British Land has today posted an 18% jump in its net asset value to 438p a share for its third quarter results. The rise was driven by recovering capital values across the property sector.
Brokers have begun analysing the figures and giving their opinions on the company's results.
JPMorgan's Harm Meijer said: "We believe today's results underpin our positive view on the company and reiterate our view that its investment case is very straightforward:
1. Stock trades at Dec-09 NAV of 438p,
2. 6% dividend yield,
3. Today's results make us very comfortable on our forecasts (our year-end NAV forecast of 464p only requires 3% capital growth),
4. 272,000 sq ft of new lettings and still 655,000 sq ft of office available,
5. £3.2bn of cash and unused credit lines at 48bp: the company sees further investment opportunities within 18 months (our view: no need to rush),
6. Income growth of 1.4%, 13 years lease length (only 7% to expire in three years), 11.2 years debt maturity and 94% occupancy,
7. Net portfolio yield of 5.8% and gross topped-up of 6.7%.
Overall, we believe this is the type of company that should appeal to investors: what you see is what you get with a potential surprise to the upside. Please see our alert, sent out separately today, for more details.
Nomura analysts Robert Duncan and Mike Prew say the following about BL:
• 3q10 NAV came in at 438p (+18% on 1h10 at 367p), based on underlying capital growth in the quarter of 8.2%. Our informal forecast was for 450p (consensus of 421-450p), based on underlying capital growth of 9.5%.
• Looking in more detail at capital growth by sector, retail warehouses appeared to perform weakly relative to IPD, increasing in value by 9.3% (IPD 12.4%). City offices relatively outperformed IPD rising in value by 8.6% (IPD 5.2%) and West End offices marginally underperformed at 7.9% (IPD 9.1%). Average growth in the quarter was 8.2% versus IPD at 7.4%.
• Occupancy rates remain strong at 94% overall, although this masks a wide disparity between offices (84% occupied) and retail (99% occupied). While it appears that short-term leases on weak economics have not been used to maintain the high occupancy across the retail portfolio (only 5% of the rent roll falls due in the next 3 years) we intend to ask management what letting trends it is seeing (see below for further detail).
• Acquisitions since September 2009 totalled £121m and includes the acquisition of a 50% interest in Surrey Quays shopping centre, SE London and Clifton Moor retail park, York for combined consideration of £87m (Tesco 5.3% IY, shopping centre 8.5% IY and retail warehouse 8.2% IY), and a superstore in Macclesfield for £31m (5% IY) leased to Sainsburys for 29 years with indexation.
• Developments. Management intends to submit a planning application for 4&6 Broadgate, which would enable delivery of the buildings by early 2013. Other than that, some 750,000 sq ft of retail park extension plans (with planning) are being reviewed.
• Asset management. An additional £5.0m pa of rent was secured in 3q10 (including incentives) from 53 rent reviews (+19% ahead of previous rents), 69,000 sq ft of lease renewals and 276,000 sq ft of new lettings with a combined average of 8 years to break and 80% of lettings/renewals had in excess of 5 years to first break. LfL rental income was up 1.4% in the period.
• Outlook. A limited outlook statement was given, with Chris Grigg commenting that "British Land is now well positioned, combining a prime portfolio, strong income profile, talented people and significant firepower." This firepower consists of £2.8bn on undrawn debt at an average margin of 47bp and £342m of cash (but how much of this is 'free cash'?). £1.7bn of undrawn debt has a maturity in excess of 3 years.
• Valuation. We have a Reduce rating on British Land and a current price target of 477p. The shares stand on a discount of 15% to our Next+1 NAV of 515p.
