British Land Company of UK & Ireland - Case Study Example

British Land Company of UK & Ireland and Shell Petroleum in Nigeria The British Land Company is one of the biggest property developers and investmentcompanies in the United Kingdoms. Formerly, it was a Public Limited Company (Plc) but later on, it became a Real Estate Investment Trust (REIT) during the real estate boom period in 2006. “British Land’s opportunistic but risk-averse strategy seeks to achieve long-term growth in shareholder value by: focusing on prime assets in the office and retail sectors.” (British Land Company Plc. 2006). Its transformation to the category of REIT has strengthened the competitive position of the quoted property shares with the key ingredients for stronger performance, hinging on enhancing the level of performance, intensity of the business and accessibilities. Further as REIT, the company does not need to pay any property taxes on the profits and gains from the property business. However, it is necessary for 90% of the income from the exempted business needs to be distributed to shareholders. (British Land. 2007). Being one of the largest property management companies today, with assets under management in excess of £18 billion and a market capitalisation of some £5.8 billion, British Land invests primarily in UK property. The focus is on actively managing, financing and developing prime commercial property to create the environment in which modern business can thrive. Following the company’s takeover of Pillar Property PLC in summer 2005, the it is now manager/adviser to, and investor in, a number of offshore unit trusts with total assets of some £3 billion. (British Land Company Plc. 2006). The regime allows the companies to be free of income tax and capital gains tax by release of just a one time payment. The tax problems the property companies have to undergo are in the context of the double taxation – there is a tax element at the time of rental income and profits, and again, at the time of disbursing dividends to the shareholders. In order to qualify for tax exemption, the company has to be a UK resident company, it has to be a close ended domestic company and should be listed with the Stock Exchanges. Also, it should have primarily two classes of shares, equity and non participating preferential share capital. The other governing conditions are in terms of the fact that it needs to have a minimum of 3 separate rental property of any kind, the valuation of any single property should constitute more than 40% of the total valuation and the company should be in a position to disburse at least 90% of its untaxed incomes as dividends to shareholders. (Guide to UK Reits. 2006). “The portfolio is valued at £16.9 billion: the majority is directly owned and managed; the balance is held in joint ventures, partnerships and funds, of which British Land’s share is valued at £2.9 billion. In total, British Land owns or manages approximately 4 million square metres (41 million sq ft) of real estate valued at £21.3 billion.” (What we do. 2007). Proper organization and efficient discharging of the corporate responsibilities helps in the construction of strong and attractive structures which would increase the overall profitability and thus also benefit the shareholders. The main focus of the company would be in the following areas: Ability to induct and retained skilled and efficient people and allow them to contribute to the organisation’s march towards progress and prosperity Dissatisfied occupiers could be bad publicity and therefore it becomes necessary to fully understand their needs and requirements and take up building constructions accordingly. Uncordial relationship with local communities could delay the development activities and could thus affect the valuation of property in the area. Therefore, necessary steps need to be taken for avoid such occurrences. It is also necessary to develop long-term relationships with local communities in order to foster and maintain property management progress. It is necessary that scarce resources like water, electricity and other consumables are effectively managed since it could increase long term costs The developments planned in socially backward areas should help the local communities in terms of labour employment, increased standards of living and better infrastructural inputs. There is a high risk of toxic wastes generating from emissions for property development and there is also need for protection of the local environment while undertaking developments; this company is committed to follow the highest standards of environmental protection and also ensure that effective waste management programmes are in place for the treatment of wastes, etc. It is the conscious effort of British Property to adhere to the highest standards of performance in order to enhance value to its shareholders and also to offer cost benefits to the ultimate owners and dwellers of the developments in which they reside. SPDC: The Shell Company is the 100% owner of the shares in Shell Petroleum Development Company of Nigeria (SPDC) of Nigeria. But it has also entered into Joint ventures with the Nigerian Government for oil and gas explorations. In this Joint venture the shareholdings are as follows: Nigerian National Petroleum Corpn : 55% SPDC : 30% Total (France) : 10% Italian Co Agip : 5% The parties above conduct the operations of oil exploration on the basis of monthly cash calls, paid in proportion to their shareholdings. SPDC now accounts for a major part of Nigeria’s oil production and event the scalability of its operations is quite large, with 90 oilfields in the Nigerian Delta being in operation. The Royal Dutch/Shell Group of Companies has other subsidiary companies which have invested in Nigerian oil industry. These include, the Shell Nigeria Exploration and Production Company Ltd., (SNEPCO) Shell Nigeria Gas Ltd. (SNGL), Shell Nigerian Oil Products limited and Nigerian Liquefied Natural Gas Co Ltd. (NLNG). (Omeja 2007). When one makes a comparative analysis of the British Land Company and the Shell Petroleum Development Company, it can be seen that the main area of commonality is that both are multinational companies and have large interests in their respective fields. While British Land Company is one of the leading property management companies in UK, Shell is a giant multinational with world wide interests in oil, and is considered a market leader in the petroleum field. Again, their shareholdings are widespread as both are public limited companies. While BLC has also maintained a conservative attitude towards their property management profession, Shell is a respected name which connotes oil and petroleum products throughout the world. Both British Land Company and Shell are world leaders in their respective fields and have contributed immensely to the growth and development of their respective economies. It is to the credit of the resilience and inner strength of the company’s management that in the crisis in the nineties, in which a plethora of property developers closed down due to financial constraints within the property development industry, BLC was able to weather the storm and come out triumphantly. The leadership characteristic of the Chairman, Sir John Rigblat, and his commitment to the shareholders has been amply demonstrated time and again during difficult decision making processes regarding investment opportunities and challenges. The case of Shell Company is quite similar. There have been instance of ethnic violence in Nigeria, including many cases of damage to the lives and properties of locals and expatriates in the place. Also there have been incidents where even oil installations have been the target of attacks by Nigerian youth, mostly unemployed, but the spirit of Nigeria still lives on. Shell has withstood the situation and displayed its mettle in the same manner BLC has survived its adversities. The management of the oil exploration unit in Nigeria have taken upon the challenge of facing these adversities and threats as a matter of occupational hazards and have seized business opportunities in the Nigerian country, whenever it has arisen to them. Their initiative and ability to convert dangers into opportunities and threats into initiatives is commendable and is in line with the willpower and determination of the management and staff of British Land Company. On the other hand, there are many aspects where BLC and shell differ from each other. In the first place, BLC is now a RIET, and not a PLC. It has seized to function as a public limited company and has now assumed the role of a Real Estate Investment Trust. By virtue of being one such entity, unlike SPDC, a shareholder in BLC could only own up to 10% of the share capital of the company. There are other restrictions in terms of having to distribute up to 95% of the non taxed property income to the shareholders. (Real estate Investments. 2007). However, in the case of SPDC, no such conditionality is present. Another difference between BLC and SPDC lies in the fact that having claimed RIET status, there is no tax imposed on property income, to avoid double taxation. Double taxing occurs because once it is liable to pay tax while accounting rental incomes, and again, when the dividends are to be distributed to the shareholders it has to pay tax. However, SPDC, being a public limited Company, enjoys no such privileged benefits. Another major of difference between BLC and SPDC comes with the context of geographical location. While BLC is a UK based company, and the scope of its operations are based fully in the United Kingdoms only, Shell is a world wide company, with vast resources available for its operations which care. Again, the shareholding pattern between the two are different. On the one hand, the shareholding of BLC lies with the Chairman, Sir John Rigblat, and may now pass on to his son and successor, in the case of Shell it is an American based conglomerate having many subsidiaries and joint venture operations in many parts of the globe, whereas this could not be state of BLC. At BLC a great deal of importance is being placed with a two way communication with the shareholders. The directors hold regular social dialogues with the investors and keep them posted regularly of all developments and activities. Further, as is the case with all public companies, General Meetings are held where they present contentious issues for discussions and voting. Therefore, it could be said that in the case of BLC there is a greater interfacing between the management and the Board of Directors with the shareholders and better and regular interacting between them. In the case of Shell, the investors are found far and wide, sometime in different countries, altogether, and therefore, it would be difficult for a company of the size and stature of Shell to maintain effective communication rapport with the shareholders, except via internet and other advanced telecommunication media, whenever it is necessary. The management style of BLC and SPDC are also widely different. BLC being generically a UK based company, has a conservative, and somewhat slow and staid business approach. They do not usually maintain a high business profile and their style is not characterized by aggressive marketing policies and taking heavy risks. It normally would undertake only those business ventures, mainly of clubs, hotels and business establishments, where the profit margins are assured and there are not very many risks. However, for a business venture of the size and stature of Shell, it is necessary to take risky business ventures, especially in the areas of oil exploration and development programmes, including Nigeria, Middle East countries and several Far East ones. Each company’s approach to business differs from the other, depending upon the investments made and the returns to be derived from them. It could be said that, in the case of BLC, the business prospects are subject to market fluctuations and buoyancy of the real property trade, which could oscilate from day to day. It largely and depends upon external factors that could promote and develop the economy. On the other hand, the fossil fuel industry, to which Shell belongs, is characterised by being a core industry, which influences market economies to a very significant extent. Today, fluctuations in the oil prices impacts significantly on the economies of most countries, because the countries are dependent on oil resources as a primary energy driver. Therefore, fluctuations in oil prices have a strong impact and could alter economies of these countries. Thus, it is seen that there are many areas of similarities and distinctions between the BLC RIET, and SPDC plc. In summing up, it could be said that each of these is business leaders in their own rights, and have contributed immensely to the economies of the countries, in which they are principally based. Their essential differences lie, in their strategic management styles, their business model approaches, and the constituent elements of their shareholders or investors. Bibliography British Land. (2007). REIT: British Land becomes a Real Estate Investment Trust (RIET). [online]. British Land. Last accessed 20 November 2007 at: http://www.britishland.com/reits.htm British Land Company Plc. (2006). Comments on Draft claim of REIT legislation published on 14th December 2005. [online]. Last accessed 20 November 2007 at: http://www.britishland.com/images/BLREITsResponse270106.pdf. Guide to UK REITs. (2006). Introduction. Insights. [online]. Property Week. Last accessed 20 November 2007 at: http://www.britishland.com/images/PropertyWeekAGuideToUK_REITsDec2006.pdf OMEJA, Kenneth (2007). High Stakes and Stakeholders: Oil Conflict and Security in Nigeria. P. 78. [online]. Ashgate. Last accessed 20 November 2007 at: http://books.google.com/books?id=IH0bSRZP8bEC&pg=PA74&lpg=PA74&dq=shareholding+of+spdc&source=web&ots=UhMTwKu-ie&sig=zmgnvx3izAls_ZcnwNWHff6l9Vk#PPP1,M1 Real estate Investments. (2007). [online]. Economy watch. Last accessed 20 November 2007 at: http://www.economywatch.com/investment/real-estate-investment.html The British land Company’s plc. (2007). British land. [online]. Answers.com. Last accessed 20 November 2007 at: http://www.answers.com/british+land+plc?cat=biz-fin What we do. (2007). [online]. British land Last accessed 20 November 2007 at: http://www.britishland.com/whatwedo.htm Read More