Nov. 19 (Bloomberg) -- British Land Co., London's largest office landlord, slumped to the lowest in five years after reporting a wider second-quarter loss on a 683 million pound writedown ($1.02 billion) of shop and office values.

The net loss for the three months ended Sept. 30 was 747 million pounds, or 146 pence a share, compared with 277 million pounds, or 54 pence, a year earlier, the London-based company said today in a statement. The net asset value fell 14 percent to 1,043 pence a share.

British Land, owner of the Broadgate estate in London's financial district, has been forced to cut 2.8 billion pounds from its property values in 18 months, in one of the worst commercial property slumps in history. A freeze on bank lending has cut credit to most property borrowers, exacerbating price falls. U.K. commercial values are down 28 percent from the peak in June 2007, according to Investment Property Databank Ltd.

``We are still in a period of heightened stress in credit markets and this affects investor sentiment towards all asset classes, property being no exception,'' said Chris Gibson- Smith, who was named executive chairman on Oct. 17. after Chief Executive Officer Stephen Hester resigned to head Royal Bank of Scotland Group Plc.

The shares fell 37.5 pence, or 6.9 percent, to 506 pence in London trading, the lowest price since October 2003. British Land has slid 36 percent in six months, reducing the company's market value to 2.6 billion pounds. The FTSE 350 Real Estate Index has dropped 43 percent in the same period.

Ropemaker Tenant

British Land said today it cut the value of its stake in Canary Wharf office estate in London's Docklands by 40 percent. It has an 11 percent holding in Songbird Estates Plc, the majority owner of the property.

The company also said for the first time that Ropemaker Place, a 593,000 square-foot (55,100 square-meter) office development due to be completed next year, is now more than 25 percent leased. On a conference call, Gibson-Smith declined to name the tenant, only saying it's a ``major institution.''

British Land is ``not short of interest'' in candidates for the CEO post and has seen many people interested in the job, Gibson-Smith said. Hester's replacement is expected to be chosen by January, he said.

Rental Income Falls

Net rental income fell 14 percent to 121 million pounds after British Land sold assets. The sales helped reduce borrowings in the first half by 500 million pounds to 5.9 billion pounds including investments in ventures and funds. Interest payments in the quarter dropped 27 percent to 53 million pounds from a year earlier.

Of the company's total rent agreements with its tenants, 4 percent are due to be renewed by March 2011. Three percent of British Land's properties are now empty, the company said.

British Land is not yet seeing any opportunities to buy property at distressed prices, but is ``keeping its eyes open for every opportunity,'' said Chief Financial Officer Graham Roberts on the call. He added that the company would be interested in buying property debt at distressed prices.

British Land, the U.K.'s second-largest real estate investment trust, was forced to delay construction of its biggest office development in August.

Leadenhall Tower

Construction of the Leadenhall Building, a 47-story tower known as the Cheesegrater in London's main financial district, was due to begin next year. Demand for office space is falling as banks fire workers. There will be 62,000 job losses in London's financial district by the end of next year, according to the Centre for Economics and Business Research.

Land Securities Plc, the largest U.K. REIT, halted building a 155-meter office tower, known as the Walkie-Talkie, in May this year.

One of British Land's biggest shopping centers is the 1.5 million square foot Meadowhall mall in Sheffield, northern England. The company tried to sell its 75 percent stake in the property last year and pulled it off the market after investors wouldn't match British Land's valuation.

``The U.K. consumer is becoming hesitant and retail sales are coming under pressure,'' British Land said. ``Retailers are reporting difficult trading and this will weigh on prospects for rental growth. We have yet to see any significant defaults but the climate is challenging for our customer base.''

British Land raised its second-quarter dividend 7.1 percent to 9.375 pence a share from a year earlier.

At the end of March 2007, the company owned 16.9 billion pounds of shops and offices. That has since shrunk to 11.6 billion pounds after British Land sold more than 3 billion pounds of assets, and after shop and office prices sank.

To contact the reporter on this story: Chris Bourke in London at cbourke4@bloomberg.net

Last Updated: November 19, 2008 12:24 EST