British Land issue in danger

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The Independent Online

Deputy City Editor

British Land shrugged off worries in the City yesterday that the property company, Britain's second largest, is struggling to get a pounds 222m placing away. The share issue at 370p, designed to reduce gearing of well over 100 per cent, closes tomorrow and looked in danger with the shares closing last night at just 368p.

The placing of 62 million shares was underwritten by SBC Warburg and UBS at the issue price although, as is usual practice, they both laid off most of the risk with sub-underwriters on the day the issue was announced.

The recent slide in British Land's shares reflects worries among investors that the company may have over-reached itself with the acquisition, announced last month, of the half of London's Broadgate office development that it did not already own. Although British Land only paid pounds 120m for the half share, the deal involved taking on pounds 800m of debts in the scheme, the interest on which is still not covered by rental income.

When the placing was announced, the shares stood 6 per cent higher than the issue price, giving shareholders an incentive to participate on the basis of one new share for every six held. Since then, however, the slide in the shares has eroded the discount.

The Broadgate acquisition, which British Land had pursued for two years, was the latest in a sequence of purchases that helped drive gross rents in the six months to September 31 per cent higher to pounds 108.7m. During the first half year, profits increased 5.6 per cent to pounds 18.9m and the interim dividend rose 5.3 per cent to 2.78p.

Despite the underperformance of the shares, John Ritblat, British Land's chairman, painted a relatively bright picture of group prospects. "Over 80 per cent of our portfolio will have been acquired in the last seven years, the majority of those purchases having been in well located City offices, superstores, retail warehouses and leisure investments, all with good prospects for long-term rental growth."

British Land has been one of the most successful property investment companies during and since the recession, mainly because, unlike many of its peers, it entered the slump with low borrowings and so was able to take on properties at attractive prices. Its growth has slowed recently, however, with net assets growing by only 1 per cent in the year to March.