Land Securities injects a hint of caution

The group is financing its development activity by selling buildings rather than increasing debt - another sign of caution. In the first half it completed disposals of £407m, of which £317m was spent on acquisitions, development and refurbishment. This net disinvestment is expected to continue in the second half, with disposals of £565m already in the pipeline. As a result, both operational gearing - as measured by the amount of speculative space on the books - and financial gearing are expected to be lower by the year-end. The latter is already low by industry standards, with a loan-to-value ratio of just 26.5 per cent at the half-year mark.

Headline profits were lower because of the smaller revaluation surplus, which, at £395m, was down from £789m in the previous year. Crucially, however, net rental income edged ahead, despite the loss of income from disposals. Within the retail portfolio, disposals trimmed income by £22.6m, but the net reduction was just £4.4m thanks to acquisitions and rental growth from the existing portfolio. Within the London property portfolio, net rental income grew by £6.8m to £137m.

Alongside its half-year numbers, the company announced that it had let about 40 per cent of the so-called Zig Zag building in Victoria to Deutsche Bank for its asset and wealth management operations. With the exception of the 5.5-acre Nova joint venture, also at Victoria, every building in the London development programme is now substantially pre-let.

While there remains a shortage of office space in central London, management said new developments had picked up faster than expected. Land Securities therefore remains focused on letting the 767,000 sq ft in its committed development programme, with the final building due for completion in September 2016.

Analysts at broker Peel Hunt are currently forecasting adjusted net asset value of 1,480p at the year-end, from 1,293p in March 2015.