* Posts 64 pct dive in net asset value to 398 pence a share
* Full-year dividend raised 3 pct to 29.8 pence
* Shares fell 6.9 pct to 385.5 pence by 0906 GMT
(Adds more detail, shares)
By Sinead Cruise
LONDON, May 21 (Reuters) - British Land posted 3.2 billion pounds ($5 billion) of markdowns in property values on Thursday, triggering new worries for banks yet to defuse risks on their huge exposure to the battered UK 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 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.
"Our performance has shown real resilience," Chief Executive Chris Grigg said in a conference call. "Our asset valuation has declined in line (with market benchmarks) but we have benefited from actions we have taken to mitigate the impact of market dislocation," he said.
British Land's shares fell 6.9 percent to 385.5 pence by 0906 GMT, lagging a 5 percent fall in broader property shares tracked by the FTSE 350 Real Estate Index.
"The share price implied yield of 7.6 percent is implying no further decline in property values. On our estimates this seems premature," Collins Stewart analyst Aaron Guy said in a note, which reiterated the broker's "sell" rating on the stock.
Grigg said the company's strong financial position was borne of "proactive management", which included a 740 million pounds rights issue and a disposals programme that has led to 6.5 billion pounds of property sales in the past three years.
The initiatives have helped to cut British Land's net debt to 3.24 billion pounds from about 5 billion pounds last year.
BANK FEARS
The figures will be uncomfortable reading for many of Europe's largest property lenders, such as Royal Bank of Scotland Commerzbank and Lloyds Banking Group, which have been sitting on billions of euros worth of vulnerable commercial property mortgages since a European property bull market expired in 2007.
The banks, which 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 blamed a record slump in UK 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.
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 but it posted a 108 million pound fall in net rental income to 453 million pounds, largely due to big asset sales.
It said its rental income was secured on leases averaging 13 years in length, with 6 percent up for renewal by March 2012.
"Of course we have to look carefully at voids presented by bankruptcies ... and so far we have been quite well protected because we have high quality real estate," Grigg said.
"I'm not being complacent about this and obviously the performance of the consumer in the context of our retail business over the next 12 months will be important," he said.
Grigg said the firm had 3 billion pounds of credit facilities to draw upon if it saw attractive investment opportunities but it had no plans to hurry back to the market.
"The rights issue represented an insurance policy for us in what was, and is, a tough market. On the other hand, there was a capacity the rights issue gave us to be opportunistic," he said.
"But do I see us buying huge amounts of real estate over the next few months? No I don't," he said, rebuffing speculation the firm was in advanced talks to sell part or all of its flagship Broadgate complex.
"Within our portfolio there are no sacred cows ... all assets at all times we will look, at the right price, to sell," he said, without giving details on the target for future sales. (Editing by Greg Mahlich and Andrew Macdonald) ($1=.6331 Pound) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)