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Land Securities is ready for Brexit

Land Securities is ready for Brexit

Land Securities (LAND) has a 1.4m sq ft pipeline of land to accommodate future developments when the time is right. For the year to March 2017, however, the focus was on reducing risk by getting tenants for existing developments.

This is the culmination of a long established strategy started in 2010, when chief executive Robert Noel called the market just right by investing in new developments at a time when many others were sitting firmly on their hands. The outcome is impressive. Now, just 283,000 sq ft of a 3.1m sq ft speculative development since 2010 programme remains available to let. A majority of this is the Nova development in London's Victoria, the last speculative development, started in 2014 and completed in April 2017 - and now 54 per cent let. As an added bonus, average unexpired leases are now at their longest ever.

A downward adjustment in asset values compared with an upward valuation in the previous year accounted for the headline drop in earnings. However, on an underlying basis, adjusted diluted earnings per share grew by 5.7 per cent to 48.3p. This is all the more impressive considering that net rental income was barely changed at £600m despite disposals of £413m.

Most of these disposals have been shorter-let London assets and, with a majority of leases operating on upward-only rent reviews on leases of over 10 years, Land Securities is sitting on a very secure revenue stream that is protected from any downward pressure on rents.

Valuations fell in the first half of the year on the referendum result, but actually improved in the second half so that the overall valuation contraction was restricted to just 1 per cent. And with debt levels virtually unchanged, this left the loan-to-value ratio at a comfortable 22 per cent.

Analysts at Peel Hunt are forecasting adjusted net asset value of 1,418p at the March 2018 year-end.

LAND SECURITIES (LAND)
ORD PRICE:1,096pMARKET VALUE:£8.67bn
TOUCH:1,095-1,097p12-MONTH HIGH1,211pLOW: 810p
DIVIDEND YIELD:3.5%TRADING STOCK:£122m
DISCOUNT TO NAV:25%NET DEBT:25%
INVESTMENT PROPERTIES:£13.9bn*

Year to 31 MarNet asset value (p)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20139590.536829.8
20141,0691.1114230.7
20151,3432.4230631.85
20161,4821.3416935
20171,4580.111438.55
% change-2-92-92+10

Ex-div: 22 Jun**

Payment: 27 Jul

*Includes joint ventures **Refers to fourth quarterly dividend of 11.7p a share

IC VIEW:

Land Securities has improved the security of a revenue stream that should help it through a protracted Brexit. As well as a hike in the dividend, the first quarterly dividend for the current financial year has also been increased by 10 per cent to 9.85p per share. Share price growth is likely to be restricted by poor market sentiment, but for an arguably low-risk investment with an improving yield, shares in Land Securities are worth holding on to. Hold.

Last IC View: Hold, 1,004p, 15 Nov 2016

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By Jonas Crosland,
18 May 2017

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