Now raising intellectual capital
British Land is in a good position to take advantage of opportunities. We know because the chairman told us. Why then, is he supposed to be contemplating selling a stake in London office complex Broadgate to Blackstone?
Given how far prices have fallen, the timing looks odd, especially for a company that claims to be in a solid financial position. However, it may make more sense than it appears to. Bank lending and property markets are soft, but the peculiarities of Broadgate’s debt structure may make it worth while for both sides.
Broadgate, now over 20 years old, is showing its age and, at 2.2 billion pounds, is an uncomfortably big lump in British Land’s portfolio. Selling a stake would allow the company to reduce risk and diversify its business.
For a buyer, the attraction lies as much in the quality of Broadgate’s liabilities as those of its assets. The estate may need some work, but it has a state-of-the-art pre-credit crisis debt structure, which any buyer would inherit.
Shares in British Land, a big UK property company, have rocketed by almost two thirds from their March lows. After Tuesday’s results, they stand at a one-third premium to net asset value (NAV) of 361 pence per share. Fuelled by takeover speculation, the shares seem to be orbiting far above bricks-and-mortar reality.
Further fuel has been provided by the cost of much of Land’s outstanding debt. This is so far below the market rate as to be worth a further 119 pence a share on the company’s estimate. Together with associates, Land has 4.8 billion pounds of net debt fixed at 5.3 percent with an average maturity of 12.6 years.