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Article Excerpt
CHRIS GIBSON-SMITH, EXECUTIVE CHAIRMAN, BRITISH LAND COMPANY PLC: A warm welcome to British Land's interim results. I'll introduce myself. I'm Chris Gibson-Smith, the temporary Executive Chairman of this ship while we look for a successor to Steven. With me, Graham Roberts, Andrew Jones, Tim Roberts and much of the team. So I think we can handle any questions that you may have.
Truly turbulent times. I think we all understand that by now. With emergency recapitalization of the banks around the world and intensifying fiscal and monetary stimuli. Holding our ground I think is where we are in total. But a critical context for the results we're going to show you, and certainly from our perspective it's constantly in our mind and drives many of our actions.
So we continue to show underlying profit growth in both the quarter and the half-year, with a 13% increase to GBP144m. But at the same time, as we all know property yields have continued to move out, valuations falling some 11% and so driving NAV down 22% to GBP10.43 a share. Despite that, and because of the underlying profit growth, we're raising our dividend 7% to 18.75p per share for the half-year.
As a Board and as a team we've taken a huge number of actions in the last few years to reshape our business. We've been focusing on assets with enduring demand. We've been growing income streams from those assets, and we've been developing a deeper and clearer understanding of needs and an increasing entrepreneurial approach to asset management and selection. All of that aimed at taking care of the financial position of the Group and making sure that we're able to deal with this credit crunch in very good order. And I believe that these results show the extent to which we've achieved that.
So our balance sheets offer good downside protection. Our occupancy rates are at 97%, our lease lengths are at 13 years on average and relatively few leases coming up for renewal in the short term. Good diversity across customers and sectors, and above all property focused relentlessly on prime.
And then the debt, with a fixed interest rate is 5.3% and long, long refinancing needs.
Let me hand over to Graham to give you the details of that, followed by Andrew and then Tim, and I'll give you my summary of where all that leads to. Thank you.
GRAHAM ROBERTS, FINANCE DIRECTOR, BRITISH LAND COMPANY PLC: Thank you, Chris, and good morning everybody. What I'd like to do is just give a brief run through of the financial numbers and then move on, just give you a general economic backdrop to the context around those, talk about how British Land has positioned itself in this marketplace, and then come back and go through in a bit more detail some of the key features of the numbers, and particularly our balance sheet strengths on the asset and the liability sides. And then wrap up just with a summary of the six months activity before handing over.
So, just going through the financial results. On the underlying earnings side up 4% in the half-year to 27p per share, an 8% increase in the second quarter. Underlying pre-tax profits at GBP144m, slightly ahead of last year. But if you took out the Songbird dividend in the Q1(Sic-see presentation slides) of last year, it's a 13% growth rate. And a prime driver for that is the 4.2% like-for-like income growth of the portfolio, which is ahead of the industry, which is at 3.5%. Our second quarter dividend up 7% to 9.375p, as previously indicated.
The portfolio valuation is down 10.8%, 6.5% in the second quarter. And that leads us to a valuation yield on a gross initial basis of 6%, the net equivalent has moved out by 57 basis points since March. We'll (inaudible) come back to that later. Rental value growth in Retail was 0.9% with Offices, as you wouldn't be surprised to know was down about 4%.
That translates into an NAV decline of 22% for the six months down to 1043p, and the net NNNAV at 1186p obviously reflects the valuable debt structure that we have, which I'll come back to in some detail later. And the properties that we own and manage are now all valued at GBP15.6b.
We obviously have strong cash flows, as you'll be very familiar. But just to highlight the key features again, 13 years average lease length, an occupancy rate of 97% and only 4% of our leases renew before 2011.
And on the debt side, 100% fixed at 5.3%, and we have a 13-year average maturity and with no immediate refinancing needs until 2013.
So let's come onto the UK market overall. The charts on the right track through 20 years to incorporate the early 90s recession as well, and obviously the table as well. Andrew and Tim will talk about the investment property market in more detail. But clearly life is very tough for our customers and it's a difficult economic environment. Certainly looking back to the early 90s we're adopting, as a management team, many of the lessons learned from that era, particularly realism and alertness to what is going on around the world, and not being distracted. Cash is very much king, and anticipating and de-risking is a very important aspect of business life.
Life will be tough for our customers with the UK recession, which in turn will affect occupancy and land levels, which is why starting from a high occupancy level is very important. Equally the credit rationing that is around will affect yields, and we'll come back to that in some detail.
At the same time this will all introduce opportunities, and clearly we are keeping ourselves alert to the ability to maximize our strengths when opportunities arise. On the plus side inflation fears have lowered, and importantly compared to the early 90s we haven't had a rental bubble that we're heading into, the rental bubble which had a development boom and bust cycle. And in addition the UK, so often supply/demand imbalances, even if over the short term it is more of a difficult environment.
What these charts and the table do show is our view that secondary is not the place to be. We're firmly in prime and as secondary yields move further out prime will find a floor sooner.
I just wanted to talk a little bit about how we've played the cycle so far, and these three charts I think show that quite well. On the left-hand side you can see we were selling down through the peak of the cycle from '06 and '07. Clearly we're using this opportunity to sell secondary and more risky assets within the portfolio. The dotted line represents approximately when the credit crunch took place, and we continued to sell. We thought there was a high probability of further yield shift, which obviously came to pass. We were selling prime property in that period, largely where high rental values or where the yields were still low. And that has set us in good stead.
We also completely refinanced the debt pool in '05 and '06, as you know, and we also extended the maturities of the debt and also started to negotiate longer maturities with our banking friends. And that puts us in good stead. And the effect of those property and financing actions you see in the middle column there shows most importantly a big spike in the interest cover, up to two times. But also we've operated to keep our LTVs in line.
In addition, as we were doing this, we didn't cancel any of the facilities and that has led to the growth in the facilities you see on the right-hand side, and also the red line coming down represents the interest rate coming down to 5.3%. Now whilst you can say we've sold more in that time, I think we showed indicatively that we were playing the cycle reasonably well.
Let met just jog back and go through a bit more of the details of the underlying profits. The growth there primarily from rent reviews and new lettings,...
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