British Land's London pipeline

British Land has announced three property acquisitions over the past six weeks. First came Harmsworth Quays, the Daily Mail printing site in the old docklands area of Rotherhithe, south east London. Then the company confirmed it would buy Clarges Estate, a large and ugly redevelopment site on the Mayfair side of Piccadilly, for £130m. Most recently, it bought a 50 per cent stake in the Eden Walk Shopping Centre in Kingston-upon-Thames, south west London, for £41.5m

All three acquisitions are in Greater London. That perhaps signals a flight back to quality after British Land bought a high-yielding portfolio of Virgin Active racquet clubs last year. But the company is less risk-averse when it comes to development, which will be necessary on two of the sites. With no growth coming from the market, development is the only way to generate capital returns. Unfortunately, that involves sacrificing income - both Clarges and Harmsworth Quays are vacant. Eden Walk's function is presumably to compensate for some of the shortfall.

Finally, note the substantial residential component of both development schemes - a result of the buoyant London housing market. Clarges Estate already has planning permission for a mixture of office space and super-prime penthouses. Chief executive Chris Griggs says he's keeping his options open at Harmsworth Quays, but the redevelopment is likely to include housing as well as an extension to the company's adjacent Canada Water shopping centre.

Espirito Santo Investment Banks says...

Neutral. The first-quarter trading update was reassuring in terms of leasing activity, but it was another period of net investment, taking the loan-to-value (LTV) ratio up to 46 per cent. There was no mention of the ongoing process to dispose of half of British Land's 50 per cent stake in the Meadowhall shopping centre, which would realise about £370m at book value and reduce LTV by about two percentage points. British Land stands in stark contrast to Land Securities and Hammerson, which have reduced LTV to 33 and 27 per cent respectively. We expect net asset value (NAV) to reach 608p by March 2013 (from 585p in March 2012).

Liberum Capital says...

Hold. British Land enjoys long-dated income streams with fixed rental uplifts and a well-covered 5.1 per cent dividend yield. Trading in the retail portfolio has also been robust, with occupancy rates at 98.5 per cent, while the central London office portfolio should be boosted by the development programme, particularly the West End schemes. But we remain concerned about retail valuations (61 per cent of the portfolio) and the high level of gearing.