LandSecs seeks Victoria JV partner as enquiries pick up

By Paul Norman - Thursday, November 10, 2011 8:13

Land Securities will shortly go to market seeking a joint venture partner for its 900,000 sq ft Victoria Circle scheme it emerged this morning as the UK's largest REIT said enquiry levels for its major developments across London had picked up.

The announcement came as LandSecs posted increases in net asset value and revenue profits in the six months to end of September and saw the value of its shopping centres and offices rise despite increasingly challenging economic conditions.

The developer posted an adjusted NAV of 863p per share in the six months through to end-September, up 4.5% from 826p six months ago.

The value of its property portfolio rose 11% to £10.8bn ($17.2bn) from £9.7bn this time last year and produced a total return, which includes rental income, of 4.9%, outperforming the Investment Property Databank benchmark of 3.9% over the half-year.

Revenue profit was £159.3m, including some £13m of non-recurring items, up 17.2% on the six months ended 30 September 2010.

Pretax profits were down 16.8% to £378.9m from £455.3m.

Click here to watch Francis Salway and Martin Greenslade talk through the results and the market

Voids in the total like-for-like portfolio reduced to 3.4% (4.1% at 31 March 2011), of which 0.8% was subject to temporary lettings. In the retail portfolio like-for-like voids reduced from 4.7% to 3.6% while the London Portfolio like-for-like voids reduced from 3.4% to 3.3%. Units in administration remain unchanged at 0.4%. Lettings were at 5.8% above ERV (excluding turnover lettings).

LandSecs in particular pointed to its well-positioned development programme.

Of the £1.6bn of developments started since January 2010, LandSecs said already over 50% were de-risked through site sales, pre-lettings and residential sales.

There were £3.9m of development lettings and a further £3.3m in solicitors’ hands in the period.

LandSecs said the Trinity Leeds development letting progress to plan with 54.0% pre-let and a further 6.7% in solicitors’ hands while 185-221 Buchanan Street, Glasgow letting progress was ahead of plan with 73.5% pre-let and a further 17.2% in solicitors’ hands. It is on site with 78,390 sq m of development schemes in London with planning consent obtained for 35,020 sq m at 30 Old Bailey and 60 Ludgate Hill, EC4, and resolution to grant consent obtained for 54,900 sq m at 1 New Street Square, EC4 and Kingsgate House, SW1.

There has also been solid progress on a 113,000 sq m pipeline of retail schemes creating smaller occupier-led development opportunities, with four planning applications already submitted for food stores.

LandSecs said it was now taking forward its plans to find a joint venture partner for its 900,000 sq ft Victoria Circle development after compulsory purchase powers were confirmed by the planning inspector last month. Bordered by Victoria Street, Bressenden Place and Buckingham Palace Road, it will be a “transformational 88,180 sq m mixed use development for the West End”.

Chief executive Francis Salway said the figures were "going down as well going up in all the right areas".

He added: "In the last eight weeks we have seen an increase in interest in our London developments. There are one or two big occupiers that need to move now and for various reasons there is less of a choice of new buildings. In the context of the expected supply of London buildings into 2012 and 2014 there are less coming forward with projects delaying because of a lack of finance or difficulties with the planning process." 

Focusing on its debt position LandSecs said it was well placed with low balance sheet gearing. The  group LTV ratio including share of joint ventures was down to 37.7% (39.0% at 31 March 2011).

IFRS net debt decreased by £10.0m to £3,303.6m. The
reduction in borrowings in our joint ventures led to a fall of £33.3m in our IFRS net debt (including joint ventures) to
£3,707.8m (31 March 2011: £3,741.1m). Adjusted net debt, which includes our joint ventures and the nominal
value of debt but excludes the mark to market on our swaps, was down £43.7m at £4,142.2m (31 March 2011:
£4,185.9m)IFRS net debt decreased by £10.0m to £3,303.6m. The reduction in borrowings in its joint ventures led to a fall of £33.3m in its IFRS net debt (including joint ventures) to £3,707.8m (31 March 2011: £3,741.1m). Adjusted net debt, which includes its  joint ventures and the nominal value of debt but excludes the mark to market on our swaps, was down £43.7m at £4,142.2m (31 March 2011:£4,185.9m).

As revealed by CoStar News in October LandSecs has recently begun discussions with a number of banks regarding a new facility to replace its £1,500m revolving credit facility which its put in place in 2006 and expires in August 2013.

As part of the discussions LandSecs may also replace some or all of its £700m of bilateral facilities. LandSecs said that in recent months, bank lending capacity has reduced and funding costs have increased. However, it said it "was confident from discussions with its main lenders that it will be able to arrange a new facility which is sufficient for our requirements".

LandSecs added that its strong balance sheet and low gearing meant it was well placed to invest in acquisition opportunities.

Salway said the group targeted assets that appealed to occupiers. "In particular we see that for attractively priced retail assets available at £100m plus there is not much competition."

Chief executive Francis Salway said: "We are alive to the potential effects of economic uncertainty and changeable sentiment in capital markets.

"We have consistently stated that we did not expect to see a straight-line recovery in our market, rather that it would be interspersed with ripples and we see no reason to adjust this outlook.”

pnorman@costar.co.uk

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