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Value of Liberty’s malls slides in Q3

Higher borrowing costs and stricter credit controls hurt commercial property

(LONDON) Liberty International plc, owner of MetroCentre and other UK malls, says the value of these properties fell in the third quarter as higher borrowing costs and stricter credit controls hurt the commercial property market.

The London-based company’s 14 shopping centres were valued at £6.11 billion (S$18.5 billion) as at Sept 30, down from £6.12 billion three months earlier, according to a statement on Tuesday. Net asset value dropped to 1,369 pence a share from 1,385 pence, said Liberty, which owns eight of Britain’s 21 largest retail centres.

The decline in the value of Liberty’s properties was less than the 2.9 per cent drop for UK retail-related real estate in the third quarter, according to figures compiled by Investment Property Databank Ltd. Retail property prices in the UK may drop in 2007 for the first time in 12 years.

‘The commercial market is getting some of the backwash of the problems in the banking sector and the domestic US housing market,’ CEO David Fischel said on a conference call.

Liberty shares declined 8 pence to 1,119 pence in London. The stock has fallen almost 20 per cent this year, reducing the company’s market value to about £4 billion. The FTSE 350 Real Estate Index has dropped 34 per cent during that period.

Profit excluding the value of Liberty’s properties and derivatives declined to £28.5 million in the third quarter from £32.1 million in the previous three months. Net rental income gained 6 per cent to £87.3 million in the third quarter from three months earlier.

Liberty’s British shopping centres, which account for three quarters of its assets and have a vacancy rate of 1.5 per cent, would generate an annual rental income of £303 million if they were leased at current market rates. That’s a 0.4 per cent increase in estimated rental value since June 30.

‘The key, going forward, is going to be rental growth and these were quite weak,’ said Harm Meijer, an analyst at JPMorgan Chase & Co. Mr Meijer said he expects no more rental growth and further declines in values of UK shopping centres.

Nine-month net income amounted to £407 million, Liberty said, without providing a comparable figure for the year-earlier period, which included the value of its real estate investments. It was the first time Liberty released third-quarter figures.

Mr Fischel took advantage of the peak in property prices in the second quarter to sell a 36 per cent stake in the Gateshead MetroCentre, Europe’s largest mall, to the Government of Singapore Investment Corporation (GIC).

That provided additional funds for acquisitions in London and other cities.

Liberty acquired Covent Garden in August 2006, a 50 per cent stake in London’s Earls Court and Olympia exhibition centres, and formed a venture to develop offices in London’s West End district, the world’s most expensive business location.


Source: Bloomberg (Business Times 8 Nov 07)

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