Falling financial markets, the credit squeeze and fears of recession combined to wipe almost £2 billion off the value of British Land's property portfolio.
The group, which is considering building a 35-storey tower at the corner of Colmore Row and Newhall Street in Birmingham city centre, yesterday said the total value of its property portfolio - including joint ventures - fell by 10 per cent on a like-for-like basis to £13.5 billion in the year to the end of March 2008. The overall shift in the value of the property portfolio was a fall of £1.92 billion.
Net assets for the period were down by 20 per cent to £13.44 a share as rising commercial property yields pushed valuations lower across the whole sector, with retail down by 12.1 per cent and offices down by 6.4 per cent.
The group warned that yields were likely to harden further in the current financial year, while group chief executive Stephen Hester said it was likely that the pace of rental growth would ease as the focus switched to the "real economy" and how customers would react to a slowing UK economy.
"Investment market conditions remain challenging and sentiment is still volatile," Mr Hester said yesterday.
"We're likely to see further valuation declines and outward yield shift with secondary properties taking the brunt of the downturn.
"There is likely to be an increasing differential between prime Grade 'A' property and secondary property assets."
He said the latest industry figures for April showed a further decline in asset valuations, although the fall this time was the smallest decrease so far in the recent series of declines. In the Midlands, the company's joint venture with The Crown Estate - Hercules Unit Trust - saw the exchange of a 50 per cent stake in the Fort Kinnaird Shopping Park in Edinburgh for a half share in Gallagher Retail Park in Cheltenham and The Shires Retail Park in Leamington Spa.
HUT also acquired Queen's Retail Park in Stafford, which it said offered significant improvement opportunities.
British Land completed the sale of the Blythe Valley Business Park for £161 million last September to allow it to concentrate on higher growth sectors.
Results released by the company yesterday showed that while the value of the group's portfolio fell last year, the dip of 2.2 per cent in the fourth quarter was markedly less than the 8.9 per cent decline reported in the previous three-month period. A four per cent fall in net assets per share in the final quarter of 2007-08 was also a lot better than some analysts had been expecting. Some had been predict-ing a year-on-year hit of as much as 25 per cent to £12.60 a share. The news saw shares close up 8.5p at 796.5p.
Underlying pretax profits for the year came in 11 per cent higher at £284 million, but after taking into account revaluations losses - as required under new IFRS accounting rules - there was a headline loss of £1.61 billion, compared to a profit of £1.44 billion.
In reaction, US broker JP Morgan said the figures were good and that the statement underpinned its view that most UK REITs would start to outperform from this year onwards.
"British Land is one of the few UK property stocks that is trading close to its worst case valuation," it said in an investment note.
It is forecasting another fall in adjusted net assets to £11.90 a share for 2008-09, which implies another six per cent drop in the portfolio.