Liberty International lost almost half a billion pounds in the first six months of the year. The news emerged as the shopping centres giant delivered a warning that there was no end in sight to the commercial property market slowdown.
Liberty's underlying pre-tax profit for the first half of the year was £57m, with the company posting a small increase in its rental income. However, after taking into account a downwards property revaluation of £639m, as well as other items, the company recorded a loss of £458m over the six months to the end of June, compared to a profit of £552m last year.
Patrick Burgess, chairman of Liberty, warned it was likely there would be further losses to come. "The property cycle has to run its course with the excesses of the boom years to be purged from the system," he said. "Property values are unlikely to recover until stability returns to the banking sector and therefore we consider the process of falling property values is not yet complete."
Liberty has seen millions of pounds wiped off the value of its shopping centre assets, which include Covent Garden in London, Lakeside in Essex and the MetroCentre in Gateshead. These centres are now respectively valued at 5.0, 6.8 and 7.5 per cent less than at the end of last year, while some smaller properties have been prone to even more dramatic collapses. The value of the St David's shopping centre in Cardiff, for example, fell 11.9 per cent during the first half of the year.
However, Liberty said it was confident its shopping centres would ride out the worst effects of a slowdown in consumer spending, with occupancy levels currently remaining high and new lettings still being achieved.
"Established centres tend to trade through these periods without too much difficulty – we are not in the most volatile sectors of the retail market at all," said David Fischel, Liberty's chief executive. "People are not going on foreign holidays, they are not buying expensive cars or splashing out on other things – they go to the shopping centre."
Nevertheless, the company has already begun to suffer as the number of administrations in the retail sector has increased. It put aside £4.5m in the first half of the year to cover potentially lost rental income from retailers that are no longer trading, including tenants such as Dolcis and Stead & Simpson.
John Perry, an analyst at Deutsche Bank, said the provision was the "first of several we are going to see in the sector". Analysts expect similar warnings from rivals such as Hammerson, the owner of Brent Cross in London and the Bullring in Birmingham, which provides its latest trading update today. Even so, Mr Fischel said Liberty had around £478m in cash and unused debt facilities with which it planned to exploit opportunities.
In recent months, it has bought more than £40m of mortgage-backed securities on the basis that commercial property debt was undervalued compared to the underlying real estate. Mr Fischel added that the market "has thrown up some extraordinarily attractive pricing".Reuse content