JPM BLND 031111 01724

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Europe Equity Research

09 March 2011
UK Property: Top 4 Largecaps

The path remains up, but momentum should slow
The four FTSE100 property stocks have seen strong gains of >9% total return since the start of 2011 and 22% over the last six months, outperforming the EPRA UK and FTSE100 index by 3% and 10%, respectively. We remain positive and believe the path remains upwards, but do expect momentum to slow. If not, the sector would enter overshooting phase: 1. The path remains upwards, as: 15% total return till March-2012 for Top 4 UK Largecaps with British Land, Hammerson and Land Securities seeing equal upside of c.17%. Price targets upgraded by +6% (Hammerson most: +13%), which are now on average 12% above Bloomberg consensus (again). UK largecaps remain well positioned, which is still not fully appreciated by the equity market: Loan-To-Value ratio of c.40%, >9y lease length, 9y debt maturity and total cash & undrawn facilities of almost 7bn. History shows there is more to come in medium term with a second upward leg on the cards, resulting in c.30% total return p.a. over 3y JPMe. Interest rates / bond yields not a concern (yet), as property not priced at low bond yields (40bp margin for error), bond yields recently retreated and first rate hikes have never ended an upwards trend before. 2. But momentum should slow, as: Stocks trade around NAV (British Land at 5% premium and Hammerson at 4% discount) and at an average discount of 12% to 2012 NAV. Property valuations are slowing with Top 4 to see c.2.6% (5y CAGR) vs. >10% in 2010 and our overall market forecast of only 0.7% p.a. The correlation with General Retailers (71% in 2010) has broken down in 2011, which could become a bad omen, if persistent. Consensus has been catching up, indicating higher expectations have been priced in. Our price targets were only 5% above BB consensus last week vs. 14% in Nov-2010, while the number of Buy ratings is also high, in British Lands case 19 Buys out of 23 ratings. History shows a pause is likely for 12m, before the second leg begins. Continental property players, like Corio, Eurocommercial and Unibail, expected to come back in focus again with dedicated property investors, as a result of underperformance and similar upside.
Equity Ratings and Price Targets
Company British Land Capital Shopping Centres Group Hammerson Land Securities Symbol BLND.L CSCG.L HMSO.L LAND.L Mkt Cap ( mn) 4,930.00 2,464.19 3,350.25 5,802.94 Price(p) 580 396 477 769 Rating Cur OW UW OW OW Prev n/c n/c n/c n/c Price Target Cur Prev 655 625 425 410 540 480 875 835
Property Harm Meijer

AC
(44-20) 7325-9248 harm.m.meijer@jpmorgan.com
Osmaan Malik, CFA

(44-20) 7325-6084 osmaan.malik@jpmorgan.com
Neil Green
(44-20) 7325 9732 neil.d.green@jpmorgan.com
Annelies J Vermeulen
(44-20) 7325-5119 annelies.j.vermeulen@jpmorgan.com J.P. Morgan Securities Ltd.
For Specialist Sales advice, please contact: John Van Marle

(44-20) 7155-8172 john.vanmarle@jpmorgan.com
Figure 1: EPRA UK: Total return index

120 110 100 90 80 Dec-09 Dec-10 Mar-10 Sep-10 Jun-10
Source: Bloomberg
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 07 Mar 11.
See page 28 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Harm Meijer (44-20) 7325-9248 harm.m.meijer@jpmorgan.com Osmaan Malik, CFA (44-20) 7325-6084 osmaan.malik@jpmorgan.com
Europe Equity Research 09 March 2011
Table of Contents
22% over last 6 months............................................................4
Strong start of the year.................................................................................................4 Winners have remained winners ..................................................................................4 Breaking out.................................................................................................................5
1. The path remains up ............................................................6

A) 15% total return on 12m view.................................................................................6 B) Price targets upgraded by +6% ...............................................................................6 C) Our price targets are 12% above consensus ............................................................7 D) Well positioned.......................................................................................................8 E) History shows there is more to come in medium term ............................................8 F) Interest rates / bond yields not a concern (yet) ........................................................8
2. But momentum should slow .............................................10

A) In fair value zone: Trading at NAV ......................................................................10 B) Property valuations slowing..................................................................................10 C) Correlation with retailers broken down.................................................................11 D) Consensus has been catching up...........................................................................12 E) History shows a pause is coming ..........................................................................13 F) Continental property companies to come in focus again.......................................13
Appendix I: J.P. Morgan Property valuation model.............14

Introduction................................................................................................................14 Explanation of pan-European valuation model..........................................................14 Advantages of pan-European valuation model ..........................................................15
British Land ............................................................................16 Capital Shopping Centres......................................................16 Hammerson.............................................................................16 Land Securities.......................................................................17 Valuation Methodology and Risks ........................................18
Table 1: New estimates and estimate changes (p)

2011E Old New 28.5 28.6 15.6 16.5 19.5 20.2 33.9 33.9 Adj EPS 2012E Old New 29.4 29.4 16.2 17.1 20.6 21.6 35.9 35.9 2013E Old New 32.6 31.4 17.5 23.3 38.3 38.3 2011E Old New 26.0 26.0 15.3 15.3 16.7 16.4 28.0 28.0 Dividend 2012E Old New 26.8 26.7 15.5 15.5 17.7 17.3 29.4 29.4 2013E Old New 28.1 28.1 15.8 18.1 30.9 30.9 2011E Old 537 408 488 743 NAV 2012E Old New 559 590 436 440 508 556 775 816 2013E Old 621 865
British Land Capital Shopping Centres (CSC) Hammerson Land Securities
New 558 411 522 773
New 631 472 597 905
Source: J.P. Morgan estimates. Note: we group around year ends, so Sep-11, Nov-11, Dec-11, Mar-11, Apr-11 will all appear in the 2011E column, and so on for following years
Table 2: UK Majors Top 4: Output European Valuation Model (EVM)

Price 585.5 397.1 473.9 773.0 NNAV t+1 611.7 396.2 530.6 838.0 Premium -4.3% 0.2% -10.7% -7.8% -14.0% Operating return 5.1% 5.0% 3.9% 4.8% 4.3% Capital return 3.0% 3.1% 3.4% 3.5% 2.9% Total return 8.1% 8.1% 7.3% 8.3% 7.2% WACC 7.0% 7.1% 7.0% 7.4% 7.3% Spread 1.1% 1.0% 0.3% 0.8% -0.2% Assigned value t+1 657.1 427.8 541.0 884.9 Upside 12.2% 7.7% 14.2% 14.5% 13.2% Target price 655.0 425.0 540.0 875.0 Upside to target price 11.9% 7.0% 13.9% 13.2% 12.2% Total return 16.5% 10.9% 17.4% 16.9% 14.5%
British Land CSC Hammerson Land Securities UK average

Source: J.P. Morgan estimates.
Table 3: UK Largecap Top 4: Discount to Adj NAV (p)

British Land * Capital Shopping Centres (CSC) Hammerson Land Securities * Average Share price 585.5 397.1 473.9 773.0 2010 NAV 558 390 495 773 Discount 4.9% 1.7% -4.2% 0.0% 0.6% 2011 NAV 590 411 522 816 Discount -0.7% -3.3% -9.3% -5.3% -4.7% 2012 NAV 631 440 556 905 Discount -7.3% -9.7% -14.8% -14.6% -11.6%
Source: J.P. Morgan estimates, Company data. * British Land and Land Securities have a March year end book year. Their March 2011 estimate is included in the 2010 column and so on.
22% over last 6 months

Strong start of the year
>9% return since the start of the year: Outperforming benchmarks
The UK Largecap Top 4 have seen strong gains with >9% total return since the start of the year and 22% over the last six months outperforming the EPRA UK (19%) and FTSE 100 index (12%). All majors, except for Capital Shopping Centres (CSC), have consistently outperformed their benchmarks over the last 12 months.
Table 4: UK Largecap Top 4 vs. EPRA UK and FTSE 100
British Land Capital Shopping Centres Hammerson Land Securities UK Largecap Top 4 Average EPRA UK FTSE 100
Source: Bloomberg
YTD 13.0% -4.9% 13.6% 14.7% 9.1% 8.6% 2.2%
3 Months 17.4% -2.8% 12.5% 18.6% 11.4% 11.4% 5.0%
6 Months 25.8% 14.3% 26.8% 21.7% 22.2% 19.0% 12.0%
1 Year 34.5% 6.2% 21.3% 20.2% 20.6% 16.6% 12.3%
So far during 2011, a weighted UK Largecap index has shown outperformance compared to EPRA UK (+3%) and FTSE 100 (+9%).
Figure 2: UK Largecap Top 4 vs. EPRA UK and FTSE 100
115 113 111 109 107 105 103 101 99 97 95
Dec 10
Jan 11
Jan 11
Jan 11
Jan 11
Feb 11
Feb 11
Feb 11
Feb 11
UK Majors Index
EPRA UK
FTSE 100
Winners have remained winners

Interestingly, the winners of the last year (in terms of total return) are also the winners so far in 2011 with West End players (+9.9%) and UK largecap (+9.7%) taking the lead (again). We see the outperformance slowing going forward with (some) smallcaps coming increasingly in focus.
Mar 11
Figure 3: UK: Performance Sub-sectors in 2010 vs. Year-To-Date

12% 10% Largecap UK WE office EPRA UK UK Residential UK Storage
Year-to-date return
8% 6% 4% 2% 0% -2% -30% -20% -10% 0%
UK Developers
Smallcap UK
10%
20%
30%
2010 total return

Source: J.P. Morgan estimates, Datastream
Breaking out
Due to the strong start of the year, the EPRA UK has broken out of the upper-end of the trading range, in which it has been for 18 months. We do not expect a return to the trading range, but do forecast returns to slow over the coming months.
Figure 4: EPRA UK: Breaking out
Mar-09 = 100
220 200 180 160 140 120 100 Mar-09

Source: Datastream
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
1. The path remains up

While property stocks have performed strongly, we believe the path remains upwards for the medium to long-term.
A) 15% total return on 12m view

Our EVM-based price targets indicate an average total return of 15% for the Top 4 UK largecaps till end of March 2012. The difference between British Land, Hammerson and Land Securities remains very marginal, as we estimate for each stock around 17% total return.
Table 5: UK Majors Top 4: Output European Valuation Model (EVM)
Price 585.5 397.1 473.9 773.0 NNAV t+1 611.7 396.2 530.6 838.0 Premium -4.3% 0.2% -10.7% -7.8% -14.0% Operating return 5.1% 5.0% 3.9% 4.8% 4.3% Capital return 3.0% 3.1% 3.4% 3.5% 2.9% Total return 8.1% 8.1% 7.3% 8.3% 7.2% WACC 7.0% 7.1% 7.0% 7.4% 7.3% Spread 1.1% 1.0% 0.3% 0.8% -0.2% Assigned value t+1 657.1 427.8 541.0 884.9 Upside 12.2% 7.7% 14.2% 14.5% 13.2% Target price 655.0 425.0 540.0 875.0 Upside to target price 11.9% 7.0% 13.9% 13.2% 12.2% Total return 16.5% 10.9% 17.4% 16.9% 14.5%
British Land CSC Hammerson Land Securities UK average
B) Price targets upgraded by +6%

Hammersons price target has been upgraded the most: +13%
We have updated our valuation models for the Largecap Top 4 in the UK and have upgraded our price targets by an average of+ 6% with Hammerson seeing the highest upgrade of +13%, followed by Land Securities and British Land (both +5%) and Capital Shopping Centres (+4%).
Figure 5: Old vs. New Price Targets
p
1000 800 600 400 200 0 British Land Capital Shopping Centres Old JPM Price Target
835 625 655 410 425 480 540
875
Hammerson New JPM Price Target
Land Securities
The main reason for the price target upgrades is timing
Reasons for price target upgrades The main reason for the price target upgrades is timing, as we rolled forward our timeframe from December 2011 to March 2012. In addition, we have marginally upgraded capital growth forecasts, as rental income growth surprised slightly to the upside (with the recently announced results) and have finetuned our models for other company specific events. The company specific reasons are given below: British Land (from 625p to 655p) Timing and marginal increase in our five year capital growth forecast from 2.2% to 2.4% (5y CAGR). Capital Shopping Centres (from 410p to 425p) Timing and finetuning model after full year results.
Hammerson (from 480p to 540p) Timing, marginal increase in our five year capital growth forecast from 2.7% to 2.8% (5y CAGR) and more credit for its development pipeline, for which we now estimate an undiscounted potential profit of around 450m, almost double compared to our previous estimate, as we have given (some) credit for the Bishopsgate Goodsyard and Cricklewood Brent Cross projects. Land Securities (from 835p to 875p) Timing and marginal increase in our five year capital growth forecast from 2.3% to 2.4% (5y CAGR).
Figure 6: UK Largecap Top 4: Capital growth forecasts (CAGR 5 years)
3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% British Land
2.9% 2.9% 2.4% 2.2%
2.8% 2.7%
2.4% 2.3%
Capital Shopping Centres New Old
Hammerson
Land Securities
Our new capital growth forecasts for the next five years (CAGR) are based on the following DCF assumptions.
Table 6: UK Largecap Top 4: Capital growth analysis (CAGR 5y)
British Land Capital Shopping Centres Hammerson Land Securities
Source: J.P. Morgan estimates, Company data.
5y CAGR 2.4% 2.9% 2.8% 2.4%
Required return on equity 8.5% 8.5% 8.5% 8.8%
Like-for-like cash growth 2.8% 2.4% 2.5% 1.4%
EPRA net yield currently 5.2% 5.3% 5.2% 6.0%
Exit rate 5.8% 5.5% 5.5% 5.9%
C) Our price targets are 12% above consensus

Our price targets are currently around 12% above Bloomberg consensus.
Figure 7: Consensus Price Targets vs. New JPM Price Targets
p
1000 800 600 400 200 0 British Land Capital Shopping Centres Consensus price target
Source: J.P. Morgan estimates, Bloomberg
775 585 655 384 425 481 540
875
Hammerson JPM Price Target
Land Securities
D) Well positioned
Total cash & undrawn facilities for close to 7bn
We remain of the view that largecaps remain very well positioned, which is still not fully appreciated by the equity market. The top 4 UK largecaps have an average Loan-To-Value ratio of c.40%, >9 years lease length, 9 years debt maturity and total cash & undrawn facilities for close to 7bn.
Table 7: UK Largecap Top 4 well positioned

LTV (%) 45% 48% 33% 42% Lease Length (yrs) 12.1 7.0 8.8 9.0 Vacancy (%) 1.90% 1.40% 2.70% 5.70%** Debt Maturity (yrs) 10.6 5.8 8.0 11.6* Cash & Undrawn facilities (m) 2,855 533 1,039 2,322 Average cost of debt (%) 5.10% 5.80% 5.00% 4.90%*
Source: Company Reports. * Jan-10, ** includes 1.2% let on temporary basis
E) History shows there is more to come in medium term

If history were to be a guide: Flattish for now, but second leg in the make
It remains fascinating how property stocks have behaved over time with equally big and smaller downturns (see chart below, which shows the three year total return on a rolling basis). If share prices were to remain unchanged for the next three years, the recovery pattern would be missing a second leg. Assuming a similar recovery pattern, property stocks would remain flattish for around 12m, after which they stage a second rally, resulting in around 30% total return p.a. on a three years view (CAGR).
Figure 8: UK real estate total return index (listed): Three year rolling
200%
100%
0%
-100% Dec-68 Dec-72 Dec-76 Dec-80 Dec-84 Dec-88 Dec-92 Dec-96 Dec-00 Dec-04 Dec-08 Dec-12
F) Interest rates / bond yields not a concern (yet)

Clearly, rising interest rates / bond yields would be a drag on property returns. However, we are not concerned at this stage for the following reasons: Not been priced at low bond yields First of all, commercial real estate has not been priced at low bond yields and in fact we still believe there is a margin for error of around 40bp, i.e. bond yields need to rise by around 40bp before we would get concerned, if there were not to be any compensation from higher inflation / rental growth.
Still margin for error
Bond yields have recently come down Secondly, despite the rising oil price, bond yields have actually recently retreated, which indicates that bond yields could still offer comfort, if the economic outlook were to be less bright than generally expected.
Figure 9: Oil versus 10 year Gilt yield
120 110 100 90 80 70 60 50 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2.8
Brent Oil
May -10
Mar-10
Dec-09
Brent oil ($/BBL)
10y Gilt (% )
Source: Datastream
If a hike is coming, it wont be the end Finally, the next chart clearly shows that if we are indeed heading for a rate hike in the UK (what the market expectation currently is), this would not end the recovery rally (yet) based on history. The following charts shows that the three years change in the Bank of England rate has clearly lagged the three years total return of UK property stocks.
Figure 10: UK real estate return index (listed) vs. change in BOE rate: Three year rolling
300% 200% 100% 0% -100%
Jan-69
Jan-84
Jan-99
Jul-76
Jul-91
Dec-10
Apr-80
Apr-95
Jul-06
Feb-11
Jul-10
Oct-10
Total return
BOE
We looked back in time at periods when interest rate hike cycles started. Property stocks performed positively over all time periods of one month before till six months after the first rate hike.
Table 8: Total return index and rate hikes
Month of Hike June-72 November-77 March-84 June-88 November-93 Rate prior to hike (%) 5.00 5.00 8.05 7.38 3.50 7 months total return (1m before hike to 6m after) 8% 4% 13% 11% 23% Rate movement during period 5.00 - 8.00 5.00 - 9.00 9.06 - 10.50 7.38 - 12.88 3.50 - 4.25
Source: J.P. Morgan Estimates, Bloomberg, Datastream

9
Apr-10
Oct-72
Oct-87
Oct-02
10y Gilt
2. But momentum should slow

Despite our positive stance on the sector, we believe its momentum will slow over the coming months.
A) In fair value zone: Trading at NAV

British Land trades at a premium of 5% and Hammerson at a discount of 4%
The Top 4 UK majors trade currently around NAV with British Land at a premium of 5% and Hammerson at a discount of 4%, while the average discount to 2012 NAV is 12%.
Table 9: UK Largecap Top 4: Discount to Adj NAV

p British Land * Capital Shopping Centres Hammerson Land Securities * Average Share price 585.5 397.1 473.9 773.0 2010 NAV 558 390 495 773 Discount 4.9% 1.7% -4.2% 0.0% 0.6% 2011 NAV 590 411 522 816 Discount -0.7% -3.3% -9.3% -5.3% -4.7% 2012 NAV 631 440 556 905 Discount -7.3% -9.7% -14.8% -14.6% -11.6%
Source: J.P. Morgan estimates, Company data. * British Land and Land Securities have a March year end book year. Their March 2011 estimate is included in the 2010 column and so on.
Furthermore, we conducted a sensitivity analysis for Hammerson and identified 5 scenarios: Overshooting up, Bull, Base, Bear and Overshooting down (details shown in next table). The bull case indicates 27% share price upside for Hammerson over the next 12 months and the bear case 6% downside. However, if we correct for a required 12 months return of 15%, the stock would currently be fairly priced with equal risk to the down- and upside (15% in bear/bull and 30% in overshooting down/up scenarios).
Table 10: Hammerson: Scenario analysis (Forecast 12m share price return)
Overshooting up Bull Base Bear Overshooting down
Upside 43% 27% 14% -6% -28%
Price target (p) 680 600 540 447 340
5y CAGR 5.6% 3.9% 2.8% 0.2% -2.9%
Required return on equity 7.7% 8.1% 8.5% 8.5% 8.9%
Like-for-like cash growth 3.0% 3.0% 2.5% 1.0% 0.0%
Exit rate 5.0% 5.5% 5.5% 5.5% 6.0%
B) Property valuations slowing

While the Top 4 UK majors own in general quality real estate, which we forecast to continue to rise in value, the increase will slow to around 2.6% p.a. (CAGR five years) vs. >10% in 2010. In addition, valuations are already flattening for the overall real estate market with only 0.1% growth in January and our econometric model indicates a sluggish period for at least two years. IPD: Property valuations slowing UK commercial real estate values have bounced by 16.5% from July 2009, but are still 35% below their June 2007 peak. Nevertheless, the monthly valuation increase was only 0.1% in January 2011.
Property values bounced 16.5% from their low, but the January valuation was only 0.1%
10
Figure 11: IPD UK Capital growth: Slowing (June 2007 = 100)

100 0% -10% -20% -30% -40% -50% 90 80 70 60 50
Dec 2007
Dec 2008
Dec 2009
Source: IPD
Modest capital growth of 0.7% p.a. for next five years
Our econometric model indicates sluggish capital growth In addition, our econometric model continues to indicate that there is sluggish capital growth to come for the overall UK commercial property market over the next two years (at least) and a modest capital growth of 0.7% (CAGR) for the next five years. While we continue to believe that good quality property will outperform, this segment will also see lower capital growth than last year.
Table 11: Econometric model: Rising interest rates would slow market
Dec2010 Model input Initial yield LIBOR Spread Rental Value growth t+1 CPI t+1 LIBOR t+1 Regression model Constant 0.46 * Spread -0.18 * Rental value growth t+1 -0.64 * CPI t+1 Spread t+1 Output Initial yield t+1 Income growth t+1 Capital growth t+1
Dec2011 6.09 1.95 4.14 0.90 2.00 2.56 3.17 1.90 -0.33 -1.14 3.61 6.17 -0.38 -1.58
Dec2012 6.17 2.56 3.61 1.50 2.00 3.06 3.17 1.66 -0.55 -1.14 3.14 6.20 0.44 -0.13
Dec2013 6.20 3.06 3.14 2.20 2.00 3.56 3.17 1.44 -0.80 -1.14 2.67 6.23 0.70 0.19
Dec2014 6.23 3.56 2.67 2.50 2.00 3.75 3.17 1.23 -0.91 -1.14 2.35 6.10 1.00 3.23
3 year growth (CAGR)
5 year growth (CAGR)
6.40 0.74 5.66 -1.00 3.50 1.95 3.17 2.60 0.37 -2.00 4.14 6.09 -3.00 1.92
0.46
Dec 2010
Jun 2007
Jun 2008
Jun 2009
Jun 2010
1.21
-0.99 0.06
-0.26 0.71
C) Correlation with retailers broken down

UK property stocks were 71% correlated with the FTSE350 General Retailers index in 2010. Not anymore
UK property stocks were 71% correlated with the FTSE350 General Retailers index in 2010 (on daily return), but this relationship has broken down in 2011. As most majors have a significant retail property exposure, this breakdown may indicate lower-than-expected rental growth if it persists.
Value decline since peak

11
Capital growth index
Figure 12: EPRA UK vs. FTSE350 General Retail: Total return (Dec 2009 = 100)
120 110 100 90 80
May -10 Feb-10 Dec-09 Sep-10 Dec-10 Feb-11 Nov-08 Nov-09
# Sells 2 8 1 1
Jul-10
EPRA UK
UK retailers
Property stocks have been highly correlated with general retailers over the last 16 years (around 60%) and generated similar returns as well, although real estate has experienced a large boom and bust phase.
Figure 13: EPRA UK vs. FTSE350 General Retail: Total return (Dec 1994 = 100)
540 440 340 240 140 40
Dec-94 Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-10
EPRA UK
UK retailers
D) Consensus has been catching up

There are currently 19 Buy ratings on British Land out of 23
While our price targets were around 14% above consensus for the Top 4 UK majors in November last year, they were only 5% higher last week (and 12% today), indicating that consensus has been catching up. This is also witnessed by the number of Bloomberg Buy ratings for the stocks (and small number of Sell ratings). For example, there are currently 19 Buy ratings on British Land out of 23. We see the improved consensus view as an indicator that a more positive view is priced in the stocks and hence the risk is increasingly to the downside.
Table 12: Consensus: Catching up

Source: Bloomberg
Consensus price target 585 384 481 775
Consensus rating 4.4 2.3 3.7 4.2
# Buys 19 1 10 15
# Holds 2 12 13 7
12
Oct-10
Apr-10
E) History shows a pause is coming

History indicates flattish period of a year
If the 70s and 90s recovery rallies were to be a guide (so far they have been!), a flattish period of around a year would be on the cards, before the second leg of the recovery rally starts.
Figure 14: vs. 70s and 90s: Pause coming? (Start rally = 100, # of days)
450 400 350 300 250 200 150 100 50 1 51 101 151 201 251 301 351 401 451 501 551 601 651 701 751 801 851 901 951
22-Nov-74 16-Sep-92 09-Mar-09
F) Continental property companies to come in focus again

Finally, the strong returns of the UK property stocks is bringing some continental real estate companies, like Corio, Eurocommercial Properties and Unibail-Rodamco back in focus again. Those stocks have now a similar 12m total return outlook and have underperformed over the last month, which are strong indicators for outperformance over the next three to four months. As such, we think dedicated property investors are more likely to reduce their UK exposure in favor of the continent.
Figure 15: Most liquid stocks: 12m total return forecast vs. last month performance
25% 20% 15% 10% 5% 0% -2% 0% 2% 4% 6% 8% Last month total return
Source: J.P. Morgan estimates, Bloomberg
12m forecast total return
Corio
Eurocommercial Properties PSP Swiss Segro Klepierre
Unibail - Rodamco Land Securities
Hammerson
British Land Capital Shopping Centres
Fonciere Des Regions Wereldhave Derwent London Great Portland 10% 12% 14%
13
Appendix I: J.P. Morgan Property valuation model

This section gives an overview of our European Valuation Model.
Introduction
Our pan-European Valuation Model aims to identify which companies create value and where companies can improve
In our November 2005 sector report, we introduced a pan-European Valuation Model for our real estate stocks under coverage. The valuation model aims to capture whether a certain company is expected to create or destroy value in the coming four years. We argue that companies that have a positive spread between return and weighted average cost of capital (WACC) should trade at a premium to NNAV, whereas the ones with a negative spread should be priced below NNAV.
Explanation of pan-European valuation model

Our pan-European valuation model is based on the following components: NNAV: We use the current Adjusted NAV, but allow for only 50% addition of deferred tax. Operating return: This is the recurring income before interest costs, but after tax expenses, divided by the invested capital (based on re-valued assets). Capital return: Is the capital appreciation minus capital gains tax divided by the invested capital. Total return: Operating return plus capital return. WACC: The weighted average cost of capital is a combination of the cost of equity (based on CAPM) and cost of debt (adjusted for tax). Value creation spread: Total return minus WACC. Having forecast the value creation spread for four years, the spread is multiplied by the (average) invested capital and divided by the number of shares outstanding. Next, four years of value creation per share are discounted to present value. Finally, the net present value of the value creation per share is added or subtracted from the current NNAV in order to arrive at the current fair value. The current NNAV is based on the last reported NNNAV plus 50% of any expected capital gain tax plus any total return per share that has been gained since the last publication date, minus any dividend payments over this period. In certain cases, the NNNAV is also adjusted for property selling expenses. However, to set our one-year forward target prices, we roll the model one year forward and therefore use a NNAV t+1 as a starting point. Our model rolls automatically one day forward in time when a day passes. We use a time horizon of four years, as we believe that the equity market looks forward for only a limited number of years.
14
Advantages of pan-European valuation model

We believe our pan-European valuation model has several advantages above traditional measures like P/E and discount to NAV: The model captures the current positioning of the company, the expected value creation (by management), its pipeline, quality of the investments and its finance structure. Our approach does not focus on one component of return, i.e. either the operating income or capital growth, but on total return. We believe it is total return that drives share price performance, not only capital growth or income yield. Traditionally, UK stocks tend to be valued by the NAV method, while REITs are priced with P/E and dividend yield. We believe that the European listed real estate market has become increasingly transparent and integrated over the past few years, which demands one valuation approach. The model shows which companies create value and therefore makes a peer analysis interesting to find out which management adds more value than others or which ones have difficulties in their portfolios.
15
British Land
Overweight
Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap ( bn) Shares O/S (mn) British Land (BLND.L;BLND LN) FYE Mar 2010A 580 07 Mar 11 655 31 Mar 12 590 - 416 4.93 850 Adj. EPS FY (p) Adj P/E FY DPS FY (p) Dividend yield FY Adjusted NAV ps FY (p) ROIC FY NAV premium (discount) FY WACC FY 28.37 20.4 26 4.5% 503.66 13.3% 15.3% 7.0% 2011E
(Old)
2011E
(New)
2012E
(Old)
2012E
(New)
2013E 31.36 18.5 28 4.8% 631.47 8.5% (8.1%) 7.0%
28.50 20.3 26 5.0% 536.61 8.5% (2.4%) 7.0%
28.61 20.3 26 4.5% 558.07 10.1% 4.0% 7.0%
29.42 19.7 27 5.1% 559.22 7.1% (6.4%) 7.0%
29.43 19.7 27 4.6% 589.70 7.8% (1.6%) 7.0%
Source: Company data, Bloomberg, J.P. Morgan estimates.
Capital Shopping Centres

Underweight
Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap ( bn) Shares O/S (mn) Capital Shopping Centres Group PLC (CSCG.L;CSCG LN) FYE Dec 2010A 2011E 2011E 396 07 Mar 11 425 31 Mar 12 428 - 300 2.46 622
(Old) (New)
2012E
(Old)
2012E
(New)
2013E 17.45 22.7 15.75 4.8% 471.69 8.2% (30.9%) 7.1%
Adj. EPS FY (p) Adj P/E FY DPS FY (p) Dividend yield FY Adjusted NAV ps FY (p) ROIC FY NAV premium (discount) FY WACC FY
15.42 25.7 15.00 4.6% 390.35 12.9% (16.5%) 7.1%
15.63 25.4 15.25 4.7% 408.06 7.7% (20.1%) 7.1%
16.47 24.1 15.25 4.7% 410.61 7.9% (20.6%) 7.1%
16.23 24.4 15.50 4.8% 436.04 8.4% (25.2%) 7.1%
17.13 23.1 15.50 4.8% 439.58 8.6% (25.8%) 7.1%
Hammerson
Overweight
Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap ( bn) Shares O/S (mn) Ham merson (HMSO.L;HMSO LN) FYE Dec 2010A 477 07 Mar 11 540 31 Mar 12 484 - 332 3.35 703 Adj. EPS FY (p) Adj P/E FY DPS FY (p) Dividend yield FY Adjusted NAV ps FY (p) ROIC FY NAV premium (discount) FY WACC FY 19.86 24.0 16 4.5% 494.50 13.7% (28.4%) 7.0% 2011E
(Old)
2011E
(New)
2012E
(Old)
2012E
(New)
2013E 23.28 20.5 18 5.1% 596.73 7.3% (40.6%) 7.0%
19.51 24.4 17 4.7% 487.81 5.5% (27.4%) 7.0%
20.22 23.6 16 4.6% 522.45 7.3% (32.2%) 7.0%
20.64 23.1 18 5.0% 508.13 5.6% (30.3%) 7.0%
21.60 22.1 17 4.9% 556.18 7.3% (36.3%) 7.0%
16
Land Securities
Overweight
Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap ( bn) Shares O/S (mn) Land Securities (LAND.L;LAND LN) FYE Mar 2010A 769 07 Mar 11 875 31 Mar 12 780 - 543 5.80 755 Adj. EPS FY (p) Adj P/E FY DPS FY (p) Dividend yield FY Adjusted NAV ps FY (p) ROIC FY NAV premium (discount) FY WACC FY 34.08 22.5 28 3.6% 690.84 15.7% 11.3% 7.4% 2011E
(Old)
2011E
(New)
2012E
(Old)
2012E
(New)
2013E 38.28 20.1 31 4.0% 905.47 9.8% (15.1%) 7.4%
33.94 22.6 28 4.3% 742.58 8.3% (12.5%) 7.4%
33.94 22.6 28 3.6% 772.78 10.5% (0.5%) 7.4%
35.86 21.4 29 4.5% 775.01 6.5% (16.2%) 7.4%
35.85 21.4 29 3.8% 816.33 7.1% (5.8%) 7.4%
17
Valuation Methodology and Risks

British Land (Overweight; Price Target 655p)
Valuation Methodology Our Mar-12 target price of 655p for British Land is based upon our total returnsbased European Valuation Model, which takes into account whether a company creates or destroys value. We argue that that companies that have a positive spread between returns and their weighted average costs of capital (WACC) should trade at a premium to NNAV whereas those with a negative spread should be priced below NNAV. For British Land, we calculate a value creation spread of 1.1% between our forecast total return and our WACC estimate of +7.0%. We apply this spread to the invested capital, discount back, and add/subtract to our NNAV forecast to derive our price target. Please contact your J.P. Morgan representative for more information. Risks to Our View We believe the key risks that could keep our rating and price target from being achieved include: British Lands performance could be negatively affected if LIBOR/bond yields rise strongly and/or rental growth disappoints. In addition, disappointing retail sales, tenant defaults and a sudden turn in office take-up could significantly impact earnings (growth).
Capital Shopping Centres (Underweight; Price Target 425p)

Valuation Methodology Our Mar-12 target price of 425p for Capital Shopping Centres is based upon our total returns-based European Valuation Model, which takes into account whether a company creates or destroys value. We argue that that companies that have a positive spread between returns and their weighted average costs of capital (WACC) should trade at a premium to NNAV whereas those with a negative spread should be priced below NNAV. For Capital Shopping Centres, we calculate a value creation spread of +1% between our forecast total return and our WACC estimate of +7.1 %. We apply this spread to the invested capital, discount back, and add/subtract to our NNAV forecast to derive our price target. Please look at the appendix for a more detailed explanation of our European Valuation Model or contact your J.P. Morgan representative for more information. Risks to Our View We believe the key risks that could keep our rating and price target from being achieved include the following upside risks: a stronger than expected pick-up in UK consumer spending, (re-)lettings at higher than expected rents and better than expected cost of financing.
Hammerson (Overweight; Price Target 540p)

Valuation Methodology Our Mar-12 target price of 540p for Hammerson is based upon our total returnsbased European Valuation Model, which takes into account whether a company creates or destroys value. We argue that that companies that have a positive spread between returns and their weighted average costs of capital (WACC) should trade at a premium to NNAV whereas those with a negative spread should be priced below NNAV. For Hammerson , we calculate a value creation spread of 0.3% between our forecast total return and our WACC estimate of +7.0%. We apply this spread to the invested capital, discount back, and add/subtract to our NNAV forecast to derive our price target. Please look at the appendix for a more detailed explanation of our
18
European Valuation Model or contact your J.P. Morgan representative for more information. Risks to Our View Downside risks to Hammersons share price include disappointing demand for retail space in France and UK, weaker-than-expected demand for London offices and a sharp increase in bond yields.
Land Securities (Overweight; Price Target 875p)

Valuation Methodology Our Mar-12 target price of 875p for Land Securities is based upon our total returnsbased European Valuation Model, which takes into account whether a company creates or destroys value. We argue that that companies that have a positive spread between returns and their weighted average costs of capital (WACC) should trade at a premium to NNAV whereas those with a negative spread should be priced below NNAV. For Land Securities , we calculate a value creation spread of +0.8% between our forecast total return and our WACC estimate of +7.4%. We apply this spread to the invested capital, discount back, and add/subtract to our NNAV forecast to derive our price target. Risks to Our View Land Securities share price would be negatively impacted by disappointing office rental growth in London, which would hurt the performance of its (standing) office investments and development pipeline. In addition, a further weakening of the UK retail environment would affect its property performance, in particular if interest rates / bond yields rise as well.
19
JPM Q-Profile
British Land Co. PLC (BRITAIN / Financials)
As Of: 04-Mar-2011 Quant_Strategy@jpmorgan.com
Local Share Price

16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
5.68
12 Mth Forward EPS

0.60 0.50 0.40 0.30 0.20 0.10 0.00
Current:
0.31
Feb/08
Feb/09
Feb/10
Feb/11
-0.10 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07 Feb/08 Feb/09 Feb/10 Feb/10 Feb/10 Feb/10 Feb/11
Earnings Yield (& local bond Yield)

14% 12% 10% 8% 6% 4% 2% 0% Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
12Mth fwd EY US BY Proxy
Current:
5%
Implied Value Of Growth*

1.20 1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
35.42%
Feb/08
Feb/09
Feb/10
Feb/11
Feb/08
Feb/09
PE (1Yr Forward)
50.0x 45.0x 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
18.3x
Price/Book Value
1.8x 1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x
PBV hist PBV Forward
Current:
1.1x
Feb/08
Feb/09
Feb/10
Feb/11
Feb/96
Feb/97
Feb/98
Feb/99
Feb/00
Feb/01
Feb/02
Feb/03
Feb/04
Feb/05
Feb/06
Feb/07
Feb/08
Feb/09
ROE (Trailing)
60.00 40.00 20.00 0.00 -20.00 -40.00 -60.00 -80.00 -100.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
42.57
Dividend Yield (Trailing)

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
5.09
Feb/08
Feb/09
Feb/08
Feb/09
Feb/10
Summary
British Land Co. PLC BRITAIN Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 8031.78 24.76587 SEDOL 0136701 Real Estate Investment Trusts Latest Min Max 18.26x 8.71 46.00 1.11x 0.48 1.56 5.09 1.14 8.26 42.57 -77.90 43.57 35.4% -0.59 0.80 As Of: Local Price: EPS: % to Max % to Med 152% 22% 41% -21% 62% -56% 2% -91% 126% 53% 4-Mar-11 5.68 0.31 % to Avg 36% -22% -44% -94% 43%
Median 22.19 0.87 2.23 3.89 0.54
Feb/11
Average 24.81 0.87 2.85 2.49 0.51
2 S.D.+ 43.03 1.34 6.17 51.85 0.97
2 S.D. 6.58 0.39 -0.48 -46.87 0.04
% to Min -52% -56% -78% -283% -267%
Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs
* Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)
20
Feb/11
Feb/11
Feb/11
JPM Q-Profile
Capital Shopping Centres Group PLC (BRITAIN / Financials)
Local Share Price

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
3.86
12 Mth Forward EPS

0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05
Current:
0.15
Feb/08
Feb/09
Feb/10
Feb/11
0.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07 Feb/08 Feb/09 Feb/10 Feb/10 Feb/10 Feb/10 Feb/11

9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
4%

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 -0.10 -0.20 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
52.73%
Feb/08
Feb/09
Feb/10
Feb/11
Feb/08
Feb/09
PE (1Yr Forward)
40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
24.9x
Price/Book Value
1.8x 1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x
Current:
1.2x
Feb/08
Feb/09
Feb/10
Feb/11
Feb/96
Feb/97
Feb/98
Feb/99
Feb/00
Feb/01
Feb/02
Feb/03
Feb/04
Feb/05
Feb/06
Feb/07
Feb/08
Feb/09
ROE (Trailing)
60.00 40.00 20.00 0.00 -20.00 -40.00 -60.00 -80.00 -100.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
18.27

Current:
4.14
Feb/08
Feb/09
Feb/08
Feb/09
Feb/10
Summary
Capital Shopping Centres Group PLC 5410.10 BRITAIN 15.044675 SEDOL 0683434 Financials Real Estate Investment Trusts Latest Min Max 12mth Forward PE 24.94x 12.21 36.50 P/BV (Trailing) 1.16x 0.56 1.42 Dividend Yield (Trailing) 4.14 2.72 8.13 ROE (Trailing) 18.27 -75.83 40.81 Implied Value of Growth 52.7% -0.09 0.72 Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs As Of: Local Price: EPS: % to Max % to Med 46% -9% 22% -28% 96% 1% 123% -77% 36% 3% 4-Mar-11 3.86 0.15 % to Avg -6% -22% 4% -94% 1%
Median 22.76 0.84 4.18 4.22 0.54
Feb/11
Average 23.32 0.90 4.30 1.06 0.53
2 S.D.+ 33.48 1.37 6.03 51.88 0.77
2 S.D. 13.17 0.44 2.56 -49.77 0.30
% to Min -51% -52% -34% -515% -117%
Feb/11
Feb/11
Feb/11
21
JPM Q-Profile
Hammerson PLC (BRITAIN / Financials)
Local Share Price

Current:
4.61
12 Mth Forward EPS

0.35 0.30 0.25 0.20 0.15 0.10 0.05
Current:
0.20
Feb/08
Feb/09
Feb/10
Feb/11

12% 10% 8% 6% 4% 2% 0% Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
4%

1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40
Current:
47.99%
Feb/08
Feb/09
Feb/10
Feb/11
-0.60 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07 Feb/08 Feb/09 Feb/11
PE (1Yr Forward)
50.0x 45.0x 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
22.7x
Price/Book Value
1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x
Current:
0.9x
Feb/08
Feb/09
Feb/10
Feb/11
Feb/96
Feb/97
Feb/98
Feb/99
Feb/00
Feb/01
Feb/02
Feb/03
Feb/04
Feb/05
Feb/06
Feb/07
Feb/08
Feb/09
ROE (Trailing)
40.00 30.00 20.00 10.00 0.00 -10.00 -20.00 -30.00 -40.00 -50.00 -60.00 -70.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
19.14

Current:
3.77
Feb/08
Feb/09
Feb/08
Feb/09
Feb/10
Summary
Hammerson PLC BRITAIN Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 5323.38 13.222024 SEDOL 0406501 Real Estate Investment Trusts Latest Min Max 22.67x 10.04 44.39 0.94x 0.37 1.29 3.77 1.25 7.79 19.14 -59.93 27.90 48.0% -0.38 0.76 As Of: Local Price: EPS: % to Max % to Med 96% -1% 37% -8% 106% -25% 46% -77% 59% 14% 4-Mar-11 4.61 0.20 % to Avg 5% -8% -20% -79% 8%
Median 22.40 0.87 2.83 4.35 0.55
Feb/11
Average 23.75 0.86 3.03 4.05 0.52
2 S.D.+ 37.02 1.25 5.21 40.06 0.87
2 S.D. 10.48 0.47 0.85 -31.95 0.17
% to Min -56% -61% -67% -413% -179%
22
Feb/11
Feb/11
JPM Q-Profile
Land Securities Group PLC (BRITAIN / Financials)
Local Share Price

25.00 20.00 15.00 10.00 5.00 0.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
7.58
12 Mth Forward EPS

0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10
Current:
0.36
Feb/08
Feb/09
Feb/10
Feb/11

14% 12% 10% 8% 6% 4% 2% 0% Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
5%

1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60
Current:
44.64%
Feb/08
Feb/09
Feb/10
Feb/11
-0.80 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07 Feb/08 Feb/09 Feb/11
PE (1Yr Forward)
40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
21.3x
Price/Book Value
1.6x 1.4x 1.2x 1.0x 0.8x 0.6x 0.4x 0.2x 0.0x
Current:
1.0x
Feb/08
Feb/09
Feb/10
Feb/11
Feb/96
Feb/97
Feb/98
Feb/99
Feb/00
Feb/01
Feb/02
Feb/03
Feb/04
Feb/05
Feb/06
Feb/07
Feb/08
Feb/09
ROE (Trailing)
60.00 40.00 20.00 0.00 -20.00 -40.00 -60.00 -80.00 Feb/96 Feb/97 Feb/98 Feb/99 Feb/00 Feb/01 Feb/02 Feb/03 Feb/04 Feb/05 Feb/06 Feb/07
Current:
28.41

Current:
4.22
Feb/08
Feb/09
Feb/08
Feb/09
Feb/10
Summary
Land Securities Group PLC BRITAIN Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 9527.13 25.56597 SEDOL 3180943 Real Estate Investment Trusts Latest Min Max 21.30x 7.73 33.39 0.95x 0.33 1.45 4.22 1.21 11.82 28.41 -66.23 38.59 44.6% -0.65 0.70 As Of: Local Price: EPS: % to Max % to Med 57% -6% 52% -11% 181% -11% 36% -84% 57% 13% 4-Mar-11 7.58 0.36 % to Avg -3% -7% -2% -84% 2%
Median 20.10 0.85 3.74 4.48 0.50
Feb/11
Average 20.61 0.88 4.15 4.67 0.46
2 S.D.+ 29.97 1.29 8.45 47.28 0.85
2 S.D. 11.25 0.48 -0.15 -37.95 0.06
% to Min -64% -65% -71% -333% -246%
Feb/11
Feb/11
23
British Land: Summary of Financials

Profit and Loss Statement in millions, year end Mar Property income % Change Y/Y Rental income Other income EBITDA % Change Y/Y Net interest Earnings before tax % change Y/Y Tax as % of EBT Minorities Adjusted net income % change Y/Y Revaluation Capital gain tax Other Minorities Indirect profit Total profit (IFRS) Per share data FY10 FY11E FY12E FY13E in millions, year end Mar 560 538 556 588 Adjusted EPS (15.5%) (4.0%) 3.4% 5.8% % change Y/Y 545 522 540 572 Indirect result 15 15 16 16 % change Y/Y 495 474 491 522 EPS (IFRS) 4.2% (4.3%) 3.7% 6.2% % change Y/Y (246) (214) (219) (225) DPS 249 259 272 297 % change Y/Y (7.1%) 4.2% 4.9% 9.0% Gross cash flow (5) (7) (7) (8) % change Y/Y (2.0%) (2.7%) (2.7%) (2.7%) NNNAV (IFRS) 0 0 0 0 % change Y/Y 244 252 265 289 Adjusted NAV (5.8%) 3.4% 4.9% 9.0% % change Y/Y 908 426 255 347 (17) (7) (3) (4) Cash flow statement 5 0 0 0 EBITDA 0 0 0 0 Gross cash flow 896 419 252 343 Net cash flow 1,140 671 517 631 Total cash flow requirement FY10 FY11E FY12E FY13E 28.37 28.61 29.43 31.36 104.55 47.84 28.12 37.38 (115.9%) (54.2%) (41.2%) 32.9% 133.02 76.65 57.65 68.85 (121.6%) (42.4%) (24.8%) 19.4% 26.00 26.00 26.74 28.08 (12.8%) 0.0% 2.9% 5.0% 25.58 26.10 26.79 28.62 (31.5%) 2.0% 2.6% 6.9% 498.29 551.97 583.39 624.89 26.5% 10.8% 5.7% 7.1% 503.66 558.07 589.70 631.47 26.5% 10.8% 5.7% 7.1%
495 244 (50) (924)
474 252 (9) (364)
491 265 (2) (121)
522 289 8 (103)
Balance Sheet in millions, year end Mar Cash and cash equivalents Accounts receivable Others Current assets Property investments Property not in operation Total assets Short term debt Others Total current liabilities Long term debt Other liabilities Shareholders' equity Group equity Total liabilities and equity
Ratio Analysis FY10 FY11E FY12E FY13E in millions, year end Mar 596 105 46 747 724 105 46 875 871 105 46 1,022 1,036 105 46 1,187 Operating return Capital return ROIC WACC EVA spread
FY10 4.7% 8.6% 13.3% 7.0% 6.3% 6.6% 30.7% 43.9% 96.8% 45.3%
FY11E 5.3% 4.8% 10.1% 7.0% 3.1% 5.6% 15.0% 42.9% 93.3% 46.0%
FY12E FY13E 5.1% 2.7% 7.8% 7.0% 0.8% 5.3% 10.4% 41.4% 88.4% 46.8% 5.1% 3.4% 8.5% 7.0% 1.5% 5.3% 11.7% 39.6% 82.3% 48.1%
4,126 4,825 5,243 5,731 33 35 35 36 ROE (recurring) 9,286 10,332 11,001 11,782 ROE (total) 139 362 501 139 362 501 139 362 501 139 Net debt / total assets 362 Net debt/ equity 501 Equity / assets
4,530 5,022 5,289 5,558 Property income / assets 47 54 57 61 Rental income / assets 4,208 4,755 5,154 5,662 EBITDA / assets 4,208 4,755 5,154 5,662 % change Y/Y 9,286 10,332 11,001 11,782
6.0% 5.2% 5.9% 5.1% 5.3% 4.6% (15.0%) (14.0%)
5.1% 5.0% 4.9% 4.9% 4.5% 4.4% (2.6%) (0.8%)
Source: Company reports and J.P. Morgan estimates.
24
Capital Shopping Centres: Summary of Financials

Profit and Loss Statement in millions, year end Dec Property income % Change Y/Y Rental income Other income EBITDA % Change Y/Y Net interest Earnings before tax % change Y/Y Tax as % of EBT Minorities Adjusted net income % change Y/Y Revaluation Capital gain tax Other Minorities Indirect profit Total profit (IFRS) Per share data FY10 FY11E FY12E FY13E in millions, year end Dec 289 0.6% 277 12 266 2.9% (171) 94 45.2% (0) 0.1% 2 97 28.6% 497 3 (149) (19) 332 429 371 28.5% 363 8 346 30.2% (209) 137 44.7% (0) 0.1% 2 139 43.8% 162 (3) 0 (4) 155 294 391 5.4% 383 9 364 5.4% (220) 145 5.9% (0) 0.1% 2 147 5.8% 250 (5) 0 (6) 240 387 403 3.1% 395 9 376 3.1% (228) 147 1.9% (0) 0.1% 3 150 2.0% 252 (4) 0 (5) 242 392 Adjusted EPS % change Y/Y Indirect result % change Y/Y EPS (IFRS) % change Y/Y DPS % change Y/Y Gross cash flow % change Y/Y NNNAV (IFRS) % change Y/Y Adjusted NAV % change Y/Y Cash flow statement EBITDA Gross cash flow Net cash flow Total cash flow requirement FY10 FY11E FY12E 17.13 28.09 51.9% 45.31 29.4% 15.50 1.6% 17.23 4.2% 393.95 7.8% 439.58 7.1% FY13E 17.45 28.39 1.1% 45.95 1.4% 15.75 1.6% 17.56 2.0% 425.60 8.0% 471.69 7.3% 15.42 16.47 52.91 18.49 (186.3%) (65.1%) 68.30 35.01 (247.8%) (48.7%) 15.00 15.25 (9.1%) 1.7% 15.39 16.53 2.0% 7.4% 331.50 365.50 18.0% 10.3% 390.35 410.61 15.1% 5.2%
266 97 (33) 268
346 139 6 (1,036)
364 147 (15) (189)
376 150 8 (259)
Balance Sheet in millions, year end Dec Cash and cash equivalents Accounts receivable Others Current assets Property investments Property not in operation Total assets Short term debt Others Total current liabilities Long term debt Other liabilities Shareholders' equity Group equity Total liabilities and equity
Ratio Analysis FY10 FY11E FY12E FY13E in millions, year end Dec 222 127 58 407 5,051 0 5,927 46 835 881 2,752 1 2,273 2,273 5,927 279 127 58 463 7,013 0 7,957 46 902 948 3,843 4 3,140 3,140 7,957 296 127 58 480 7,468 0 8,445 46 921 967 4,050 9 3,397 3,397 8,445 339 127 58 523 Operating return Capital return ROIC WACC EVA spread
FY10 5.4% 7.5% 12.9% 7.1% 5.8% 4.9% 21.7% 43.4% 113.3% 38.4% 4.9% 4.7% 4.5% (5.2%)
FY11E 5.4% 2.5% 7.9% 7.1% 0.8% 5.1% 10.9%
FY12E 5.1% 3.5% 8.6% 7.1% 1.5% 4.5% 11.8%
FY13E 4.9% 3.3% 8.2% 7.1% 1.1% 4.2% 11.1%
8,020 0 ROE (recurring) 9,055 ROE (total) 46 Net debt / total assets 939 Net debt/ equity 985 Equity / assets 4,352 Property income / assets 13 Rental income / assets 3,682 EBITDA / assets 3,682 % change Y/Y 9,055
45.4% 45.0% 44.8% 115.0% 111.9% 110.2% 39.5% 40.2% 40.7% 4.7% 4.6% 4.3% (3.0%) 4.6% 4.5% 4.3% (0.7%) 4.5% 4.4% 4.1% (3.9%)
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Hammerson: Summary of Financials

Profit and Loss Statement in millions, year end Dec Property income % Change Y/Y Rental income Other income EBITDA % Change Y/Y Net interest Earnings before tax % change Y/Y Tax as % of EBT Minorities Adjusted net income % change Y/Y Revaluation Capital gain tax Other Minorities Indirect profit Total profit (IFRS) Per share data FY10 FY11E FY12E FY13E in millions, year end Dec 287 287 (2.6%) 0.2% 285 285 2 2 251 246 (1.1%) (2.0%) (106) (99) 144 147 11.2% 1.9% (1) (1) 0.4% 0.4% (4) (4) 140 143 11.9% 2.0% 447 168 (0) (0) 29 0 (0) (0) 475 167 615 310 296 3.0% 294 2 253 2.9% (96) 157 6.7% (1) 0.4% (4) 153 6.8% 202 (0) 0 (0) 202 355 310 4.7% 307 2 265 4.7% (96) 169 7.7% (1) 0.4% (4) 165 7.8% 244 (0) 0 (0) 244 409 Adjusted EPS % change Y/Y Indirect result % change Y/Y EPS (IFRS) % change Y/Y DPS % change Y/Y Gross cash flow % change Y/Y NNNAV (IFRS) % change Y/Y Adjusted NAV % change Y/Y Cash flow statement EBITDA Gross cash flow Net cash flow Total cash flow requirement FY10 FY11E FY12E FY13E 19.86 20.22 21.60 23.28 67.33 23.66 28.55 34.50 (191.3%) (64.9%) 20.7% 20.9% 87.19 43.88 50.14 57.78 (261.3%) (49.7%) 14.3% 15.2% 15.95 16.43 17.25 18.11 3.2% 3.0% 5.0% 5.0% 19.86 20.22 21.60 23.28 1.0% 1.8% 6.8% 7.8% 492.61 520.55 554.27 594.82 17.2% 5.7% 6.5% 7.3% 494.50 522.45 556.18 596.73 17.3% 5.7% 6.5% 7.3%
251 140 281 342
246 143 7 (315)
253 153 12 (386)
265 165 16 (482)
Balance Sheet in millions, year end Dec Cash and cash equivalents Accounts receivable Others Current assets Property investments Property not in operation Total assets Short term debt Others Total current liabilities Long term debt Other liabilities Shareholders' equity Group equity Total liabilities and equity
Ratio Analysis FY10 FY11E FY12E FY13E in millions, year end Dec 126 81 0 207 5,362 212 5,780 4 308 312 1,916 0 3,480 3,552 5,780 155 81 0 236 5,875 218 6,329 4 311 316 2,261 1 3,678 3,752 6,329 190 81 0 271 6,500 223 6,994 4 315 319 2,681 1 3,916 3,994 6,994 229 81 0 310 Operating return Capital return ROIC WACC EVA spread
FY10 4.7% 9.1% 13.7% 7.0% 6.7% 4.4% 19.1% 31.0% 50.5% 61.4% 4.9% 4.9% 4.3% (3.0%)
FY11E FY12E FY13E 4.3% 3.0% 7.3% 7.0% 0.3% 4.0% 8.7% 33.3% 56.2% 59.3% 4.5% 4.5% 3.9% (10.5%) 4.0% 3.3% 7.3% 7.0% 0.3% 4.0% 9.3% 35.7% 62.5% 57.1% 4.2% 4.2% 3.6% (6.9%) 3.8% 3.6% 7.3% 7.0% 0.3% 4.1% 10.1% 38.1% 69.5% 54.9% 3.9% 3.9% 3.4% (6.2%)
7,270 230 ROE (recurring) 7,809 ROE (total) 4 Net debt / total assets 319 Net debt/ equity 323 Equity / assets 3,201 Property income / assets 1 Rental income / assets 4,203 EBITDA / assets 4,284 % change Y/Y 7,809
26
Land Securities: Summary of Financials

Profit and Loss Statement in millions, year end Mar Property income % Change Y/Y Rental income Other income EBITDA % Change Y/Y Net interest Earnings before tax % change Y/Y Tax as % of EBT Minorities Adjusted net income % change Y/Y Revaluation Capital gain tax Other Minorities Indirect profit Total profit (IFRS) Per share data FY10 FY11E FY12E FY13E in millions, year end Mar 568 (3.1%) 568 0 492 (11.5%) (234) 258 (20.8%) 0 0.0% 0 258 (20.7%) 835 0 (4) 0 831 1,089 564 (0.7%) 564 0 488 (0.9%) (230) 257 (0.1%) 0 0.0% 0 257 (0.1%) 563 0 0 0 563 820 596 5.7% 596 0 516 5.7% (244) 272 5.6% 0 0.0% 0 272 5.6% 257 0 0 0 257 529 646 8.4% 646 0 559 8.4% (269) 290 6.8% 0 0.0% 0 290 6.8% 595 0 0 0 595 886 Adjusted EPS % change Y/Y Indirect result % change Y/Y EPS (IFRS) % change Y/Y DPS % change Y/Y Gross cash flow % change Y/Y NNNAV (IFRS) % change Y/Y Adjusted NAV % change Y/Y Cash flow statement EBITDA Gross cash flow Net cash flow Total cash flow requirement FY10 FY11E FY12E FY13E 34.08 33.94 35.85 38.28 109.61 74.22 33.90 78.49 (115.0%) (32.3%) (54.3%) 131.6% 143.62 108.18 69.77 116.79 (120.9%) (24.7%) (35.5%) 67.4% 28.00 28.00 29.40 30.87 0.0% 0.0% 5.0% 5.0% 34.00 31.36 33.12 35.32 (21.0%) (7.8%) 5.6% 6.6% 749.86 829.97 871.71 959.03 17.4% 10.7% 5.0% 10.0% 690.84 772.78 816.33 905.47 16.6% 11.9% 5.6% 10.9%
492 258 771 70
488 238 (15) (454)
516 251 (2) (415)
559 268 3 (482)
Balance Sheet in millions, year end Mar Cash and cash equivalents Accounts receivable Others Current assets Property investments Property not in operation Total assets Short term debt Others Total current liabilities Long term debt Other liabilities Shareholders' equity Group equity Total liabilities and equity
Ratio Analysis FY10 FY11E FY12E FY13E in millions, year end Mar 255 334 89 678 100 334 89 523 160 334 89 583 227 334 89 651 Operating return Capital return ROIC WACC EVA spread
FY10 5.4% 10.3% 15.7% 7.4% 8.3% 2.5% 10.4% 36.6% 65.8% 55.7% 5.6% 5.6% 4.8% (3.2%)
FY11E 4.9% 5.6% 10.5% 7.4% 3.1% 2.1% 6.8% 37.7% 66.6% 56.6% 5.1% 5.1% 4.4% (9.0%)
FY12E 4.7% 2.4% 7.1% 7.4% (0.3%) 2.1% 4.1% 38.7% 69.7% 55.5% 5.0% 5.0% 4.3% (1.3%)
FY13E 4.7% 5.0% 9.8% 7.4% 2.3% 2.1% 6.4% 38.8% 70.0% 55.4% 4.9% 4.9% 4.3% (1.6%)
8,044 9,028 9,740 10,832 0 0 0 0 ROE (recurring) 10,219 11,126 11,917 13,129 ROE (total) 292 526 818 292 526 818 292 526 818 292 Net debt / total assets 526 Net debt/ equity 818 Equity / assets
3,706 4,005 4,480 5,029 Property income / assets 6 6 6 6 Rental income / assets 5,690 6,298 6,615 7,277 EBITDA / assets 5,689 6,297 6,614 7,276 % change Y/Y 10,219 11,126 11,917 13,129
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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Market Maker: JPMS makes a market in the stock of British Land. Market Maker/ Liquidity Provider: J.P. Morgan Securities Ltd. is a market maker and/or liquidity provider in British Land, Capital Shopping Centres, Hammerson, Land Securities. Client of the Firm: British Land is or was in the past 12 months a client of JPM. Hammerson is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-investment banking securities-related service and nonsecurities-related services. Land Securities is or was in the past 12 months a client of JPM; during the past 12 months, JPM provided to the company non-securities-related services. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Land Securities. Non-Investment Banking Compensation: JPMS has received compensation in the past 12 months for products or services other than investment banking from Hammerson. An affiliate of JPMS has received compensation in the past 12 months for products or services other than investment banking from British Land, Hammerson, Land Securities. Broker: J.P. Morgan Securities Ltd. acts as Corporate Broker to Land Securities.
British Land (BLND.L) Price Chart

Date
2,226 1,855 OW 480p 1,484 Price(p) 1,113 742 371 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 OW 337.5p OW 387.5p N 385p OW 250p OW 287.5p OW 470p OW 405p N 405p OW 515p OW 625p
Rating
OW
Share Price Price Target (p) (p)

1161 1263 1187 1063 808 616 621 496 419 393 485 446 456 510 532 444 480 462 388 338 288 250 385 405 405 470 515 540 600 625
18-Oct-06
OW 600p OW 540p
08-Nov-06 OW 24-May-07 OW 30-Aug-07 OW 07-Dec-07 OW 20-Jun-08 30-Oct-08 20-Apr-09 16-Jun-09 OW N N OW 03-Sep-08 OW
OW 443.75p OW 462.5p
01-Sep-09 OW 09-Dec-09 OW 01-Sep-10 OW 01-Nov-10 OW 18-Jan-11 OW
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
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Capital Shopping Centres (CSCG.L) Price Chart

Date
1,416 1,180 944 Price(p) 708 472 236 0 May 07 Feb 08 Nov 08 Aug 09 May 10 Feb 11 N 1,150p N 1,375p UW 1,070p OW 1,375p UW 1,150p N 650p N 1,000p UW 350p N 500p UW 510p
Rating

896 834 860 872 842 734 656 708 452 374 319 405 352 375 342 331 379 1375 1375 1150 1150 1070 1115 600 1000 650 500 350 430 455 510 395 380 410
24-May-07 OW
UW 455p UW 430p UW 395p UW 380p UW 410p
02-Jul-07
30-Aug-07 N
N 1,115p UW 600p
03-Sep-07 UW 07-Dec-07 UW 07-Apr-08 N 07-Aug-08 UW 03-Sep-08 N 30-Oct-08 12-Jan-09 20-Apr-09 N N UW
01-Sep-09 UW 09-Dec-09 UW 10-Mar-10 UW 14-May-10 UW 01-Sep-10 UW 14-Feb-11 UW
Hammerson (HMSO.L) Price Chart

Date
1,902 1,585 1,268 N 995.83p Price(p) 951 634 317 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 N 777.08p N 879.17p N 675p N 290p OW 340p
Rating
Share Price (p)

949 896 742 761 612 658 634 457 374 227 279 320 405 385 415
Price Target (p)

996 879 777 821 675 675 631 471 290 290 290 340 400 440 480
08-Nov-06 N
OW 675p N 470.83p N 290p OW 440p OW 480p
30-Aug-07 N 07-Dec-07 N 07-Apr-08 23-Jun-08 N OW
N 820.83p N 631.25p OW 290p
OW 400p
05-Aug-08 N 03-Sep-08 N 30-Oct-08 12-Jan-09 20-Apr-09 16-Jun-09 N N N OW
25-Feb-09 OW
01-Sep-09 OW 09-Dec-09 OW 07-Dec-10 OW
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Land Securities (LAND.L) Price Chart

Date
3,426 2,855 OW 1,800p OW 1,970p N 1,000p OW 1,350p OW 1,530p N 700p
Rating

1933 1714 1614 1384 1192 1196 951 500 490 618 647 668 612 677 2500 2275 1970 1800 1530 1350 1000 480 510 610 700 765 765 835
08-Nov-06 OW
N 610p N 480p N 510p N 765p OW 835p OW 765p
24-May-07 OW 30-Aug-07 OW 07-Dec-07 OW 20-Jun-08 OW N N N 03-Sep-08 OW 30-Oct-08 20-Feb-09 16-Jun-09
2,284 OW 2,500p OW 2,275p Price(p) 1,713 1,142 571 0 Sep 06 Jun 07
01-Sep-09 N 09-Dec-09 N
Mar 08 Dec 08 Sep 09 Jun 10 Mar 11
10-Mar-10
01-Sep-10 OW 01-Nov-10 OW
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] J.P. Morgan Cazenoves UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stocks expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts coverage universe. A list of these analysts is available on request. The analyst or analysts teams coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Harm Meijer: Beni Stabili (BNSI.MI), Big Yellow Group Plc (BYG.L), British Land (BLND.L), Capital & Counties (CAPCC.L), Capital & Regional (CAL.L), Capital Shopping Centres (CSCG.L), Corio (COR.AS), Eurocommercial Properties NV (SIPFc.AS), Fonciere des Regions (FDR.PA), GAGFAH (GFJG.F), Hammerson (HMSO.L), Immobiliare Grande Distribuzione (IGD.MI), Klepierre (LOIM.PA), Land Securities (LAND.L), Local Shopping REIT (LSR.L), Metric Property Investments (METP.L), Metrovacesa (MVC.MC), PATRIZIA Immobilien AG (P1ZGn.F), Pirelli Real Estate (PCRE.MI), REALIA (RLIA.MC), Songbird Estates (SBD.L), Unibail-Rodamco (UNBP.PA), VastNed OI (VWNN.AS), VastNed Retail (VASN.AS), Wereldhave (WEHA.AS)
J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2010 Overweight (buy) 46% 53% 43% 71% Neutral (hold) 42% 50% 49% 63% Underweight (sell) 12% 38% 8% 59%
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.
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Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
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Europe Equity Research

UK Property: Top 4 Largecaps

Property Harm Meijer

(44-20) 7325-9248 harm.m.meijer@jpmorgan.com

Osmaan Malik, CFA

For Specialist Sales advice, please contact: John Van Marle

Figure 1: EPRA UK: Total return index

Europe Equity Research 09 March 2011

1. The path remains up ............................................................6

2. But momentum should slow .............................................10

Appendix I: J.P. Morgan Property valuation model.............14

Europe Equity Research 09 March 2011

Table 1: New estimates and estimate changes (p)

British Land Capital Shopping Centres (CSC) Hammerson Land Securities

New 558 411 522 773

New 631 472 597 905

Table 2: UK Majors Top 4: Output European Valuation Model (EVM)

British Land CSC Hammerson Land Securities UK average

Table 3: UK Largecap Top 4: Discount to Adj NAV (p)

Europe Equity Research 09 March 2011

22% over last 6 months

YTD 13.0% -4.9% 13.6% 14.7% 9.1% 8.6% 2.2%

3 Months 17.4% -2.8% 12.5% 18.6% 11.4% 11.4% 5.0%

6 Months 25.8% 14.3% 26.8% 21.7% 22.2% 19.0% 12.0%

1 Year 34.5% 6.2% 21.3% 20.2% 20.6% 16.6% 12.3%

Winners have remained winners

Europe Equity Research 09 March 2011

Figure 3: UK: Performance Sub-sectors in 2010 vs. Year-To-Date

8% 6% 4% 2% 0% -2% -30% -20% -10% 0%

2010 total return

220 200 180 160 140 120 100 Mar-09

Europe Equity Research 09 March 2011

1. The path remains up

A) 15% total return on 12m view

British Land CSC Hammerson Land Securities UK average

Source: J.P. Morgan estimates.

B) Price targets upgraded by +6%

835 625 655 410 425 480 540

Hammerson New JPM Price Target

The main reason for the price target upgrades is timing

Europe Equity Research 09 March 2011

2.9% 2.9% 2.4% 2.2%

Capital Shopping Centres New Old

5y CAGR 2.4% 2.9% 2.8% 2.4%

Required return on equity 8.5% 8.5% 8.5% 8.8%

Like-for-like cash growth 2.8% 2.4% 2.5% 1.4%

EPRA net yield currently 5.2% 5.3% 5.2% 6.0%

Exit rate 5.8% 5.5% 5.5% 5.9%

C) Our price targets are 12% above consensus

775 585 655 384 425 481 540

Hammerson JPM Price Target

Europe Equity Research 09 March 2011

Table 7: UK Largecap Top 4 well positioned

British Land Capital Shopping Centres Hammerson Land Securities

Source: Company Reports. * Jan-10, ** includes 1.2% let on temporary basis

E) History shows there is more to come in medium term

Source: J.P. Morgan estimates, Datastream

F) Interest rates / bond yields not a concern (yet)

Still margin for error

Europe Equity Research 09 March 2011

Brent oil ($/BBL)

Source: J.P. Morgan Estimates, Bloomberg, Datastream