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Article Excerpt
PARTICIPANTS
. Chris Gibson-Smith, British Land Plc, Chairman . Chris Grigg, British Land Plc, Chief Executive . Graham Roberts, British Land Plc, Finance Director . Tim Roberts, British Land Plc, Joint Head of Asset Management . Martin Allen, Morgan Stanley, Analyst . Carl Gough, Cazenove, Analyst . Harm Meijer, J P Morgan, Analyst . Bernd Stahli, Merrill Lynch, Analyst . Keith Crawford, KBC, Analyst . Mark Young, Oriel Securities, Analyst . John Fraser, HSBC, Analyst . Daniel Horwood, Singer Capital Markets, Analyst . Andrew Parsons, Resolution Capital, Analyst . Glenn Nimel, River Asset Management, Analyst . Quentin Freeman, UBS, Analyst
OVERVIEW
BLND.L reported 3Q08 results.
PRESENTATION SUMMARY
S1. Opening Remarks (C.S.) 1. Overview: 1. Market has fallen 34%. 2. Announced rights issue on 02/12/09 with intention of raising GBP740m net. 3. Announced Meadowhall JV earlier in week. 4. Chris Grigg joined as new CEO.
S2. Rights Issue (C.G.) 1. Highlights: 1. Entered period of considerable dislocation. 1. Further strengthen balance sheet. 2. Give Co. financial flexibility and position itself to exploit real estate buying opportunities as they emerge. 3. Had good reception from shareholders to the announcement. 4. Asset portfolio and debt structure puts Co. in relatively strong position vs. others in market. 1. Long leases, diversified customer base, high occupancy rates, and substantial low cost debt facilities give Co. strong position. 1. Supportive of dividend and underlying strength. 5. Strength of Management Team: 1. Over last three years, sold GBP5.7b of assets. 1. Has been supportive in tough times in terms of position Co. finds itself in today. 2. Continues to re-balance asset portfolio. 1. JV on Meadowhall represents an important and large piece of evidence in this regard. 2. Expected Opportunities: 1. Has strong management team. 2. All opportunities that Co. sees and will see more opportunities precisely because of transactions announced this week. 1. All opportunities will be examined in a disciplined cautious manner. 2. Will be used through lens of using capital efficiently. 3. Transaction Details: 1. Announced transaction on 02/12/09. 2. Net proceeds, around GBP740m. 1. Basis for this transaction is two for three at 225p per new share, giving Co. on basis of total number of shares following issue of 852m shares. 3. Against TERP at 374p. 1. Issue discount of TERP, 40%. 4. Timetable: 1. Goes ex-dividend on Feb. 25. 2. Has EGM to formally approve transaction on March 3. 3. Rights issue closes on March 18. 4. Dealing commences on March 19. 4. Meadowhall: 1. Announced that London & Stamford and its partner required 50% stake in Meadowhall. 2. Will continue to be property manager. 3. Gives Co. number of benefits in terms of reducing exposure to largest retail asset while retaining substantial share in future upside. 4. Transaction value of Meadowhall at GBP1.175b.
S3. 3Q08 Financial Review (G.R.) 1. Results: 1. Portfolio valuation reduced by 13.3%, which was probably worst qtr. in IPD's history with a decline for IPD of over 15%. 2. Portfolio is now valued on: 1. Gross top-up initial yield of 7%. 2. Net equivalent yield of 6.9%. 1. 85 BP yield [shift movements] in 3Q08. 3. NAV is now at 718p. 1. On underlying EPS, these are 14% lower at 12p vs. qtr. in previous calendar year. 1. Due essentially to reduction in interest capitalization on developments, creating volatility in income statement. 4. Dividend, 9.375p. 1. In line with previous guidance. 2. This will apply to shares that are currently extent and shares, which will be issued in connection with rights issue, will then rank for 4Q08 dividend when Co. announces in May. 5. Policy remains to be progressive reflecting strength of underlying cash flow. 1. Re-basing will be in line. 2. Maintained pro forma dividend cover. 6. Balance Sheet: 1. Strength of 13 years avg. lease length, 96% occupancy rate. 1. Only 4% of leases up for renewal before March 2011. 2. Debt is fixed long and had at Dec. GBP2.4b of committed undrawn facilities. 1. Those will increase due to this transaction. 7. During 3Q08, made [GBP179m] of sales, since then Co. had Meadowhall transaction. 8. Agreed further GBP4.5m of rent, 1.3m sq. ft. of lettings and rent reviews. 9. Had like-for-like income growth of 3.8%. 2. Reconciliation of Underlying Profits: 1. Two elements which most influenced the difference in three-year period: 1. Interest capitalization. 2. Management performance fees, which are lower. 2. Performance fees are released overtime because of product provisions. 1. Still had reasonable amount of performance fees recognized in qtr. last year. 3. Like-for-like rental income, up 3.8%. 1. 3.5% in retail. 2. 4.4% in offices. 3. Balance Sheet: 1. Net Asset Value: 1. Principal movement from GBP10.43 as at Sept. to [7.18p] today is the movement in revaluation of properties. 2. On a sector-by-sector basis, initial yields used in valuation. 2. Avg. lease lengths of 13 years to first break. 1. Only 4% of rent due for renewal before March 2011, which in recessionary times, is an important strength as that locks in tenants for longer period. 3. Occupancy level of 98% in retail and 94% in offices. 1. Over 90% of office vacancy is new Grade A space. 2. Expects even in difficult letting market, for Grade A space to let out first. 1. Optimistic about being able to add to income as and when that market improves. 4. Overall 97% of UK rent is subject to upward only rent reviews and less than 1% related to occupiers' turnover. 1. Income is not exposed as much to reduction in turnover of tenants. 5. Number of occupiers in administration and updating to Jan.-end from Dec. numbers, because there were a number of retailers that went into administration during Jan. 1. At Jan.-end, had 2.2% of rent in administration. 1. Of that, 1.3% of units that are still trading or being assigned or income is guaranteed. 2. It is less than 1%, which are under active consideration to move on. 6. Cash flow, 97% of Dec. qtr. rent was collected within ten working days, in line with past experience. 7. Annualized net rents, GBP614m. 1. Has GBP44m come through contracted income from fixed uplifts and expiry of rent-free, all of which is a strong underpinning for dividend and security of dividend policy. 8. Debt: 1. Has GBP765m of mark-to-market, reflecting debt pricing. 2. LTV Group is at 54% at Dec. 1. Pro forma for what Co. has announced this week comes down to 39%. 2. Major improvement in ratios. 4. Bank Facilities: 1. Has only GBP700m was currently drawn. 1. There is GBP200m of US private placements, which relates to covenants that are frequently referred to. 2. GBP2.4b undrawn as at Dec. 2. Only GBP300m of those facilities expires in next two years. 1. Has a long run of maturity for facilities. 2. GBP1b is for a term of more than five years from Dec. 3. Covenants: 1. Outer limit has moved down to 63% pro forma for these transactions vs. limit of 175%, significant headroom. 5. Events: 1. Largest sale within that qtr. was sale of: 1. Borehamwood Shopping Park for GBP81m. 2. GBP42m of High Street sales. 2. Committed development program goes on budget and in line with expectations. 1. Has remaining GBP230m approx. to spend.
S4. Closing Remarks (C.G.) 1. Snippet: 1. Taken a two-pronged approach, which strengthens balance sheet and gives Co. financial flexibility to react to opportunities as and when it sees them develop. 2. Has a strong portfolio made up principally of prime properties. 1. Confident that over time prime property will outperform, particularly in today's market. 2. Unique debt structure in aftermath of rights issue and Meadowhall JV will have over GBP3b of undrawn bank facilities. 1. At a time like this, it is an extraordinarily valuable asset for Co. 3. Has active and proficient management which gives BLND.L opportunity not just to manage well in tough times, but to take opportunities and to analyze them in a disciplined and effective way to...
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