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British Land's bumper 3Q cheers banks

LONDON: British Land's surprise 18% rise in net asset value lifted spirits among property landlords and lenders on Feb 9, but is unlikely to muffle doomsayers who claim a pricing bubble is already in prospect.

The bluechip investor said its net asset value rose to 438 pence a share in the quarter to Dec 31, reflecting an 8% uplift in its £7.9 billion ($42.25 billion) portfolio as demand for prime UK commercial property hots up.

"Our third-quarter performance saw a continued recovery with strong valuation growth right across the portfolio," Chief Executive Chris Grigg said.

News of the improved valuations brought cheer to lenders Royal Bank of Scotland and Lloyds Banking Group, which are battling to cut property impairments after a 45% plunge in values between June 2007 and August 2009.

Shares in the state-backed banks gained 4% and 3.75% respectively by 09.56 GMT on Feb 9 amid hopes they could soon post mark-ups in troubled mortgages and repossessed assets.

British Land shares were trading 2.5% up at 449 pence, ahead of a 1.4% rise in broader UK property stocks.

British Land's NAV rise trumped consensus forecasts, but the sharp rise may fuel concerns that the UK property market recovery is unsustainable.

Fears of a "double-dip" in commercial property values loom large over the market following a rapid 10% turnaround in values in the second half of 2009, against a backdrop of grim economic forecasts and continued pressure on rents.

"The revaluation captures the full effect of QE (quantitative easing, a Bank of England economic stimulus measure) on property prices but there are headwinds," said Nomura analyst Mike Prew, pointing to rising bond yields, weakening purchasing power of euro buyers, thin occupier demand and unstable lending trends.

British Land and peers Liberty International and Segro were among the biggest FTSE 100 fallers on Feb 8 as the market digested news of a slower-than-hoped 0.9% rise in average commercial values last month, after a record 3% hike in December.

Grigg told a conference call he believed the recovery was sustainable but he was not expecting to see many repeats of the stellar quarter.

"We continue to see interest flowing (into prime commercial real estate). What we still have not seen obviously is a huge amount of supply and so how those two things equate over time is a relatively complicated issue," he said.

British Land reported a 1.4% rise in like-for-like rental income to £128 million and said it had observed much higher levels of leasing activity across London.

Last week, the company agreed preliminary terms to let around 220,000 sq ft of office space at its Ropemaker Place scheme to Macquarie Group in the latest sign of revival in the flagging occupier market.

Despite this improved tenant demand, Grigg declined to estimate when the company might restart abandoned London development projects including the "Cheesegrater" skyscraper project at Leadenhall Street.

Instead, the company is focused on letting 650,000 sq ft of available offices and devising a refurbishment and redevelopment plan with joint venture partner Blackstone at Broadgate.

"We are well positioned to take advantage of that (demand) because of the new space we have to let," Grigg said. -- Reuters

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