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British Land Earnings Increase 3.7% as Company's Real Estate Gains Value

British Land Co., the U.K. company that will build the London tower known as the Cheesegrater, said second-quarter profit rose 3.7 percent after its shopping centers and office properties appreciated in value.

Net income for the three months through September rose to 167 million pounds ($268 million) from 161 million pounds a year earlier, the London-based company said in a statement. Profit excluding changes in asset values fell 4.6 percent to 62 million pounds, or 7.1 pence a share.

Higher investment lifted U.K. property values in the past 18 months, though there are signs the gains are now slowing, British Land said. Chief Executive Officer Chris Grigg plans to start five office and retail projects in central London as a shortage of new space leads to higher rents.

“The doubt is on the demand side,” said Mike Prew, an analyst at Nomura International Plc with a “reduce” rating on the stock. “Structural changes taking place in financial services” may curb leasing of large office space, he said.

British Land, the U.K.’s second-largest real estate investment trust, fell 12.2 pence, or 2.4 percent, to 494.8 pence at 10:28 a.m. in London trading. The shares advanced almost 12 percent in the three months to Nov. 15, lifting the company’s market value to 4.43 billion pounds. The gains are in line with the 13 percent average increase for the 16 members of the FTSE All-Share Real Estate Investment Trust Index.

Leadenhall Building

British Land plans to build 2.1 million square feet (195,000 square meters) of office and retail space in central London at a cost of 1.5 billion pounds. The company will provide two-thirds of the money. The five developments include the Leadenhall Building in the City of London financial district. The property, nicknamed the Cheesegrater, will be constructed in partnership with Canadian pension fund Ontario Municipal Employees Retirement System.

“We expect to be able to exploit the growing demand-supply imbalance in London offices and to benefit from the growing need from a significant number of retailers to take new space in the best locations,” Grigg said in the statement.

The value of the U.K. company’s properties increased by 103 million pounds to 8.86 billion pounds in the second quarter. Net asset value rose 1.9 percent to 525 pence a share.

Net rental income fell 14 percent to 127 million pounds following the sale of a 50 percent stake in British Land’s Broadgate estate in the City of London to Blackstone Group LLP and because of other property sales.

British Land reduced its vacancy rate to 2 percent in the second quarter from 2.2 percent at the end of June. This followed the leasing of 850,000 square feet of space in the fiscal first half at rents that were on average 5 percent above their previously estimated value.

“Offices continued to benefit from the restricted supply of high quality space and we saw improving rental trends in retail,” Griggs said.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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