced from £4 million in the third quarter 2008/9.  The IFRS pre-tax profit was £611 million, compared to a loss of £1.6 billion in the third quarter 2008/9, reflecting the impact of gains on asset revaluations.

Like for like rental income growth for the third quarter 2009/10 was up 1.4% overall compared with the third quarter 2008/9.  Retail increased 2.0% driven by retail warehouses (up 4.1%) and superstores (up 3.3%), whilst shopping centres declined 3.7%.  Offices were unchanged, where a 1.1% decline in the City portfolio was offset by an increase of 3.9% in the West End.   

EPRA net assets at 31 December 2009 were £3,813 million, or 438 pence per share, an increase of 18% against 30 September 2009, due principally to the increase in property valuations.  The Total Return for the quarter was 20%. 

Movement in EPRA NAV per share	Q3 2009/10 pence	Q2 2009/10 pence	Q1 2009/10 pence
Property and investment revaluation movements1	65	9	(38)
Underlying profit after tax	7	8	7
Dividend paid (including scrip)	(6)	(6)	(6)
EPRA NAV per share	438	372	361
EPRA NNNAV per share	466	438	477

¹ including asset disposals

In the financial year to date, the cash dividend was taken up by 60% of shareholders and was covered 1.7 times by underlying profits after tax.  Some 40% of shareholders opted for the enhanced scrip alternative, resulting in the issue of 11.3 million shares.

Total properties owned at 31 December 2009, including our share of Funds and Joint Ventures, were £7.9 billion or £12.7 billion including properties under management.  Net debt, including our share of Funds and Joint Ventures, amounted to £4.1 billion and has reduced by £0.8 billion during the quarter and over £2.0 billion since December 2008 as a result of disposals (including sales into joint venture) and the rights issue in March 2009.

Financing statistics	Group only	Group and share of Funds & Joint Ventures
Net debt	£1,500m	£4,057m2
Weighted average debt maturity	12.5 yrs	11.2 yrs
Weighted average interest rate	5.5%	5.2%
Loan to value1	27%	50%

¹ debt to property and investments

² EPRA (European Public Real Estate Association) basis

In addition, the Group has £2.8 billion of committed undrawn facilities with an average margin of 47 bps per annum and £342 million of cash giving us substantial capacity to invest.  Of the facilities, some £1.7 billion have a maturity of more than 3 years.   

Dividend

The third quarter dividend 2009/10 of 6.5 pence per share, totalling £56 million, is payable on 14 May 2010 to shareholders on the register at close of business on 9 April 2010.

A scrip alternative is being offered to shareholders with the third quarter dividend.  Further information can be obtained from the website at www.britishland.com/investors/dividends/scrip.  This dividend will be entirely a 'normal' dividend (see Note 7 to the accounts).

The second quarter 2009/10 dividend of 6.5 pence per share is payable to shareholders on 12 February 2010.   

British Land contacts:

Pip Wood	(Media)	0207 467 2838
Sally Jones	(Investors)	0207 467 2942

Finsbury:

Ed Simpkins/Gordon Simpson

0207 251 3801

This report contains certain "forward-looking" statements reflecting current views on our markets, activities and prospects.  By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances.  Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.  Any forward-looking statements made by or on behalf of British Land speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared.  British Land does not undertake to update forward-looking statements to reflect any changes in British Land's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

PORTFOLIO VALUATION

Valuation	Group	Funds/JVs	Total	Change %2		Portfolio
By sector	£m	£m1	£m	3  months	9 months	%
Retail:
Retail warehouses	1,527	966	2,493	9.3	6.9	31.6
Superstores	126	1,100	1,226	8.9	14.9	15.5
Shopping centres	192	923	1,115	5.0	-0.9	14.1
Department stores3	420	-	420	10.8	16.9	5.3
All retail4	2,265	2,989	5,254	8.4	7.5	66.5
Offices5:
City	394	1,164	1,558	8.6	2.7	19.7
West End	867	-	867	7.9	4.6	11.0
Provincial	26	7	33	0.2	-4.2	0.4
All offices	1,287	1,171	2,458	8.2	3.3	31.1
Other6	174	13	187	3.6	4.9	2.4
Total	3,726	4,173	7,899	8.2	6.1	100.0

¹ Group's share of properties in Funds and Joint Ventures

²  valuation movement during the period (after taking account of capital expenditure) of properties held at the balance sheet date, including developments (classified by end use) and purchases

³  including High Street with total value of £19m, 2.0% increase in Q3 (9 months -8.0%)

⁴  includes European out of town retail with total value of £337m, 1.1% decline in Q3 (9 months -14.7%)

⁵  including development sites with a total value of £143m, 12.0% increase in Q3 (9 months 6.4%)

⁶  Industrial, distribution and leisure

Portfolio yields & ERV growth (excluding developments)	Top-Up initial yield	Net equivalent yield	Movement in initial yield bps		ERV Movement %4,5
	%1,2	%3,4	3 months	9 months	3 months	9 months
Retail
Retail warehouses	6.8	6.5	-62	-73	-1.0	-3.9
Superstores	5.6	5.6	-43	-75	0.1	0.5
Shopping centres	7.4	6.9	-16	+18	-0.2	-4.2
Department stores6	7.1	7.0	-62	-95	-0.1	-9.0
All retail	6.7	6.4	-48	-57	-0.5	-3.6
Offices
City	7.1	6.7	-27	+8	-1.2	-11.4
West End	5.6	6.1	-34	-17	-	-12.5
All offices	6.6	6.5	-29	-1	-0.6	-11.2
Other7	10.2	10.5	-21	-9	-19.1	-19.1
Total	6.7	6.5	-41	-40	-1.3	-7.3

¹ gross yield to British Land (without notional purchaser's costs)

² adding back rent frees and minimum rental uplifts

³ after notional purchaser's costs

⁴ excluding Europe

⁵ like for like, IPD basis

⁶ including High Street

⁷ Industrial, distribution and leisure

 

END

 

 

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