ALL eyes will be on British Land when the FTSE 100 property giant unveils its third-quarter results this week.
With its statement due just days after property industry benchmark IPD revealed that commercial property suffered its biggest and quickest fall in living memory last quarter, analysts predict that British Land's figures will make grisly reading. Its net asset value per share is tipped to drop by 16%-18% since the end of September to about 1,400p a share. Once British Land's gearing is taken into account this implies that more than £1.3 billion has been wiped off the value of its £13.2 billion property portfolio in just three months.
And with the global outlook so uncertain, British Land's management will have little choice but to caution that further valuation falls are possible. Meanwhile, if we start to see job losses on a big scale, the big companies that rent office space could shelve their expansion plans and potentially flood the market with surplus space of their own to sublet. This will depress property rents.
In theory, British Land should be a defensive play. It arguably has the most blue-chip property portfolio of the major listed companies and its properties are rented on very long, fixed-lease agreements.
But in nervous times the financial markets regard even the most secure cash flows as riskier than they were before. Even a 0.5% rise in prime property yields from 5% to 5.5% can trigger a 10% drop in property values.
Advertisement
And making very slight adjustments to rental growth projections can push values down by another 10%.
In these sober times it is perhaps more pertinent to ask why values were bid up so high two years ago than why values are falling so fast today.
British Land's shares have already nearly halved in value in a year - but news of such a savage valuation drop will inevitably push them down further.
At the current price - they closed at 988½p on Friday - they would still be trading at a 30% discount to the revised net asset value per share.
It is tempting to view any sharp share-price drop as a buying opportunity. After all, falling interest rates and a wall of global capital waiting to buy bargain properties should provide some support to the stricken sector. But things are likely to get worse before they get better. Sit tight for now.
Advertisement
IT is a big year for Warren East, chief executive of microchip designer ARM Holdings. A decade after the company came to the stock market, he needs to show it is making decisive progress with its 2004 acquisition Artisan. That means a breakthrough in the market for "physical intellectual property" (PIP).
ARM is already a quiet British success story. The tiny microprocessors it designs to sit on chips inside gadgets and pull the strings are a feature of 1 billion mobile phones produced every year.
ARM earns three times as much from a single "smartphone" - essentially a mobile computer - than a bog standard handset, because it contains more of its designs.
This increasing complexity explains East's hopes for PIP. He wants the likes of Texas Instruments and Samsung to outsource the fiddly job of designing chips to him, on top of the microprocessor ideas it already supplies. For ARM, that could be transformational.
However, progress has been slow and contracts are lumpy. No wonder PIP licensing income fell 30% in the third quarter. But as costs come under pressure industry wide, customers are sure to wonder what more ARM can offer.
Advertisement
In the meantime, the company is throwing off plenty of cash. The dividend is poised to head north again, following on from last year's doubling of the payout. Full-year figures are due on Tuesday.
ARM shares (118Äp) are virtually unchanged on a year ago - a result in these markets. They trade on 20 times 2008 forecast earnings. The company is as vulnerable to a cyclical downturn as the rest of the semiconductor industry and recent comments from Apple on slowing sales growth cannot have filled it with glee. But if East gets "physical" right, he could be in the middle of a virtuous circle.