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Land Securities upbeat on City

Real estate investment trust Land Securities reported a 6 per cent NAV rise during the half. What's more, management is so confident about the strength of London's economy, that the group will begin three further office developments.

"Big occupiers have straightened out their balance sheets and are considering where to grow and where to invest," says chief executive Frances Salway, believing this will translate into office lettings. Moreover, a wave of lease expiries between 2013 and 2015, coupled with a slimmed down development pipeline, means rental growth expectations are rising.

Two of the planned schemes involve City refurbishments, with the third being a development in Victoria. Last month, the group said it would jointly develop the so called Walkie Talkie tower in the City with Canary Wharf Group. Coupled with retail scheme Trinity Leeds, this leaves Land Securities with a £1bn development programme, funded from existing debt and equity reserves.

That development push accompanies efforts to reposition the group's London office portfolio away from government tenants. Until recently, these accounted for 10 per cent of income. That's nearer 5 per cent now, as buildings are redeveloped when leases end. One example is Wellington House, formerly let to the Metropolitan Police. That has received planning consent for 59 residential flats and sales there are "above expectations". Such developments, coupled with retail pipeline pre-lettings, have driven an impressive 10 per cent valuation uplift across the company's assets; that's well ahead of general market movements.

Further capital recycling looks on the cards, too. Indeed, disposals totalling £460m were made in the period, at an average of 5.7 per cent above March's valuations. Noting the strength of the investment market, further asset sales haven't been ruled out. And Mr Salway expects to see more stock coming onto the market from the banks next year.

Analyst Collins Stewart expects adjusted full-year NAV to rise from 2010's 690.7p to 753.8p in 2011, before rising to 784.3p in 2012.

LAND SECURITIES (LAND)
ORD PRICE:697pMARKET VALUE:£ 5,345m
TOUCH:696-697p12M HIGH:744pLOW: 543p
DIVIDEND YIELD:4.0%TRADING STOCK:£125m
DISCOUNT TO NAV:12%
INVEST PROPERTIES:£8.23bnNET DEBT:54%

Half year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2009622-4.601.5814.0
201079545559.514.0
% change+28 - +3666 -

Ex-div:1 Dec

Payment:10 Jan

Click or a guide to the terms used in IC results tables.

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The extent of Land Securities' development plans means rental value is key for driving future earnings. The group isn't the only London Reit vying for big office lettings, but it does look well placed. And the shares trade 11 per cent below 2012's expected adjusted NAV. Good value.

Last IC View: Good value, 613p, 19 May 2010

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