British Land `Capitulating' on Buybacks as Discount Persists

Updated on
  • REIT sets aside $393 million for stock purchases this year
  • Landlord shares trade at large discount to net asset value

Real estate investment trusts are starting to buy back shares as they struggle to find value in a London market where prices remain at record highs even as rents fall.

British Land Co. on Tuesday set aside as much as 300 million pounds ($393 million) to acquire its own stock this year. The landlord traded at a discount of about 35 percent to net asset value prior to the announcement.

The shares rose as much as 3.6 percent in London trading, the most since Dec. 7, and were trading at 621 pence at 9:13 a.m.

“The REITs have been slow to instigate buyback plans, arguing that they still get better returns for shareholders from development and asset management activity than buying their own shares,” according to Bloomberg Intelligence analyst Sue Munden. “But British Land’s announcement today may just be them capitulating in light of the persistent large discounts to net asset value and few investment opportunities.”

The Brexit vote has weighed heavily on landlord share prices amid concerns jobs will leave London, even as trophy office deals following the fall in the pound have kept asset prices high. Homebuilder Berkeley Group Holdings Plc and serviced office provider IWG Plc have also been buying back shares this year.

British Land sees limited opportunities to acquire new assets at attractive returns, Chief Executive Officer Chris Grigg said in the statement Tuesday. “With our shares trading at a substantial discount to NAV and providing a 5% dividend yield, allocating capital into a share buyback represents a clear value opportunity.”

British Land’s loan-to-value ratio of about 35 percent appears “excessive” and U.K. commercial property values are about to fall, Jefferies Group LLC analyst Mike Prew said in a note to clients. We would “sell all the stock we could into this liquidity window,” he wrote.

(Updates with analyst comments final paragraph.)
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