British Land used the occasion of its third quarter figures to write down £1.3 billion from the value of its property portfolio but its share price hardly moved.
Equity investors began to price in the writedowns from the moment British Land pulled its sale of the Meadowhall shopping centre at the start of October.
When the company published its half-year valuations in November, the value of Meadowhall was written down 4.8 per cent over the three three months to September 30, to £1.57 billion. Analysts feared then that the company had not factored in the full extent of the sell-off in retail property values.
Today British Land confirmed those fears as Meadowhall was written down another 5.3 per cent during the third quarter to £1.5 billion. Meadowhall was however the best performer within British Land’s retail portfolio.
Stephen Hester, British Land’s chief executive, marked down the total retail portfolio by 9.5 per cent during the third quarter, taking the nine month decline to 11.5 per cent and leaving it wortth £8.6 billion.
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Worst performer of all were British Land’s superstores — it owns the freehold to a number of Sainsbury’s out-of-town stores. These were marked down 11.2% during the quarter, by far the steepest fall for any of its property assets. British Land believes its superstores have now fallen a total of 13.1 per cent between the end of March and the end of December to £1.39 billion.
This does not matter greatly to British Land as traditionally it has held superstore assets for the long term. Most of its churn — buying, redeveloping and selling — comes from in-town retail and offices.
But those property investors who are looking to make a turn from retail assets have reason to be alarmed.
Yesterday first round bids were due in for Somerfield, the grocery operator. The chain’s owners — Barclays Capital, the private equity group Apax Partners and the property entrepreneur Robert Tchenguiz — bought the chain in December 2005 for £1.8 billion. They are reportedly hoping to sell the business for between £2 billion and £2.5 billion. City analysts believe that it is worth closer to £1.4 billion.
The latest writedowns from British Land make it far easier for prospective buyers to argue for a bargain price for Somerfield and its basket of property assets.
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Meanwhile J Sainsbury revalued its property portfolio last spring from £5.45 billion to £8.6 billion as it fought off a bid approach from the Qataris and faced pressure from Robert Tchenguiz, a Sainsbury investor, to spin off its freehold property assets. (Roughly half of its stores are leasehold, half freehold)
With today’s property update from British Land, the Sainsbury property valuation may be in need of a revision.
British Land shares hit a low of 820p last November, down from a peak of £17.21 at the start of 2007, as investors priced in further likely downgrades to its property portfolio. Today they shed just 5p to 957p.
Sainsbury, which traded as high as 594p last year and have been as high as 421 1/2p last month, shed 12 3/4p today to 364p. Only when — or if — Somerfield is sold, will it become apparent how much investors believe its property is worth.