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Land Securities dragged down by retail woes

The commercial landlord is sharpens its focus on the capital
May 15, 2019

Land Securities (LAND) continued to be hampered by the downturn in high-street activity last year, with the retail portfolio weighing on the development group’s adjusted net asset value (NAV). Despite attempts to reposition its portfolio, failing retailers pulled down the rental value of retail parks and shopping centres, which suffered a 15.5 per cent and 11.7 per cent decline in valuation, respectively. That led to a £441m net deficit on the revaluation of the group’s investment properties.

IC TIP: Hold at 876.2p

Chief financial officer Martin Greenslade said the group is likely to exit the retail park market altogether over time. “But this probably isn’t the right market to be selling much in the way of retail,” he added. Retail assets outside London comprise 35 per cent of the portfolio, where net rental income fell 4.3 per cent to £308m.

However, the London market continued to hold up, with assets in the capital generating a 7.3 per cent increase in net rental income. While central London shops reported a 3.6 per cent drop in valuation, offices – comprising 46 per cent of the underlying portfolio – held steady. The value of the 21 Moorfields development was boosted by a fifth after construction risk reduced and Deutsche Bank confirmed it would occupy the whole building. Work also commenced on the 144,000 square foot (sq ft) development at 1 Sherborne Street, which will comprise offices, retail units and a rooftop restaurant, and is due for completion in 2022. Acquisitions included a 1.6-acre site in south London and a small mixed-use site in the west of the city.

The loan-to-value ratio of the portfolio rose slightly from 25.8 per cent last year to 27.1 per cent. Mr Greenslade said the group would be happy to let that rise further if value opportunities emerged, but only up to a ratio of around 50 per cent through the cycle.  

Analysts at Peel Hunt reduced their adjusted net assets forecast for the 2020 year-end by 2 per cent to 1,275p a share, compared with 1,339p in FY2019.   

LANDSEC (LAND)    
ORD PRICE:876.2pMARKET VALUE:£6.50bn
TOUCH:876-876.4p12-MONTH HIGH:979pLOW: 784p
DIVIDEND YIELD:5.2%TRADING PROP:£23m
DISCOUNT TO NAV:35%  
INVESTMENT PROP:£13.1bn*NET DEBT:38%
Year to 31 MarNet asset value (p)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20151,3432.4230631.85
20161,4821.3416935.0
20171,4580.1114.338.55
2018 (restated)1,404-0.04-5.844.2
20191,341-0.12-16.145.55
% change-4--+3
Ex-div: 20 Jun   
Payment: 25 Jul   
*Includes investments in joint ventures. XD and payment date refer to fourth-quarter dividend of 11.65p a share