British Land secures lower financing costs

BRITISH LAND'S decision to issue a pounds 1.54bn bond backed up by the income from its high quality London office development, Broadgate Centre, yesterday received an enthusiastic welcome in the City.

Analysts said the deal exploited the prestige value of Broadgate and the low interest-rate climate, and said they expected to see competitors in the sector follow suit.

"We've been recommending refinancing of debt in the sector since the end of last year. With low interest rates it makes huge sense for companies with high quality assets and tenants," a property analyst with a leading investment bank said.

Echoing analysts' sentiment, Capital Shopping Centres finance director, Tony Babcock, confirmed that the group was looking "very seriously" at the securitisation of debt - the issue of high-yield bonds backed by rental returns.

The British Land deal, announced on Monday, was cited as an example of creative thinking in the sector. "It's a very good deal which underlines how financially astute British Land is," said Commerzbank property analyst John Atkins. "It's been received well by the market, with a 7p jump on Monday. They're back at a similar level now, but there's no question this has been received anything but favourably."

The refinancing will reduce British Land's interest on its pounds 1.2bn debt from 8.49 per cent to 7.4 per cent and is forecast to save the company pounds 20m a year. However, securitisation will impose an exceptional charge of pounds 68m, to be paid by the company in the year ended March 1999. British Land finance director John Weston Smith said: "We've taken the pounds 68m hit but in the long term, with the size of debt we have, this is cheap funding."

British Land shares, closing at 554p, trade at a similar discount to net asset value as its peers. They are worth buying.

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