ii view: Land Securities back in profit and raising the dividend

This major office and shop owner now offers a dividend yield of around 5%. Buy, sell, or hold?

Full-year results to 31 March

• Pre-tax profit of £875 million, up from a loss of £1.39 billion
• Net assets per share up 8% to 1063p
• Final dividend of 13p per share
• Total full-year dividend up 37% to 37p per share
• Net debt up 19% to £4.16 billion

Chief executive Mark Allan said:

"Landsec has delivered strong operational and financial results despite the turbulence within the UK economy. We continue to recycle capital out of mature assets, whilst our pipeline now offers the opportunity to invest £3 billion in sustainable London offices and mixed-use development over the next five years at attractive returns.”

ii round-up:

Office and shops owner Land Securities (LSE:LAND) today reported a return to profit as its retail properties reopened and its office outlets filled with staff following the pandemic.

A profit of £875 million contrasted with last year’s Covid period loss of £1.39 billion, aided by growth in like-for-like gross rental income and a reduction in bad debt expenses related to the pandemic made the year before. 

Land Securities shares gained by more than 1% in UK trading having fallen by around 4% year-to-date coming into these results. Shares for rival British Land Co (LSE:BLND) are down by a similar amount. Sector giant and owner of warehouses used to store and then deliver e-commerce goods Segro (LSE:SGRO) have fallen by just over a fifth. 

• Insider: directors and analysts both buyers of these shares at multi-year low
• Richard Beddard: why I’m in favour of this promiscuous FTSE 100 firm
• How to invest for difficult times

An 8% rise in Land Securities' net asset value to 1,063p per share, beating City forecasts, helped underwrite a one-third increase in the dividend payment to 37p per share.

Management flagged both a return to growth at its major retail destinations and record leasing for its London office portfolio as aiding the broader performance. 

Land Securities focuses on central London offices, particularly in Victoria. Its retail exposure is UK-wide and includes a major interest in the Bluewater shopping centre, Kent. 

The total value of its properties rose 3.6% year-over-year, including a 3.7% increase for its Central London properties.  

ii view:

The strategy for FTSE 100 property company Land Securities now includes optimising its central London properties, reimagining it retail portfolio, and growing through 'urban opportunities' by investing in mixed-used assets in London and potentially in other major UK cities.

For investors, the pandemic proved just how much the operations of a traditional shop and office owner can be disrupted. A now highly uncertain economic outlook needs to be considered, with the retail sector potentially bearing the brunt of any economic downturn, while the dividend payment is still not what it was given a full-year total of 45.55p per share back in the pre-pandemic 2019. 

On the upside, clearly a lifting of pandemic restrictions has fed into an improved performance. New strategic initiatives are being pursued under the relatively new chief executive, while an average debt maturity of 9.1 years looks to provide a robust financial base upon which to grow. On balance, and with the share price sat at a discount to the net asset value and offering a historic dividend yield of close to 5%, LandSecs looks deserving of a place in many diversified portfolios. 

Positives: 

• Revamped strategy
• Discounted valuation

Negatives:

• Uncertain economic outlook
• Rise of e-commerce shopping

The average rating of stock market analysts:

Buy