BAA raises £575m from airport property sell-off

The airports group BAA raised £575m yesterday from the sale of a large chunk of its property portfolio to help fund the construction of Heathrow's Terminal Five.

BAA, which owns seven UK airports, has injected property assets worth £800m into a 50:50 joint venture with Morley Fund Management.

Morley will pay BAA £225m for its half share of the new venture, Airport Property Partnership. BAA will extract a further £350m by way of non-recourse debt taken out by the joint venture.

The assets involved - primarily cargo warehouses at Heathrow, Gatwick and Stansted - account for about one-fifth of BAA's investment property portfolio and a little under 10 per cent of its £7.6bn regulatory asset value.

Mike Clasper, BAA's chief executive, said the proceeds from the property deal would be used to develop the group's airport interests in the UK and overseas. Initially, the funds will be used to pay down debt and so defer the next bond issue BAA would otherwise have had to undertake to finance the £4.2bn construction of T5.

BAA's total debts currently stand at about £3.2bn but they will rise to about £6bn in 2008-09 on completion of T5.

The new terminal will raise Heathrow's capacity to more than 90 million passengers a year. BAA said it expected its debts to begin falling sharply once T5 began generating revenues.

The property sell-off will not affect BAA's income during the current price control period. However, the Civil Aviation Authority, which regulates BAA, will take it into account when it next sets airport charges. Of the properties being put into the joint venture, £331m worth are contained within BAA's regulated business.