Buy British, and invest in one of several dividend choices from British Land

25 Mar

The British Land Company is offering a 3rd interim dividend of 6.60p, up from its standard interim dividend price of 6.50p for 2011/12. It is also offering a SCRIP scheme, for which the price has not yet been made public. This cautiously optimistic picture is reflected throughout the company’s core financials.

Net yields from its portfolio, as of 30 September, are highest for European retail (6.7%) and provincial office space (7.2%). All figures cited here include rent contracted from expiration of rent free periods, and fixed uplifts not in lieu of growth. Within the UK, department stores (5.9%) and retail parks (5.6%) were the most lucrative forms of retail space, while superstores returned a poorer 5.1% yield. The value of retail parks has increased by 2.3% over the last year.

Commercial office space in the West End and the City yielded 5.5% and 6.0% respectively, though if you exclude revenue contracted in advance, the figures fall to 4.4% and 4.1%. Demand for West End office space is crowding out new contenders in the market, as prices have shot up by 3.2%, more than double the price of office space in the other two categories. This explains the diversification into business districts outside London, something predicted in a widely read report by Deloitte on 2013 predictions for the property market.

The report foresaw that the pricing barrier of prime stock for investors would mean increasingly that “returns fall below required hurdle rates”. It emphasised the role of foreign investors in developing “funds that were new to the market 3-5 years ago, (which) have since built up significant experience… and some will inevitably seek to translate this into the higher income returns found outside prime income markets.”

British Land has a healthy share of debt, from various sources, which it cites as a major source of liquidity for future acquisitions and developments. Image

Despite gross and net borrowings of £2,758m and £2,557m respectively, its interest cover on its debt is 2.9X (loan to value of 32%). It elaborates, “Including our share of debt on joint ventures and funds which are neither wholly owned nor fully consolidated, gross and net borrowings were £5,195m and £5,071m at the same date. These borrowings are non-recourse to British Land and are in ‘ring-fenced’ structures.” Its interest cover on the latter is a less rosy 2.2X.

However, it is confident in its future prospects, with “further pre-letting activity with office developments now 62% pre-let or under offer; 76% in the City.” And the large-scale Whitely Shopping Centre retail scheme is now 85% pre-let or under offer in advance of its May opening.

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