Landsec powers on with record leasing activity and disposal gains

By Paul Norman - Tuesday, November 14, 2017 9:10

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Landsec has reported a strong set of half-years, driven by record leasing activity, significantly profitable disposals, particularly the sale of its 50% stake in the Walkie Talkie – part of the biggest single asset sale in the UK - and notable retail openings, and said while the headwinds of Brexit were beginning to be felt in the economy it was well placed to thrive.

In what will be a bellwether lift for the UK CRE sector, Landsec said that in the six months ended 30 September 2017 it had seen the highest levels of leasing activity since the global financial crisis as well as opportunistic buying and profitable disposals.

The period was also active for bond buybacks and reissuance and saw the opening of its Westgate Oxford shopping centre and a major office prelet at 21 Moorfields.

The principal off note was a noted fall in the valuation of its combined portfolio. Landsec’s combined portfolio value was down 0.5% on a like-for-like basis. Values were down everywhere except retail parks (+0.4%) and central London shops (+0.3%). London offices (-0.8%) and shopping centres and shops (-0.7%) were the weakest-performing subsectors whilst Leisure & Hotels (-0.1%) and 'other’ valuations were down 5.2%. The shopping centre valuation fall was almost certainly driven by Hermes’ disposal of a 7.5% holding in Bluewater for £155m to Royal London, below the original £167m asking price the value Land Securities paid for its 30% holding in 2014.

Landsec secured outperformance against the IPD benchmark however thanks to a hugely busy period operationally.

EPRA NAV was up 1.1% to 1,432p driven by the impact of the 15 for 16 share consolidation and a significant gain on disposals.

The net initial yield on the like-for-like portfolio stayed flat at 4.2%.

Proposed development values were up 19.4%, driven by Landsec’s 21 Moorfields scheme which was pre-let to Deutsche Bank.

LTV was up slightly to 25.1% and the REIT has £1.8bn of cash and available facilities giving it the flexibility it said to buy when opportunities arise.

The dividend of 19.7p is up 10.1% year on year.

Landsec said that achieving rental growth will be challenging in the retail portfolio but thinks the best destinations will prove resilient.

Landsec chief executive Robert Noel said: “We’ve continued the active management of our balance sheet, returning £475m of capital to shareholders and also lowering our cost of debt and lengthening its duration.

“Revenue profit is up 5.2% and adjusted diluted earnings per share are up 5.8%. While the valuation of the Combined Portfolio is little changed, adjusted diluted net asset value per share is up 1.1% as the cost of debt management has been more than offset by the effect of the 15 for 16 share consolidation accompanying the return of capital.

“In London, the sale of 20 Fenchurch Street, EC3 at an exceptional price demonstrated our disciplined approach to managing capital. The sale crystallised a 170% profit on cost and significant value for shareholders. At 21 Moorfields, EC2, the quality of our product, our reputation for delivery and the strength of our partnership approach saw us secure a significant pre-let in the City of London, with Deutsche Bank committing to a minimum of 469,000 sq ft.“In Retail, we launched Westgate Oxford, the largest retail and leisure destination to open in the UK this year – another example of our continual focus on delivering the best experience for our customers. During the period, we completed the acquisition of three outlet destinations, demonstrating our commitment to this growing and resilient sector, and establishing our position as the largest owner-manager of outlets in the UK.

“The headwinds of Brexit are beginning to show in the economy. However, our balance sheet is healthy and we have the talent, firepower and experience to thrive.”

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