British Land puts flagship on hold over 'too gloomy' forecasts

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The Independent Online

British Land said yesterday that markets were reacting too gloomily to what is a normal business cycle as it put on hold plans to build its so-called Cheesegrater development in the City of London.

Stephen Hester, British Land's chief executive, said: "Things are almost certainly not going to turn out as fears would have it today. What we are seeing is a normal business cycle. Our buildings will last 50-100 years or more and will outlast many business cycles.

"The doom and gloom that is prevalent is way overdone as it relates to the fundamental cash flow certainty of our prime buildings," Mr Hester insisted.

"Has the world changed and we are all going to live in tents or move into space, or is the financial centre going to relocate to Birmingham from London? Let's have some perspective about it."

Mr Hester said the £225m Cheesegrater, designed by Richard Rogers, will be completed in 2012, one year late. The delay will allow British Land to start attracting tenants to the site in Leadenhall Street in 2011, about a year after an expected pick-up in rents starts, he said.

British Land will also use the delay to seek new, lower bids from builders that are squeezed by competition and to benefit from an expected fall in the cost of raw materials such as steel and energy.

British Land announced the postponement of the wedge-shaped development as it posted a £572m pre-tax loss in the first quarter compared with a £266m profit a year earlier.

The statutory figure was hit by a 5 per cent fall in the value of its property portfolio as investors worry about the effects of the economic slowdown on the sector. The company said underlying profit rose 23 per cent to £74m.

British Land shares closed unchanged at 722p yesterday after plunging 8.7 per cent on Wednesday – the biggest fall for nearly 16 years.

Mr Hester also rejected calls from retailers for landlords to charge rent monthly instead of every three months. He said that part of retailers' job is to squeeze their suppliers and that any changes to contracts would require a "horse trade" rather than special treatment for struggling store operators.

"That is a transfer of money from our shareholders to theirs. It is no different from a baked bean supplier negotiating with a supermarket," he said.

British Land said it was experiencing minimal bad debts from retail tenants and that footfall at its flagship Meadowhall shopping centre, near Sheffield, had risen by 4 per cent.

Like-for-like rental income rose 6.3 per cent against the industry average of 3.3 per cent. Group occupancy was steady at 98 per cent and renegotiated rents rose by an average 4 per cent above estimates.

Mr Hester said that the company expected about two years of below-trend rental growth as the economy tightens pressures on customers but that the sector would recover quicker than expected.

The company increased its dividend for the quarter by 7 per cent to 9.375p a share.