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British Land sees rents turn corner

Real estate investment trust British Land reports that retail rents are growing in the best locations, revealing a 4.2 per cent rise in net asset value (NAV) since its March year-end, following £20m-worth of new lettings and lease renewals in the six months to the end of September. Underlying first-half profits of £127m were in line with last year - although removing a credit provision release that swelled 2009's figures means they have risen by 12 per cent.

Across its retail portfolio, British Land has struck 500,000 sq ft of new leases and renewals, 80 per cent of which are long-term leases, rather than temporary lettings. The office portfolio has seen 350,000 sq ft of new lettings and renewals, including a landmark deal to UBS in the City of London. Overall, rents agreed were 5 per cent more than estimated rental values (ERV).

Rental growth has been strongest on out-of-town retail parks, where 20 per cent uplifts have been achieved on rent reviews. This is good news - but analysts note that future earnings momentum will be constrained as total occupancy has hit 98 per cent (from 96.6 per cent in March).

The future rests on British Land's £1.5bn development programme, where five office developments are to be built (some in conjunction with joint-venture partners Blackstone and Oxford Properties) to capitalise on an expected uplift in central London rents.

Broker Nomura forecasts March 2012 NAV of 533p.

BRITISH LAND (BLND)
ORD PRICE:494pMARKET VALUE:£4.3bn
TOUCH:494-495p12-MONTH HIGH:525pLOW: 416p
DIVIDEND YIELD:5.3%TRADING STOCK:nil
DISCOUNT TO NAV:6%
INVESTMENT PROPERTIES:£4.3bnNET DEBT:31%

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2009372-113-13.113
201052532838.913
% change+41 - - -

Ex-div: 12 Jan

Payment: 18 Feb

Click for a guide to the terms used in IC results tables.

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British Land's shares have performed strongly since we rated them good value (452p, 19 May 2010) and now trade on a modest discount to NAV. With development upside years away, we now rate them fairly priced.

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