St Modwen (SMP), Intu Properties (INTU) and now British Land (BLND) - the list of real-estate companies exploiting the current buoyancy of share prices to stock up on capital is lengthening. London's second-largest real-estate investment trust (Reit) raised £493m at 550p a share on Tuesday. At the same time, it announced the long-trailed sale of its 20-storey city tower Ropemaker Place for £472m. Taken together, these two deals suggest the company now has nearly £1bn of spare cash - or does it?
British Land was criticised last year for its relatively high gearing. The group's loan-to-value ratio (LTV) at the end of December was 46.1 per cent, which is within the company's stated 40 to 50 per cent range, but higher than the corresponding ratios of its FTSE 100 peers Land Securities (LAND) and Hammerson (HMSO) (Intu Properties has just been relegated to the mid-cap index). Both made an explicit point of reducing their debt levels, to the apparent satisfaction of investors.
It is tempting - but probably wrong - to read British Land's announcements this week as an answer to those criticisms. The group noted that its LTV would fall to 41 per cent as a result of the fresh cash, but made no mention of repaying debt. Instead, it said the proceeds from Ropemaker Place would be reinvested into developments that are already on site, while the placing would be used to fund acquisitions and possibly embark on further London developments. The implication is that LTV will rise back towards the previous level.
British Land has made two acquisitions already this year, most noticably the £143m Ealing Broadway Shopping Centre, which will boost rental income, and the now closed Hempel hotel in Bayswater, London, which the company envisages as part of a larger residential development scheme. It says it has a further £150m of acquisitions at an "advanced stage of negotiation".
It needs yielding properties to replace the rental income lost from Ropemaker and pay dividends on all the new shares it has issued. Broker Espirito Santo expects the placing to boost earnings in the financial year to March 2015, but not before.
