Timon Karamanos
Land Securities’ interim results pulled no rabbits out of hats. But the company said retail would drive short-term performance and in the long term, office markets would improve by 2004.
The results from the UK’s largest property company exceeded most analysts’ expectations. Net asset value per share at the 30 September half-year rose by 6.9% to 1,235p from 1,155p, most of which came from buying in shares and convertible bonds in July and a small (0.3%) revaluation gain.
Pretax profits for the six months to 30 September were £174.5m, against £174.3m last year. One-off costs relating to the capital restructure made bottom-line profits slip to £157.1m, from £171.1m.
Chief executive Ian Henderson said he was confident the company would prosper despite global economic volatility and falling office rents.
“Retail forms a larger part of our portfolio, at 48%, than offices, which form 44% of the total. We’re well positioned with centres in Birmingham, Bristol and Cardiff,” Henderson said.
The retail warehouse portfolio rose by 3.4% in value, and shopping centres and shops rose by 3.2%, whereas office values fell by 2.8%.
Henderson said LandSec expected a slow market recovery. “Our expectations the the market would pick up in 2003 have moved out slightly, but there was a sharper decline this time, so we think occupiers will shed excess space quite quickly. That will wash out and equilibrium will return by 2004,” he said.
However, CSFB analyst John Gellatly said the bank was still cautious. “We’re still concerned about LandSec’s office exposure and a slowdown in retail capital growth. And we are retaining our underweight stance given concerns over the outlook for valuations, especially for short lease properties. LandSec’s average lease duration is still just 12 years.”
LandSec said it had “rigorously re-examined” its development pipeline and in particular those schemes planned in central London.
“The time is not right to further increase our speculative development exposure in the City,” the company said.
Responding to a warning from JP Morgan last week that LandSec would have “no hope” of letting its 30 Gresham Street EC1 office scheme, Henderson said: “That’s an extreme statement. We’ve got a good product and will tailor the letting to the market at the time.
“It will be complete in late 2003 and delivered to an improving market.”
He also countered criticism of LandSec’s recently launched LandFlex product, which offers short, flexible leases, saying: “This is a customer-focused product, which is the way forward for the industry. Why are we the only industry that isn’t allowed to be innovative? Unless more of this kind of product becomes widely available, the government will legislate on lease practice.”
Some analysts have slated LandFlex, saying the concept of expensive offices on short leases was unlikely to be popular in the current market.
LandSec said it was pleased with progress at outsourcing arm Trillium, which was “well on its way to meeting the group’s objective of it contributing 25% to operating profits within five years”. However, Trillium’s underlying profits grew by only £100,000 in the six months, from £19.4m.
LandSec shares rose by 2% on Wednesday on the back of news that the company had bought in another 700,000 shares. CSFB analysts applauded the move.
John Gellatly said: “Given the very wide discount at which the stock is currently trading – 40% discount to NAV – this makes good commercial sense.
“LandSec’s move now shifts the spotlight onto British Land’s position,” he added.
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Who’s next at Landsec |
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LandSec did not give any details about its succession policy but said it would make an official announcement prior to Ian Henderson’s retirement next July. |
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Francis Salway, head of development, has been strongly tipped as the next chief executive, but the appointment to the board of Mark Collins, head of portfolio management, and Ian Ellis, head of outsourcing arm Trillium, brings them more strongly into contention. |
