British Land regains some lost ground
Aug 21, 2009
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British Land has stirred hopes of a recovery in the commercial property market after a better-than-expected start to the year.
On Tuesday, the UK's second-biggest commercial property company reported a drop of just 3.7% in its net asset value (NAV) to £8.1bn over the three months to 30 June, compared with a fall of 9.2% in the previous quarter.
Add in talk of a takeover approach and rumours that Blackstone, the US private equity group, is set to buy half of the company's flagship £2.3bn Broadgate estate in the City of London, and it's no wonder the share price has rocketed by two-thirds to 495p from March lows.
What the commentators said
Things are undoubtedly looking better for the group after it strengthened its balance sheet with a £740m rights issue earlier this year. Only 6% of its tenants are due to have their lease agreements renewed in the next three years, "so barring a wave of administrations among occupiers, rental income stream looks secure", said the Daily Mail.
But the shares now look pricey, said George Hay on Breakingviews. The group would have to grow assets by 10% this year to justify its current valuation, said Cazenove analysts, at a time when downward pressure on rents will continue to hold down property prices.
Investor enthusiasm is mostly driven by takeover rumours, said Margaret Doyle on Reuters; its prime portfolio and long leases are supposedly of interest to rich Arab or Indian investors. Yet "with its valuation flying around a third above the underlying NAV", these fantasies are already reflected in the share price".
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