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Land Securities reported its best ever performance against the widely-followed IPD Index. So it's testament to the dire state of the UK commercial property market that the real estate investment trust’s (Reit) property portfolio still fell in value by a chunky £1.3bn to £13.6bn. Still, this 8.8 per cent fall should be compared with the IPD’s 14 per cent drop.
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Well-timed property sales from both its retail and office portfolio helped, and the group managed to let 94 per cent of the 242,000 square metres of London office space it developed during the year. It has now cut the development programme to just 25,500 square metres for the next two years, which should help it weather an expected London-office rental downturn.
Property management outsourcing business, Trillium, made good progress and produced an impressive 9.5 per cent return on capital. The group spent £10m advancing its plans to demerge the retail, London office and Trillium businesses and expects to incur £15m of extra costs this year in running the businesses as separate entities.
Broker Citigroup forecast 2008 net asset value (NAV) of 2,037p (2008: 2,079p).
| Land Securities (LAND) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,457p | MARKET VALUE: | £ 6,775m | |
| TOUCH: | 1457-1458p | 12M HIGH | 2,027p | LOW: 1371p |
| DIVIDEND YIELD: | 4.4% | TRADING STOCK: | £173m | |
| DISCOUNT TO NAV: | 30% | |||
| INVEST PROPERTIES: | £12.3bn | NET DEBT: | 56% | |
| Year to 31 Mar | Net asset value (p) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2004 | 1333 | 0.36 | 61.0 | 37.1 |
| 2005 | 1493 | 1.38 | 227 | 43.3 |
| 2006 | 1912 | 2.39 | 358 | 46.7 |
| 2007 | 2304 | 1.98 | 754 | 53.0 |
| 2008 | 2067 | -0.89 | 189 | 64.0 |
| % change | -10 | - | -75 | +21 |
Ex-div18 Jun Payment:28 Jul |
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Click here for a guide to the terms used in IC results tables.
The shares are well down on our original buy tip (2,204p, 24 November 2006). But, while the outlook is nasty for commercial property, Land Securities is a quality player and there's an opportunity to create value through the eventual demerger. Add that to the chunky discount to NAV and we reiterate that advice. Buy.
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