Price at record high on back of Zell takeover and REIT dividend news

British Land’s shares soared to a record high on Tuesday, the day that chairman Sir John Ritblat presided over his last set of financial results.

The shares touched 1,635p before slipping to 1,622p, which valued British Land at £8.4bn.

Investors were buoyed by news that British Land planned to double its dividend when it converts to a REIT in January, and by Blackstone’s $20bn (£10.5bn) recommended takeover of giant US REIT Equity Office Properties that makes every UK property company a potential bid target.

Delivering a solid set of half-year figures, British Land chief executive Stephen Hester said the first full-year dividend as a REIT would be ‘not less than 33p a share’, which is 94% higher than in the last financial year to 31 March 2006.

He added that dividends would be paid quarterly.

‘Historically, we’ve had one of the lowest dividend payouts, so we’ve always said that we would increase the dividend even if REITs hadn’t come in,’ he said.

‘The increase was 8% a year.

Now it’s going to be 94%. The minimum is 22p, but we’re proposing 33p because we have a secure cashflow, which is rising fast.’

At the current share price, however, the dividend yield would be a rather low 2%. But Hester emphasised that REITs ‘are not income vehicles, they are tax-efficient vehicles’.

The quarterly dividend aligns payouts with quarterly rental income receipts in the direct market.

In the six months to 30 September, British Land’s net asset value rose 9% to 1,624p a share. This would have been 11% but for the cost of a £1bn debenture refinancing, which reduced the company’s overall interest rate from 5.69% to 5.45%.

Underlying pretax profits were up 27% to £130m.

The portfolio valuation increase of 6.2% to £15.9bn was bang in line with the Investment Property Databank Benchmark, but below the 7.3% rise achieved by Land Securities in the same period.

‘Land Securities delivered 11% NAV growth with 50% equity gearing and British Land 9% with 86% gearing,’ said Lehman Brothers property analyst Mike Prew.

Half of the valuation increase came from rental growth – 2.8% compared with IPD’s 1.8%.