Property correction wipes £1.3bn off value of British Land's assets

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The Independent Online

Setbacks in the commercial property market caused by the global credit crunch have wiped £1.3bn off the value of British Land's assets in just three months, the UK real estate giant revealed yesterday.

The real estate investment trust, which specialises in London offices and out-of-town retail parks, announced that the value of its commercial property assets had been marked down by 8.9 per cent to £14.5bn in the three months to the end of December.

Shares in British Land, one of the UK's blue chips, have tanked by more than 50 per cent since hitting a record high of 1,722p at the end of December 2006. With the onset of the credit crunch last summer, and growing fears for the property market, the shares fell as low as 821p in November.

Chris Gibson-Smith, the British Land chairman, said: "Macro-economic uncertainty and the global credit crunch have depressed property values. However, the worst should now be behind us, though uncertainties remain on timing and the extent of the correction."

The other part of British Land's business, the rental operations, proved more positive as it posted a 12.5 per cent jump in pre-tax profits to £72m. The chief executive, Stephen Hester, said: "The occupier markets from which our cash flows derive remain in better health than investment markets are discounting." It currently has occupancy rates of 99 per cent with a 14-year average lease.

Harm Meijer, an analyst at JP Morgan, backed the company, despite yesterday's setbacks, the first time in 14 years that its net asset value has fallen. "The results were solid, and management sounded more positive than before. British Land is one of our top picks," he added. The shares lifted 21p on yesterday's news, but retreated with the market to close flat at 962p.

The group also revealed it had a £2bn war chest available "as the opportunity arises". However, Mr Hester emphasised the company was not actively in talks with targets and added he does not expect major industry consolidation in the near term.

He said: "If there is mergers and acquisitions activity, it will likely be the takeover of private companies in financial distress. We are unlikely to see the takeover of a major public property group."

Rumours of interest from sovereign wealth funds in British Land swept the market last month. The stories proved accurate after the group announced the government of Singapore had built a 3 per cent stake through its fund GIC. At the time, the shares were worth £135m. Mr Hester said GIC was a "supportive, long-term shareholder."

While the group sold £600m of property in the third quarter, it failed to offload its stake in the Meadowhall shopping centre in Sheffield. The group blamed the credit crisis after it was forced to pull the sale in October. There have been no further plans to sell.

The management is positive over its prospects in the long term. Mr Hester said: "There are important signs of markets adjusting to new realities and affected parties taking the resultant pain, although significant uncertainties remain."

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