British Land ‘risks errors of 2007’ with share buy-back
BRITISH Land has launched a £300m share buy-back despite warnings that it risks repeating a similar lacklustre programme from 2007, which failed to improve its share price.
In a sign that the cost of UK commercial property is dramatically diverging from companies’ share prices, Chris Grigg, British Land’s chief executive, said buying its own shares was better value than investing in physical assets.
The company will buy back the shares during its current financial year, which ends in March, using proceeds from the sale of its 50pc stake in London’s “Cheesegrater” skyscraper earlier this year. Mr Grigg said that although the company was continuing to sell properties, the opportunities in the buying market were “more limited than usual”. At the same time, the company’s shares have lost about 22pc in the past two years.
Mr Grigg said that as the company’s stock was trading at a substantial discount to its net asset value (NAV), the buy-back “represents a clear value opportunity”. NAV was 915p at British Land’s results in May; its shares closed at 623p yesterday, up 3.1pc.
But analysts suggested that British Land risks repeating the 2007 share buy-back. Robert Duncan, at Numis Securities, pointed out that the 2007 buy-back programme had failed to achieve a lasting effect. “Being purists, we would rather see capital invested in extracting value from real estate than in financial engineering,” he added.
Mike Prew, at Jefferies, said British Land should instead be focusing on lowering its loan-to-value ratio, which is around 35pc, as the property market is likely to fall in the coming months.
Mr Grigg said yesterday that he did not expect the loan to value to change.