The RICS is calling for tighter rules for valuations following Safeways announcement that its property portfolio was worth £2bn more than book value.
The takeover target revealed last Friday that a valuation of 201 stores – 76% of its 479-strong portfolio by value – had come out at £4.5bn – almost double the previous value of £2.7bn.
The assessment by DTZ was the first time the portfolio had been valued. Previously, Safeway listed the properties at cost.
“There is a fundamental flaw in the system if a company with more property assets than most UK property companies can get away with never valuing its portfolio,” said Chris Thorne, chairman of the valuation for financial statements working group at the RICS.
“We are lobbying the International Accounting Standards Board to tighten up the rules set to be adopted in 2005, and are pushing for regular revaluations by listed companies.”
Under proposals drafted by the IASB, firms holding properties as investments will be required to declare their value on their balance sheets or declare their cost prices with notes indicating their current values.
But owner-occupiers such as Safeway would slip through the net because they would still be permitted to carry their properties on the book at cost rather than reveal their real value.
The supermarket chain claims that the valuation of its property portfolio boosts the companys value by 184p a share. However, its shares failed to rise on the back of its announcement this week.
Thorne added: “It does not take a rocket scientist to realise that supermarket values have risen massively over the past 10 years as a result of the tough planning regulations governing out-of-town sites.
“That Safeway should have carried on putting its assets on the balance sheet as depreciating assets while knowing that values had risen is surprising.”
A source close to the Safeway valuation, carried out over a two-month period before Christmas, admitted that the chain had decided to value its property portfolio as a precursor to a potential takeover bid.
He said: “This valuation alerts the investment community to the capital value of supermarket property assets.”
But CSFB analyst John Gellatly said: “This opens up a can of worms. There has been little evidence until now of what supermarkets are worth.
“But the valuation will not necessarily up the bids for Safeway. Any investor who bought the chain would have to be able to extract the extra value from the portfolio – and with no open market evidence of higher rents or tighter yields this may be difficult.”
EGi News 03/02/03
