The unprecedented financial turmoil of the last three months has brought home to everyone that the credit crunch is more than just a banking issue. The coordination of governmental responses across the world is unique and has done much to provide the basis for a return to some stability. Nonetheless we are still in a period of heightened stress in credit markets and this affects investor sentiment towards all asset classes, property being no exception.
Against this testing backdrop, British Land continues to operate favourably. At £144 million, underlying profits for the half year are slightly above the previous period: 13% ahead if the Songbird Estates dividend last year is excluded. Investment yields however have continued their outward trend, reducing the portfolio valuation by 10.8% and NAV by 22% to 1043 pence.
Sales of properties completed in the twelve months prior to the credit crunch reached £2.5 billion gross, and since then over £2 billion. The former catching the height of the market, the latter still at yields which look advantageous today. These early actions raised income cover (and the level of available facilities) whilst keeping gearing down. Just as importantly, with these sales we have trimmed our portfolio to properties we believe will be in demand from our customers even in difficult markets, maintaining our ability to relet space if required.
Retailers are reporting difficult trading, reflecting the effects of the economic slowdown, and this will weigh on prospects for rental growth over the shorter term. We have yet to see any significant defaults but the climate is challenging for our customer base and so our positioning and diversification will hold us in good stead.
In the City we have put under offer over a quarter of the offices (with options over more) at Ropemaker Place, which topped out in September and will complete next summer. In a market where occupiers are uncertain of their requirements, this is an encouraging sign. A further 39,000 sq ft is under offer at 201 Bishopsgate and the Broadgate Tower. With the completion in 2009 of Ropemaker Place and our West End development at Osnaburgh Street, our committed office development programme will come to a natural pause until we judge the market more favourable.
Occupancy levels of 97% and lease lengths averaging 13 years, with broad diversity of tenants and industries ensure our cashflow security. Finance fixed at an average interest rate of 5.3% with a maturity of 13 years provides further strength, as does £2.7 billion of committed banklines – in all 5 years of cover for our business before requiring new or replacement lines.
We thank Stephen Hester for his excellent contribution to the development of British Land over the last four years. We wish him every success in his new role as Chief Executive of The Royal Bank of Scotland.
The process leading to the appointment of the new Chief Executive is underway and British Land continues in good hands.
