Real estate giants optimistic on outlook

Fiona Bond
18.11.09 09:34

Commercial property maestros Land Securities (LAND) and British Land (BLND) were today predicting a brighter future although the road to recovery remains rocky.

The bullish outlook comes as Land Securities forecast that property values were set to rise over the next five years - despite losing 7% on the value of its investments to the end of September. This stood at �7.4 billion with the group still selling assets below their March book values.

However, Land Securities said the market was now entering a state of recovery, after suffering a period of rapid deterioration.

The UK property giant's sales for the six month period ended 30 September hit underlying revenue profit, which fell 15.4% year-on-year to �128.4 million. The company's gross rental income also took a hit, slipping to �336.3 million from �360.9 in 2008.

Despite the reality check, chief executive Francis Salway remained upbeat: "We are pleased that our portfolio has outperformed the market index, and that we have delivered our plans for balance sheet management through treasury activity and asset disposals.

"We are confident that from the low point in July 2009 property values will rise over the next five years. We have the capacity and confidence in our expertise to invest in the right acquisitions and new developments to create outperformance."

The company has undergone a strict programme this year to enhance its balance sheet. In line with the rights issue announced in February 2009, Land Securities repaid �1.8 billion of debt during the period.

Land Securities and British Land have both embarked on a property sell-off programme in a bid to strengthen their balance sheets.

Land Securities sold �765.5 million across its London and Retail portfolios, while British Land made �206 million of further disposals during the first half, reducing its department store exposure.

Yesterday, British Land said it is eyeing �2.5 billion worth of investments after it posted second-quarter profit for the first time in two years on Tuesday.

After riding out the "worst storm in real estate history", its property value rose 1.4% during the second quarter as a rapid and positive shift in investor appetite for commercial property took hold.

The company said up to 70% of its �8.3 billion property assets had enjoyed a rise in value since June.

The greatest demand continues to be for assets with robust income streams, but lot sizes are vital with the market posing tougher for transactions of �50 million or more, British Land added.

Like-for-like rental growth income was up 0.7%, boosted by a surge in bullish retailers buying property from struggling retailers during the downturn.

Chris Gibson-Smith, chairman, commented: "We are well stocked in human and financial capital and continue to attract both talent and investment. The next few years will be a market for the professional investor and operator, where long lasting success comes from a profound understanding of property economics and drivers and high execution capabilities.

"We have the capacity and willingness to be bold, where necessary, but are mindful that the waves caused by the financial maelstrom of the last two years have not yet settled."

However, both property giants warned that the outlook for the economy remains in the hands of the government and banks. British Land's chief executive officer Chris Grigg said it was the job of governments to tackle national debt while attempting not to floor consumer and business spending patterns, while Salway cautioned that opportunities would not emerge until banks begin to take action on their property loan portfolios.

Land Securities' share price fell 6.50p to 708p, while British Land was down just 1p to 491p.

Real estate giants optimistic on outlook

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