UBS upgrades British Land to buy from neutral

26th Nov 2012 11:40

Analysts at UBS have today issued an upbeat note on shares of British Land so as to reflect the company's lower risk profile and growing earnings potential. The broker states that: "Historically, we have been concerned about British Land's ageing portfolio. However, although the company's lease lengths have shortened, the company has been turning these from a threat into an opportunity. We (...) note management's success in potentially timing the lease expiries in harmony with the delivery of new space."UBS also sees developments adding up to £71m of annual rent, although medium term net asset value (NAV) growth is forecast to be driven more by improving rental values, particularly from fiscal year 2015 onwards. There is also reversion to be captured from the existing portfolio from rent reviews, index-linked leases, and letting up vacancy, they add. Furthermore, British Land's average cost of debt is just 4.4% they point out, materially lower than its peers, whilst its marginal cost is approximately 1%. It also has £2.3bn of available facilities, giving it a competitive advantage in terms of speed of response to opportunities and minimising earnings dilution if those come with little rental income (e.g. Clarges).UBS has raised its target price by 3.5% to 580p and raised its recommendation to buy from neutral. AB