The group said that although valuations now look about ‘fair value’ on historic levels, they tend to overshoot and therefore will probably fall further from here.
The value of British Land’s net assets fell to £6.3bn and its net asset value per share dropped 10% in the quarter to 1,212p. Underlying pre-tax profit fell £2m to £74 million. The group will pay a dividend of 9.375p, a rise of 7% on the previous quarter.
The group said that office rents were starting to slow, but retail rents were still seeing some growth. Overall, like-for-like rental income growth was 6.3% against 3.3% for the benchmark IPD index. The slowdown in office rents had led the group to review the timing of its flagship office development at 122 Leadenhall – the Richard Rogers-designed ‘Cheesegrater’. The development was due to open in 2011, but may now be delayed until 2012 to hit the right point in the commercial property cycle.
Chief Executive, Stephen Hester, said: “Investment markets are thin, nervous and negative in tone. Generally long-term value for UK prime property is seen at yields in the range 5-6%. However, as with all market cycles, assets are likely to need to be 'priced cheap' before tempting much of the substantial capital waiting on the sidelines. In that context, British Land values highly its asset and liability strengths and consequent ability to hold assets for the long-term where merited.”
The shares rose 12p to 734p. They have slid from highs of over 1750p at the beginning of last year. Their current price still represents a 40% discount to net asset value, so there is room for the commercial property market to fall a lot further before the shares look anywhere near fair value. That said, there is unlikely to be a catalyst for a turnaround in the commercial property sector for the foreseeable future and potential investors should certainly wait to hear news on the Cheesegrater development.
