Barratt is ‘looking to sell’ commercial property wing

Apr 12 2008 by Karen Dent, The Journal

BARRATT Developments is reportedly considering the sale of its commercial property wing in an effort to reduce its £1.7bn burden of debt.

The Newcastle-based housebuilder took on the debt when it bought rival Wilson Bowden for £2.2bn last spring.

Wilson Bowden has separate housebuilding and commercial property divisions and it is the commercial property arm – Wilson Bowden Developments – that is at the centre of the sales speculation.

Wilson Bowden Developments, which also works on regeneration schemes, is understood to be priced at more than £250m, according to reports in the trade and national press.

Barratt was briefly Britain’s biggest housebuilder following its acquisition of Wilson Bowden but the economic slowdown has hit the company and it dropped out of the FTSE 100 Index in December.

It now has a market value of around £1.3bn – valuing it at less that its debt burden – because the price of its stock has fallen by more than two-thirds since February last year.

Barratt’s pre-tax profits in the final six months of last year rose to £201.8m, although like-for-like turnover was down by 17.4%.

When the interim results were published six weeks ago, chief executive Mark Clare said the acquisition of Wilson Bowden would prove a sound one in the long term.

“Wilson Bowden is a strong asset. We still think the acquisition is a good one and there is more value to extract,” he said at the time.

Barratt said yesterday it had no comment to make on the speculation. “We would refer you to the interim results published on February 27,” a spokesman said.

In the same six-month period, Wilson Bowden Developments – which has completed office developments in Leicester, Nottingham and Glasgow – had operating profits of £4.3m on sales of £42.5m. Barratt described this as “satisfactory performance against increasingly difficult market conditions”.

It is believed a trade buyer is the most likely purchaser of Wilson Bowden Developments although reports said it could be split further and sold as separate retail, office and industrial development businesses.

Vinay Bedi, divisional director of Brewin Dolphin Newcastle, said Barratt may look to grow the residential wing of Wilson Bowden in what was a less than ideal economic environment.

He said a price tag of about £250m for the commercial property arm was “just a splash in the ocean” as the company looked to scale back its £1.7bn debt.

But he added: “Every little bit counts. They are doing this in a difficult marketplace. In an ideal market they probably would not be looking to do this. It just gives them a bit of a breathing space while the market is difficult.”