UK based British Land buoys property market

Posted On Wednesday, 21 May 2008 02:00 Published by
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British Land gave the UK's embattled property sector a fillip on Tuesday after it said the pace of decline in the value of its assets was slowing, breathing life into a market smothered by price uncertainty

Posting better-than-expected full-year figures, the UK's second-largest property company said the value of its portfolio fell 10 percent in the year to March 31 but a markedly slower 2.2 percent fall in the final quarter raised hopes a year-old UK property correction is nearing a climax.

Its shares rose 2.4 percent to 807 pence by 0917 GMT (10:17 a.m. British time) in response to the upbeat results, against a 0.2 percent rise in the FTSE 350 Real Estate Index .

"I'm pleased to say that despite difficult conditions ... we have managed to outperform," Chief Executive Stephen Hester said in a conference call.

He said the company made 3.2 billion pounds of gross property sales at an overall net initial yield of 4.1 percent in the past year.

With nearly 1 billion pounds sold in the fourth quarter, Hester said investor interest was rising and buyers who had vanished since a credit crunch started were slowly coming back.

Analysts said the results could provide a welcome tonic for British Land's stricken shares, which have tumbled by around 45 percent in the last 12 months.

"These are strong results and, while trading at a 41 percent discount to net asset value and a 4.6 percent dividend yield, the shares look oversold," said Lehman Brothers analyst Mike Prew

Describing the year as one of many contrasts, British Land said its net asset value per share fell 20 percent to 1,344 pence, including a 4 percent fall in the fourth quarter.

However. full-year underlying pretax profits grew 11 percent to 284 million pounds.

The company also outperformed industry benchmarks on capital value returns by nearly 2 percent as a result of strong rental growth.

While admitting recent financial shocks could still curtail Britain's economy sharply enough to pressurise rental growth and occupancy, the company said it had completed 2.4 million square feet of lettings in the period and that its portfolio was still 99 percent let at an average lease length of 14.7 years.

"All of the management activity during the year has its final expression in rental growth, in customers wanting to occupy our buildings, and we have rental growth of around 6 percent which is well ahead of sector indices," Hester said.

He urged market participants to resist promoting an inaccurate picture of "gloom and doom" in London's City financial district, where British Land is pursuing an aggressive development programme amid thousands of banking sector job cuts.

"The value of retail property fell further than offices last year and office rents rose faster last year," Hester said. He added the company expected to deliver its Leadenhall Tower skyscraper into a robust office market on schedule in 2011.

Sidestepping malaise in property lending markets, British Land said it had fixed 100 percent of its debt at a rate of 5.29 percent with average maturity of 12.9 years.

It said it had 2.4 billion pounds of undrawn borrowing facilities to support its development programme and exploit investment opportunities, but had no firm plans for acquisitions or disposals.

Hester declined to comment on reports it was mulling a sale of one of its prize central London properties, The Willis Building, for up to 400 million pounds.

British Land owns and manages assets of 17.9 billion pounds. The portfolio includes the Broadgate Estate, a 4 million square foot office campus in the heart of London's financial district, and Meadowhall shopping mall in Sheffield.

Publisher: Reuters

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