British Land Asset Values Stagnate as Retail Gloom Hurts Shopping Centers

British Land Co. (BLND), the U.K.’s second- largest real estate investment trust, said third-quarter net asset value stagnated as its retail properties depreciated. The shares declined as much as 2.3 percent.

Net asset value rose to 593 pence a share from 591 pence three months earlier, the London-based company said in a statement today. Net income fell to 68 million pounds ($108 million) from 261 million pounds a year earlier.

The results “represent the first reversal seen in values in the retail segment by a major company’s portfolio” in the U.K., said Alan Carter, an analyst at Investec Securities in London.

The British Retail Consortium said Feb. 7 that January was the second worst on record as inflation, unemployment and taxes undermined consumer spending. That’s making it harder for landlords to demand higher rents from retail tenants, making appraisers adjust the estimated values of shopping centers. Retail properties represent 61 percent of British Land’s assets.

British Land fell 11 pence, or 2.2 percent, to 497 pence at 4:30 p.m. close in London, the biggest decline among the 11 stocks in the FTSE 350 Real Estate Investment Trust Index. The shares have dropped 6 percent in the past six months, more than double the index’s decline.

Big-box retail warehouses depreciated by 0.6 percent and shopping centers by 0.3 percent in the final quarter of last year, reducing the value of British Land’s retail assets to 6.3 billion pounds, the company said today.

New Office Space

Offices appreciated by 1.1 percent, the company said. British Land has projects in central London that will add 2.2 million square feet (204,000 square meters) of office space through 2014.

Lower asset values affected individual properties, though not all of them, Chief Executive Officer Chris Grigg said on a conference call. He declined to comment on reports that he plans to sell a 25 percent stake in the Meadowhall mall in Sheffield, England.

“The sector may wobble on this,” Carter said, because 60 percent of assets owned by the U.K.’s four largest REITs are retail-related. The analyst has a “buy” recommendation on British Land shares because of its “defensive” position.

The slowdown in property values overshadowed an 11 percent rise in profit excluding one-time items and property values.

Profit excluding changes in asset values and one-time items increased to 69 million pounds, or 7.5 pence a share, in the three months through December from 62 million pounds, or 7 pence, a year earlier.

Higher Rents

Net rental income rose by 5.3 percent, the result of 332 million pounds of acquisitions in the fiscal first half, higher rents charged in lease renewals and income generated by new or additional space in stores and offices.

The company’s acquisitions since March 31, 2011 include 17 Virgin Active fitness centers and refurbished residences in the City of London financial district.

Excluding acquisitions and disposals, rental income rose by 1 million pounds in the quarter, Chief Financial Officer Lucinda Bell said on the conference call.

Net debt rose to 4.91 billion pounds from 4.84 billion pounds three months earlier. Debt represented 45.6 percent of the value of British Land’s real estate, from 45 percent at the end of September.

The company will pay a third-quarter dividend of 6.5 pence a share, taking the total payout for the three quarters of fiscal 2011 to 19.5 pence.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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