OREANDA-NEWS. Fitch Ratings has affirmed the UK-focused REIT The British Land Company Plc's Long-term Issuer Default Rating (IDR) at 'BBB+', the Short-Term IDR at 'F2' and the senior unsecured rating at 'A-'. The outlook is stable.

The affirmation reflects British Land's strong credit metrics and the pro-active reshaping of its portfolio. Fitch positively assesses the revised LTV approach, currently below 40%.
Fitch focuses its analysis on a statutory reported group basis excluding any non-recourse activities (Hercules Unit Trust, consolidated from February 2014). EBITDA is calculated adding regular dividend income from joint ventures and other non-recourse interests.

KEY RATING DRIVERS
Stable Revenues From Quality Tenants
High occupancy levels, long leases and the capability to attract very well-known tenants is a rating strength. Robustness and diversification of the occupiers, with no one accounting for more than 7% of the total contracted rent, give the company significant security of income enhancing also the value of their properties.

Active Portfolio Management
The company completed several transactions in the year ending in March 2015. This reduced the stand-alone food stores weighting to below 7% of the total portfolio and reshaped it towards multi-let shopping parks (retail segment) and London West-End offices. In the residential sector, British Land took advantage of the buoyant market to sell GBP370m of assets.

Projects Development
The 2010 development programme is at its final stage, with 5 Broadgate handed over in June 2015 and the Leadenhall Building 90% let. The medium-term pipeline is dominated by Canada Water, where the company already invested GBP250m including the bolt-on acquisition of Surrey Quays Leisure Park in March this year. The plan is likely to be a mixed-use scheme, benefiting from the central location and good transport links. However, as the project is still at its preliminary phase, adding some execution risks, Fitch will closely monitor the progress and the impact on the company balance sheet's strength.
Decrease in LTV

The proportionally consolidated LTV fell to about 35% at FYE15 from 40% a year before. Although this was partly due to the yield movement, Fitch positively assesses the actions taken by the company to increase the value of the managed assets and its approach to managing LTV through the cycle.

Leverage Reflects Development Pipeline
Fitch expects a moderate reduction in leverage for the year end, slightly increasing in the following years as the near- and medium-term pipeline commence. Although some asset disposals could mitigate any adverse effect, the impact of unexpected overruns, development costs and execution risks behind large projects could be detrimental for the rating. However British Land has a strong risk management policy, reviewing quarterly the progress of developments against plan.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Rental income increase in the current year driven by the 2010 development programme completion;
- Stable operating margins;
- Development spending as disclosed to the market.

RATING SENSITIVITIES

Positive
Future developments that could lead to positive rating actions include:
- Proportional consolidated LTV below 40% on a sustained basis;
- Improved diversification of assets on a geographical basis, decreasing the inherent cyclicality of the London office market;
- Fitch-adjusted group EBITDA NIC above 3.0x on a sustained basis;
- Fitch-adjusted Net debt/EBITDA (including dividends from joint ventures) below 8.0x.

Negative
Future developments that could lead to negative rating action include:
- Fitch-adjusted group LTV above 50% and on a proportional consolidated basis LTV above 55% on a sustained basis;
- Unencumbered asset cover below 2.0x or material deterioration in the unencumbered asset pool quality;
- Fitch-adjusted group EBITDA NIC below 2.0x on a sustained basis.

LIQUIDITY

Active Debt Management
In June 2015 the company launched a zero coupon GBP350m convertible bond issue, further extending the average debt maturity and reducing the overall cost of funding to 3.6%.

Robust Liquidity
With no significant maturities over the next two years, and available undrawn committed facilities in excess of GBP1bn, the available liquidity is strong and there is no requirement for refinancing in the next two years.