Land Securities has bought a cinema, restaurant and night-club complex in Nottingham for £50m – its first deal under new chief executive Robert Noel, and the first time it has bought a stand-alone leisure complex.
The deal looks sensible. The leisure sector is one of the few areas of the retail industry that is still growing; consumers find it easier to give up clothes-shopping than socialising. The Nottingham centre was only completed last year, which means rents are pitched at realistic level with scope for growth. It is the city's only multiplex, so cash flows should be robust once the rent-free period expires.
The rental yield is also reasonably generous, at 6.6 per cent. That's typical of cinemas, but is substantially higher than the average yield on the rest of Land Securities' portfolio - 4.9 per cent. The boost should help Land Securities maintain its dividend, which could be under pressure after the sale of some higher-yielding shopping centres in Corby and Liverpool.
The big real-estate investment trusts face a tough balancing act between keeping their portfolios sufficiently high-quality to withstand the effect of falling property values, and sufficiently high-yielding to attract investors. Investors clearly don't think they've got it right yet, given the discounts at which their shares trade - currently 15 per cent for Land Securities.
