By Sinead Cruise
LONDON (Reuters) - British Land <BLND.L> posted 3.2 billion pounds of markdowns in property values on Thursday, triggering new worries for banks yet to defuse risks on their huge exposure to the battered real estate market.
The company, which owns most of the Broadgate office complex in the heart of London's City financial district, said in announcing annual results that its net asset value tumbled 64 percent to 398 pence a share, below the average forecast of 423.6 pence given in a Reuters poll of 11 analysts.
The portfolio is now valued at 8.63 billion pounds, 28 percent down on the valuation at end-March 2008.
Excluding the revaluation losses, British Land reported underlying pretax profits of 268 million pounds, broadly in line with last year.
"Against a backdrop of difficult market conditions, British Land's operational performance has shown resilience," Chairman Chris Gibson-Smith said in a statement.
"We have the capacity and intention to take on the new challenges that will arise and seize opportunities where we see value," Chief Executive Chris Grigg added.
But the figures will be uncomfortable reading for many of Europe's largest property lenders, such as Royal Bank of Scotland <RBS.L> Commerzbank <CBKG.DE> and Lloyds Banking Group <LLOY.L>, who have been sitting on billions of euros worth of vulnerable commercial property mortgages since a European property bull market expired in 2007.
The banks, who have all been forced to seek state aid to shore up their balance sheets, still have no clear view of when values will trough or how long borrowers can maintain interest payments as tenant insolvencies rise.
Last week British Land's larger rival Land Securities <LAND.L> blamed a record slump in property values in 2008 for slashing 4.74 billion pounds off the value of its assets in the year to end-March.
UK banks have so far broadly turned a blind eye to breaches of loan-to-value covenants caused by the two-year downturn so long as interest payments are being met by landlords.
But an uncertain economic outlook has cast doubts on their ability to collect rents from tenants struggling to cope with recession, ramping up the risk of default.
British Land said its portfolio was 96 percent let at end-March, notwithstanding the tough economic conditions.
It posted a 108 million pound fall in net rental income to 453 million pounds, largely as a result of 1.9 billion pounds of gross property sales in the past year.
In addition it said its rental income was secured on leases averaging 13 years in length, with only 6 percent up for renewal before March 2012.
Following a 740 million pound rights issue in February, British Land's net debt has fallen to 3.24 billion pounds from just over 5 billion pounds last year.
(Editing by Greg Mahlich)
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)