British Land, the UK's number two REIT by market capitalisation, reported a predictably solid Q3 performance with underlying pre-tax profits up 6.3% to £68 million. Total return, however, is just 1.3% for the quarter compared to 5.6% in Q3 2010, due to a much lower increase in the portfolio value of £205 million.

This is due to falls in values throughout the European and UK provincial portfolio, only just offset by gains in West End and, to a lesser extent, London City offices due to development spending, as the market downturn gathers pace.

Property Week reported yesterday that half of BL's 50% stake in Sheffield's commercial hub, Meadowhall Shopping Centre, would be made available to compliment the other 50% stake held by London & Stamford which they also reported is for sale. This suggests that British Land needs cash, as net debt has jumped almost £500 million in Q3 to £4.907 billion.

It has contracted around 70% of the £539 million in its ambitious office development programme, and £80 million in retail developments. Although it reports having arranged £1.2 billion of new financing during the current year, falls in the value of its portfolio will put pressure on its balance sheet and its banking covenants. Despite the fact that its LTV at the end of Q3 was 45.6%, that position can change quite rapidly.

Chris Grigg, CEO said:  

"These results reflect the resilience of British Land's business. It is noteworthy that underlying profits are up 6.3% despite the tougher economic environment. At the same time, occupancy, income and ERV all rose in the quarter. We have also made further progress on our office development programme. In total, we have now locked in future annual rent of £32 million through a series of binding pre-lets. These pre-lets mean that our office development programme is already 50% pre-let even though it mainly reaches practical completion between 2013 and 2014. Of course, the current economic outlook is uncertain, but overall our business is defensively positioned today and will benefit further as economic growth returns."

Shares in BL closed last night at 508p valuing the firm at £4.516 billion; they opened lower this morning. The company declared a Q3 dividend of 6.5p per share.