The end of the Ritblat era at British Land

A year after Stephen Hester took over, he is proving to be his own man of property
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The Independent Online

Hung on the walls of the office of Stephen Hester, chief executive of British Land, the UK's largest property investment company, are paintings by the 20th-century artist John Piper. They might seem a strange choice for a developer: Piper made his name with studies of buildings devastated in the Second World War.

But Mr Hester - a former merchant banker who took over British Land a year ago after leaving Abbey National following its takeover by Santander - did not choose to hang the paintings here. As with so much that has gone on at the company, that decision was made by Sir John Ritblat.

Now non-executive chairman, Sir John ran British Land for 33 years before Mr Hester took over. For much of that time he was executive chairman, refusing to split the roles of chairman and chief executive, despite the protestations of shareholders (and the presence on the board for the past five years of the corporate governance guru Sir Derek Higgs).

This week, British Land reports its first annual resultsunder Mr Hester. His arrival heralds a new era at the company. It also underlines the change sweeping the wider property sector, once dominated by clubbable tycoons who built their companies and fortunes by decades of wheeler-dealing.

The old guard are gradually being replaced by a new breed of managers, epitomised by Mr Hester. An investment banker for almost 20 years at Credit Suisse First Boston, then finance director of Abbey before joining British Land, he is nothing like the old-school property set.

Cynics asked whether British Land's promise to be more transparent in the way it conducted its business and to split Sir John's dual role was a token gesture to silence the corporate governance brigade. They suspected that, despite moving upstairs and promising to take a hands-off role, Sir John would not relinquish control. So one year on, has British Land really changed?

Close followers of the company believe that Mr Hester is beginning to stamp his authority on it, despite not having been first choice for the job. Embarrassingly for British Land, its favoured candidate, Philip Yea, chose to join private equity group 3i last summer.

Mr Hester's position on the board has been strengthened by the departure of Sir John's son, Nick, as executive director in August. The well-respected Nick Ritblat had been touted as a possible successor to his father before the appointment of Mr Hester. Not surprisingly, Mr Hester says his relationship with Sir John is a good one and works well, but there is real evidence that a gradual - but unmistakable - evolution is taking place. Surveyors speak of British Land "pre Hester" and "post Hester".

Communication with the City seems to have improved under the new regime. One City representative says Sir John hated analysts disagreeing with him, and used to chide them for taking a short-term view when things were going badly, arguing that property needed to be judged over the long term.

"Sir John built up the company himself and had strong views on what needed to be done. He would stand up for himself quite vociferously," he says.

Another analyst, who also did not want to be named, says that internal communications were not a strong point either. "British Land had the reputation for being a large clunky business comprising several fiefdoms and was not particularly well managed."

Mr Hester has introduced quarterly financial reporting, the first of the traditional property companies to do so. He also responded to long-standing criticism that the valuations given to British Land's properties were too high. The new chief executive severed 20-year ties with its main surveying firm, Atisreal, and appointed Knight Frank, which also performs property valuations for rival group Land Securities.

In May, Mr Hester made another mark with the £811m acquisition of Pillar Property, moving British Land into the area of property fund management for the first time. But there was something still more significant about the Pillar deal, as one top analyst explains: "The Pillar acquisition just six months into his term is a pretty bold statement. It brought new blood into the company which was badly needed."

But the City argues that the company needs to go further. Martin Allen, from Morgan Stanley, acknowledges that the company is more transparent under Mr Hester, but says: "We feel it needs to admit when problems exist, debate issues more openly, and listen as well as sell its own views."

British Land builds or buys offices and shops and lets the space over long-term leases, which are usually at least 10 years long. Its property is split roughly between retail and office space. Assets include the Broadgate office complex near Liverpool Street in London, which makes up just over a fifth of the portfolio and is valued at £2.8bn, and Meadowhall shopping centre in Sheffield, one of the largest in the country and valued at £1.4bn.

Surveying firm Cushman & Wakefield Healey & Baker estimates that yields on office space have fallen by almost a quarter this autumn to just over 6 per cent (barely above the return savers would get from a high-interest account), to their lowest level since the recession-hit mid-1980s. However, there is some sign of recovery in central London, where British Land owns almost all its offices and where vacancy rates starting to fall.

More vulnerable to rent defaults and vacant spaces are British Land's retail properties after the slump in consumer spending. Land Securities warned last week that the retail property market would remain tough for at least another six months.

But British Land hopes that by favouring out-of-town shopping centres (which make up two-thirds of its retail space, helped by the acquisition of Pillar), it can ride out the worst of the storm.

Because of planning regulations, there is a shortage of out-of-town supermarkets and shopping centres, which are filled mostly by less expensive shops where sales are holding up relatively well compared to the high street.

When he took over, Mr Hester promised to review the company's sometimes unwieldy portfolio, and over the past six months more than £300m of properties in bad locations or condition have been sold.

More uncertain is how long-heralded real estate investment trusts (Reits), expected to be introduced by the Treasury next year, will affect British Land. Reits allow investors to buy shares in property portfolios, which are listed on the stock market like any company, in a tax-efficient way.

Depending on the details of the scheme - Gordon Brown will elaborate in his pre-Budget report next month - Reits will either be a threat to British Land (investors will move their money into the new investment vehicles instead) or an opportunity (British Land will set up or become a Reit itself).

The problem with the latter option, Mr Allen from Morgan Stanley adds, is that British Land's low-risk, low-yield property portfolio may not be ideally positioned to compete in a post-Reit world. "British Land has traditionally invested in squeaky clean, watertight properties that are pretty new, with relatively long tenancies," he says.

However, Reits tend to be valued on total investor return, and analysts say investors could gravitate towards the higher-yielding trusts. This may necessitate a shift in British Land's long-standing investment strategy towards slightly "riskier" properties with higher yields. Mr Hester, along with the rest of the sector, awaits details from the Chancellor.

But whether the issue proves to be a threat - and the company downplays this - it will be Mr Hester's problem, and no longer Sir John's. After one year at the helm, it is clear that British Land is Mr Hester's company and that he, rather than his predecessor upstairs, calls the shots - except in matters of interior decor, of course.

Exit the grandees who did it brick by brick. Bring on the bankers and bean counters

A changing of the guard is taking place in British property, as many of the industry's self-made grandees call it a day after dominating the landscape for decades.

The new generation of property executives - typified by lawyers, bankers and (some might say) bean counters - is unlikely to ruffle as many feathers. But for some of the old timers they are replacing, letting go is proving easier in theory than in practice.

Former Liberty International chairman Sir Donald Gordon, 75, says he has transformed himself into an "opera appreciator" following his £20m donation to the Royal Opera House and Wales Millennium Centre, where a theatre now bears his name. A South African, Sir Donald feels an affinity for the Welsh. But he has hardly severed ties with Liberty: he has been named "president for life" of the shopping centre specialist, retains an office there and oversees a 22 per cent family holding in the company.

Sir David Garrard retired from Minerva in March after 17 years at the helm. The 66-year-old has also turned to philanthropy, having donated £200,000 to the Labour Party last year and £70,000 to the Tories under William Hague, as well as investing £2.4m in the Government's city academies project.

Everard Goodman pocketed £120m when Land Securities acquired his Tops Estates shopping mall empire in May this year. The Yorkshireman caused a kerfuffle five years ago when he unsuccessfully tried to raise his family's shareholding in Tops Estates to more than 50 per cent via a buyback.

Great Portland Estates' non-executive chairman, Richard Peskin, is proving to be a man with impeccable market timing. He has trimmed his shareholding for a healthy profit in the past few months as shares in the central London-focused developer have hit record highs.

Chairman since 1986, Mr Peskin, 61, has taken a back seat to wunderkind chief executive Toby Courtauld, appointed in 2002. Mr Courtauld was headhunted at the tender age of 33 to kick-start the ailing company.

Last year saw the passing of Sir Stan Clarke, the former plumber who built St Modwen into a company valued at more than £500m. Sir Stan was chairman of the regeneration specialist from its foundation in 1986, until his retirement five months before his death.

Another property magnate to have died in 2004 was Town Centre's Arnold Ziff. He founded the Leeds-based firm in 1959, remaining chairman until his death.

Jill Ferguson

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