Land Securities’ anti-City strategy is working

As valuations have continued to tumble for Land Securities (LAND), the developer and significant holder of London commercial property said it would come out of this high interest rate environment as a winner. However, it took another significant valuation hit in its results for the 12 months to 31 March, taking its loss before tax to £622mn. 

The £848mn drop from the year before represented an 8 per cent fall in its overall portfolio. City office values dropped 15 per cent, while West End offices fell 8 per cent. Retail in the West End remained positive, however, recording an increase in values. 

The company is following these trends in its long-term strategy. LandSec has sold £1.7bn-worth of City offices in the past two years, including the £809mn sale (gross proceeds of £742mn) of its Moorgate station office development. Rents also reflected this shift. Overall rental income climbed 14 per cent, to £612mn, and LandSec is signing leases above market estimates at its West End and Southwark properties. 

One negative was the 11 per cent drop in adjusted net cash flow, to £359mn. But overall the picture is good – loan-to-value fell from 34 per cent to 32 per cent in the year, with almost £1bn being knocked off net debt to balance out the valuation drop. 

Management reckons there is more to buy than it can afford even with “significant headroom” on the balance sheet for purchases, so investors should be ready for additional debt or equity funding. 

The shift across London away from empty City offices is looking promising, with an “effectively full” West End office portfolio, but there are also risks there given the reliance on retail and the continued pressure on shoppers’ pockets. Hold. 

Last IC View: Hold, 620p, 15 Nov 2022