July 25 - Fitch Ratings has affirmed The British Land Company
Plc's (British Land) senior unsecured rating at 'A-' and the company's Long-term
Issuer Default Rating (IDR) at 'BBB+'. The agency has simultaneously affirmed
British Land's Short-term IDR at 'F2'. The Outlook on the Long-term IDR is
"British Land maintained strong financial metrics in the year to March 2012 due
to its active asset management, despite the challenging UK retail property
environment," says Jean-Pierre Husband, a Director in Fitch's EMEA Corporate
Finance team. "Its liquidity position remains one of the strongest in the EMEA
The ratings reflect the stable metrics in the financial year ending March 2012
(FY11). Fitch-adjusted EBIT/net interest cover (NIC) equalled 7.4x at March 2012
(versus 100.0x for FY10) on a deconsolidated basis, and 2.9x (versus 3.6x) on a
consolidated basis. Fitch-adjusted group leverage (including equity in JVs) was
stable at 30% at March 2012 (24% at 31 March 2011).
British Land's rating is based primarily, but not solely, on the credit metrics
derived by de-consolidating the unsecured assets (unsecured property GBP3.6bn at
FY11). The resulting de-consolidated EBIT/NIC is relatively volatile as the
unsecured asset component of the business has been used as a warehousing
mechanism for the rest of the group and hence its financial structure can change
quickly. Therefore, Fitch also takes the consolidated group NIC and leverage
ratios into consideration in assessing the company's ratings.
Fitch also factors potential contingent liabilities for unsecured creditors into
British Land's ratings. For example, while funds and JVs are legally
non-recourse to the rated entity, there is a possibility the company may decide
to support these financings should covenants come under pressure within the
individual non-recourse structures. However, in FY11, British Land's property
portfolio saw valuation increases (+2.6% at March 2012) and Fitch believes there
is currently no requirement for the company to top-up debentures and the
Meadowhall, Broadgate and BL Superstores securitisations representing 60% of JV
and fund debt do not have LTV covenants.
The ratings also reflect the company's strong lease profile (average 11.3 years
to first break) which is above average for the sector, and excellent tenant
profile, which gives sound defensive qualities in a property downturn. The
ratings also take into account BL's more active asset management, building on
its long-term relationships with prime tenants and its concentration on markets
where the group has a competitive advantage, such as large out-of-town retail
parks. As a result, UK occupancy was high at 98.0% at March 2012. Tenant
defaults remain low, with only 0.8% of rents from tenants under administration,
as of 30 June 2012.
WHAT COULD TRIGGER A RATING ACTION IN THE FUTURE?
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- De-consolidated NIC above 3.0x, consolidated NIC above 3.0x and
de-consolidated leverage below 40%, all on a sustained basis.
Negative: Rating issues that may both individually or collectively, lead to a
negative rating action include:
- Deconsolidated NIC (including dividends from JV and secured assets) falls
below 3.0x and the consolidated EBIT NIC falls below 2.0x over the next three
- The company's ratings could also come under pressure if the de-consolidated
unencumbered asset cover fell below 2.0x on a sustained basis.
British Land has a strong liquidity position, with undrawn committed facilities
and cash totalling GBP1.6bn at March 2012, including GBP760m of new bank debt
and GBP300m of private placements signed during FY11. Against this, it has
committed development capex of GBP588m and GBP454m of debt maturing in FY12 and
FY13. BL's net unsecured borrowings to unencumbered assets ratio of 34% at 31
March 2012 compares favourably with the group's financial covenant of unsecured
debt/unencumbered properties at a maximum of 70%.
British Land is a major UK-based real estate investment trust (REIT) with a
portfolio value of GBP10.3bn at March 2012.