Developments keep Land Securities above water

Chief executive Robert Noel, who took the reins of the UK's largest real-estate investment trust (Reit) in April, is adamant that development is the right course. Office take-up has been slower than anticipated - but so, too, has construction. "We're highly aware of the risks, but with the ongoing banking crisis not many people have started building," he says.

Indeed, the weakness of both demand and supply means that the "window for development is likely to be open for longer than we originally thought", says Mr Noel. Shareholders should get ready for him to press the red button on the company's next office project at Ludgate Hill.

Selling buildings to fund development has been Land Securities' strategy since the banking crisis flared up again last summer. It has been rewarded with stronger stock market performance than its more debt-reliant rival, British Land. But rental income has inevitably fallen - revenue profits over the six months were down 10 per cent to £144m. "Land Securities is sacrificing earnings to protect its balance sheet, which is Reit heresy anywhere but in the UK," points out Mike Prew, analyst at Jefferies.

Fortunately, adjusted earnings of 18.4p per share (from 20.5p in 2011) still easily cover the 14.8p dividend. Mr Noel also points out that developments will eventually replace the lost income. The refurbishment of 123 Victoria Street, finished in August, and two shopping centres come on stream early next year - Trinity Leeds and 185-221 Buchanan Street, Glasgow.

Meanwhile, the balance sheet still just about continues to grow, with adjusted net asset value (NAV) of 864p per share at end-September compared with 863p at end-March (itself unchanged from the previous September). The best performance outside of the development portfolio came from London shops, which were marked up 1.2 per cent. The worst performance came from shopping centres, down 3.7 per cent.

Broker Investec Securities expects year-end adjusted NAV to dip to 856p a share.