UPDATE 2-UK property firm Liberty ponders demerger

* Plans to split portfolio into retail, London businesses

* Waiting for third-party approvals before making decision

* Shares up 1.6 pct by 0858 GMT

(Adds background, share price, shareholder comment)

By Sinead Cruise

LONDON, Feb 5 (Reuters) - Liberty International LII.L, Britain's biggest shopping mall owner, is looking at splitting its portfolio into two separate listed companies as it battles to bounce back from the worst property crash in decades.

The owner of London's Covent Garden tourist hotspot said on Friday it was evaluating a split of its 6.1 billion-pound ($9.6 billion) portfolio into a shopping centre business and a London properties business, sparking a 1.6 percent share rise to 459 pence.

"Such a transaction requires a number of third-party approvals which have been requested and some of which are currently outstanding," Liberty said in a statement.

"The board will only be in a position to decide whether to proceed or not once it has progressed these matters further," the company added, without giving details on the rationale or how the plan might be executed.

Despite owning some of Britain's most recession proof property assets, Liberty's balance sheet is seen by some analysts as one of the weakest in the bluechip property sector, where a new era of austerity has replaced years of cheap and easy credit.

It is the only UK Real Estate Investment Trust (REIT) to have sold assets, mothballed developments and conducted multiple share sales to raise new funds and preserve existing capital.

It raised 280.5 million pounds in a placing in September, following an earlier 592 million pounds equity raising in April. [ID:nLN531932] [ID:nLS831506]

Nomura property analyst Mike Prew described the strategy as "sensible" because it would eliminate "a capital and management distraction" for Liberty's executive team, who have long-since fought to balance the competing needs of large-scale malls and London offices.

Rumours that Liberty was looking to hive off its office property arm Capital & Counties first emerged almost a year ago as the company considered ways of delivering best shareholder value in the turbulent UK property market. [ID:nLU955382]

"REIT specialisation takes over from scale as the industry mantra," Prew told Reuters.

DEBATE

Liberty's plan echoes a three-way demerger proposal put forward, and subsequently abandoned by the UK's largest REIT Land Securities (LAND.L) in 2008.

That plan was born of an ongoing debate in UK property circles on the merits and disadvantages of specialist REITs over generalist REITs.

Critics of large diversified REITs say companies often fail to capture outperformance because resources are carved up between assets which have very different management needs.

However, supporters of these companies suggest multi-asset type structures provide the best downside protection to investors in the event of a deep real estate downturn.

Robert Promisel, manager of the Invista Global Property Securities fund, said a demerger was a "logical evolution of the company", which has lacked the same strategic focus that has become the hallmark of peers Shaftesbury (SHB.L) and Segro (SGRO.L).

"I am encouraged by what Liberty is doing. It is out of character and inconsistent with what they have done historically but I think this change in direction will serve shareholders well," Promisel told Reuters.

"From a strategic point of view this is a positive move for investors, but let's see if it makes sense economically," he said. ($1=.6363 pounds) (Editing by Greg Mahlich) (See www.reutersrealestate.com for the global service for real estate professionals from Reuters)