The Investment Column: British Land profits from deals

The deal making skills of John Ritblat, the veteran chairman of British Land, have not always been in demand from the stock market, but they have certainly proved themselves of late. There was scepticism over the pounds 1bn series of deals which in 1994 and 1995 gave the property group 100 per cent control over Broadgate Properties, owner of the giant development in the City of the same name. Most such doubts have been dispelled by the 24 per cent outperformance of the shares, up 1p at 588.5p yesterday, since the start of 1996, but any remaining worries will have been dissipated by the latest figures.

British Land yesterday reported a 47 per cent jump in pre-tax profits to pounds 91.2m in the year to March, a 37 per cent rise once capital gains are stripped out. Net assets per share jumped a very respectable 14 per cent to 487p over the 12 months. Taking account of the dilutive effect of the current cash raising, a pounds 300m convertible Eurobond, the diluted net asset value (NAV) at 493p has at last surpassed the 1989 peak.

The inclusion of Broadgate, particularly its developments around Ludgate Hill, helped propel the 6.9 per cent increase in the valuation of City office properties last year. But at around 20 per cent of the total pounds 5.1bn portfolio, Broadgate alone cannot explain the double-digit rise in net assets per share last year.

Indeed, British Land is relatively under-exposed to the currently sexy property area of out-of-town retail sheds. This was the only part of the portfolio to match the growth of the group, with valuations in retail warehousing rising 14.7 per cent, down from 20.3 per cent the year before.

More important to the group's performance has been its financial engineering, notably February's issue of shares at 520p - above the net asset value - to help finance the pounds 230m payment for a half share in a joint venture with Great Universal. With similar ventures signed up with Scottish & Newcastle and Tesco, the BL Universal deal takes to pounds 1.3m the value of property in joint companies. The company reckons this allows it to do bigger deals and widen the spread of the portfolio, while earning management fees.

Certainly, it is looking one of the less risky bets on the property market. Gearing is a reasonable 89 per cent and British Land is no MEPC, rushing out to bet the house on speculative developments. The biggest prospect is Plantation House in the City, which could be a modest pounds 150m to pounds 200m project, and even that depends upon demand.

Even so, British Land has been no slouch at turning over the portfolio, 90 per cent of which has been acquired in the last eight years. The latest fund raising takes the war chest to pounds 1bn, but with corporate action currently ruled out, this looks more like an opportunistic move to take advantage of low interest rates. Meanwhile, NAV forecasts of 580p for the current year suggest the shares remain reasonable value.