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Article Excerpt
PARTICIPANTS
. Chris Gibson-Smith, British Land Company plc, Executive Chairman . Graham Roberts, British Land Company plc, Finance Director . Andrew Jones, British Land Company plc, Head of Retail . Tim Roberts, British Land Company plc, Head of Offices . Neal Ledger, Calyon Securities, Analyst . Mark Young, Oriel Securities, Analyst . Martin Allen, Morgan Stanley, Analyst . Harm Meijer, JP Morgan, Analyst . Quentin Freeman, UBS, Analyst . Michael Cox, RBS, Analyst
OVERVIEW
BLND.L reported 1H08 underlying profit of GBP144m and underlying EPS of 27p.
FINANCIAL DATA
A. Key Data From Call 1. 1H08 underlying profit = GBP144m. 2. 1H08 underlying EPS = 27p.
PRESENTATION SUMMARY
S1. Opening Comments (C.S.) 1. Highlights: 1. Continued to show underlying profit growth in 2Q08 and 1H08 with 13% increase to GBP144m. 2. Property yields continued to move out. 1. Valuations falling some 11%, driving NAV down 22% to GBP10.43 a share. 2. Despite that and because of underlying profit growth, raising dividend 7% to 18.75p per share for half-year. 3. As a Board and as a team, taken huge number of actions in last few years to reshape business. 1. Has been: 1. Focusing on assets with enduring demand. 2. Growing income stream from those assets. 3. Developing deeper and clearer understanding (indiscernible) needs. 4. Increasing entrepreneurial approach to asset management and selection. 4. Balance sheets offer good downside protection. 1. Occupancy rates are at 97%, Co.'s lease lengths, 13 years on avg. and relatively few leases coming out for renewal in short-term. 2. Good diversity across customers and sectors. 3. Property focused relentlessly on prime. 4. Debt with fixed interest rate at 5.3%. 5. Long refinancing needs.
S2. Financial & Operational Review (G.R.) 1. Financial Results: 1. Underlying EPS up 4% in 1H08 to 27p, 8% increase in 2Q08. 1. Underlying pre-tax profits at GBP144m, slightly ahead of last year. 1. Excluding Songbird dividend in 1Q07 (Sic - See Presentation Slides), up 13%. 2. Prime driver is 4.2% like-for-like income growth of portfolio, ahead of industry at 3.5%. 2. 2Q08 dividend, up 7% to 9.375p. 2. Portfolio valuation, down 10.8%, 6.5% in 2Q08 leading to valuation yield, gross initial basis of 6%. 1. Net equivalent has moved out by 57 BP since March. 2. Rental value growth in Retail, 0.9% with Offices down 4%. 3. NAV: 1. Decline of 22% for six months, down to 1043p. 2. Triple-net NAV at 1186p reflects valuable debt structure that Co. has. 3. Properties that Co. owns and manages are now valued at GBP15.6b. 4. Strong cash flows. 1. 13 years avg. lease lengths. 2. Occupancy rate of 97%. 3. Only 4% of leases renewing before 2011. 4. Debt, 100% fixed at 5.3%. 1. Has 13-year avg. maturity and with no immediate refinancing needs till 2013. 2. UK Market: 1. UK recession will affect occupancy and land levels, which is why starting from high occupancy level is important. 2. Credit rationing that is around will affect yields. 3. Inflation fears have lowered. 1. Compared to early 1990s, hasn't had a rental bubble that Co. is heading into. 4. UK still offers supply-demand imbalances even for short-term. 5. Secondary is not the place to be. 1. Firmly in prime. 6. As secondary yields move further out, prime will find a floor sooner. 3. Management Actions: 1. Selling down through peak of a cycle from 2006 and 2007. 1. Using this opportunity to sell secondary and more risky assets within portfolio. 2. Was selling prime property in that period, largely where high rental values or yields were still low. 2. Completely refinanced debt pool in 2005 and 2006. 1. Extended maturities of debt. 2. Started to negotiate longer maturities with banking friends. 3. Had big spike in interest cover, up to two times. 1. Operated to keep LTVs in line. 4. Interest rate, coming down to 5.3%.
S3. Additional Metrics (G.R.) 1. Underlying Profits: 1. Growth was primarily from rent reviews and new lettings, GBP18m. 2. Accretive effect of property sales led to GBP8m increase over the period. 1. Admin costs added GBP8m to that, largely restructuring which Co. did in 2007 coming through but also large element of remuneration to staff using share incentives, which involved release of accruals. 3. Two major financing items to take into account: 1. Interest ceasing to be capitalized on developments. 2. Interest on reconversion charge made in previous year July. 4. Underlying diluted EPS, 27p. 2. Net Asset Value (Six Months Performance): 1. 10.8% valuation mark-down. 1. 8.9% in Retail. 2. 13.2% in Offices. 2. Against IPD, slightly underperforming because of weighting towards City offices. 3. Portfolio Composition: 1. 59% Retail, of which: 1. 83% Out of Town. 2. 39% Offices, pretty much London based. 2. Developments, down to 5% of entire portfolio. 4. Income Longevity & Security: 1. Occupiers in administration as a percentage of rent, 0.6%. 1. 0.4%, Co. is already taking action with that are still trading or being assigned. 2. Payments were pretty much in line with experienced in last Sept. 2. Lease Structure: 1. Has little exposure to customer turnover, substantially less than 1%. 2. Leases are overwhelmingly up with only mark-to-market with some inflation length and fixed minimum uplifts. 5. Income Diversity: 1. Banking [customer] base, 19%. 1. Largely banks have recapitalized, good sign. 2. DIY & bulky goods represent 8% of overall portfolio. 1. Large percentage of that will be in parks that are well occupied and trading well. 2. Not a bad position to be in overall. 3. Has 920 other customers, which make up remaining 51% of portfolio. 6. Future Income Profile: 1. Reconciliation of GBP600m net annualized rents to GBP706m. 1. Increase is calculated by valuers. 2. GBP48m of contracted fixed uplifts and expires of rent frees come through in next five years. 3. Avg. Rents in Portfolio: 1. Retail...
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