The fact that the Royal Mail’s land is worth much more than the newly-privatised carrier paid for it is no secret. The question that remains is how much the property is worth.
Royal Mail office in Crowthorne
Over time, the estimated value could be billions of pounds. The sale of one 2.3-acre site situated north of Oxford Street fetched £104 million in profit for the Royal Mail last year. It also stirred up the argument that the shares were sold too cheaply.
Shadow business secretary Chuka Umunna has called on ministers to reveal which sites have been sold and how much the three London sites are worth. Business Secretary Vince Cable responded by calling Umunna “irresponsible” and said it was “dangerous” to imply that hidden development fortunes were being made by shareholders.
In the meantime, share prices are sitting well above the float price of 330p. The matter is generating a lot of political heat, and the Royal Mail will make huge margins over the discounted book value of each piece of real estate sold but only when the transactions are completed.
Nine Elms and Mount Pleasant are so big that they will take at least 10 years and a recession to complete. No one from the Royal Mail is saying whether it is willing to stay in as a joint venture or go for a quick sale.
The shareholders will benefit from the preparation for sale of 23 acres of London on three big sites, which are worth about £320 million in their raw state. Permission is also being sought to build nearly 2,700 homes and more than 300,000 square feet of commercial space with an end value of £1.5 billion at Nine Elms, Mount Pleasant and Paddington.
Royal Mail owns a total of three million square metres of properties, made up of around 1,000 freehold and 1,000 leasehold properties. The acreage of freehold land has not been disclosed. The property assets are listed in the books at cost, and then depreciated over 50 years to zero. The historic cost of both is set at £1.635 billion. After depreciation of £842 million, the net book value is sitting at £793 million.
The market value exceeds the book value by £310 million, according to a note in the prospectus. The document also reveals that a £104 million profit was made last year on the sale of a 2.3 acre site in Rathbone Place, north of Oxford Street. Great Portland has recently won permission to develop the land.
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