ii view: Land Securities fleshes out strategy for growth

Shares for this major property owner are down more than 40% in 2020. Can a new plan trigger a recovery?

Strategy update

Chief executive Mark Allan said:

"Today we are setting out a strategy that makes the most of Landsec's strengths and positions the business for growth. It will build on existing areas of competitive advantage. It will position the business to benefit from long-term macro trends. And it will be built around a clear, authentic purpose so that it delivers value not just for shareholders but for all stakeholders."

ii round-up:

Office and retail property owner Land Securities (LSE:LAND) today outlined a number of strategic priorities given the challenges being created by Covid-19.

Rent payments received to the end of September totalled 62% compared with 95% for the same period in 2019. Only a third of shop or retail rents had been paid, with specialist - often hotel rental payments - at under a fifth. Office rents remain relatively strong at 82% of the expected total.

Retail outlets account for around 34% of LandSec's near £13 billion of overall properties by value. Specialist, or hotels, account for around 12%, with offices dominant at just over a half.

There are four new strategic priorities. LandSec will look to optimise its central London properties, potentially selling some to reinvest in growth opportunities; "reimagine" its retail portfolio, exploring options, particularly for its six regional shopping centres; realise and recycle capital from the disposal of 'subscale sectors', primarily hotel, leisure and retail park sectors; grow through 'urban opportunities' by investing in mixed-used assets in London and potentially in other major UK cities. 

Land Securities shares rose by just under 1% in UK trading having fallen by more than 40% year-to-date. Shares for warehouse owner Segro (LSE:SGRO), whose tenants include Amazon (NASDAQ:AMZN), are up around 3% in 2020. Segro is the biggest property, or Real Estate Investment Trust (REIT), listed on the UK stock market, followed by Land Securities and then student accommodation provider UNITE Group (LSE:UTG). 

Management findings supporting this strategic direction include the quality of its London properties, which account for 64% of total group value and the strength of its balance sheet given a loan-to-value ratio of 31%. 

Land is scheduled to report its first-half results on 10 November. 

ii view:

Changing shopping habits have been shifting the property landscape for some time. First, a move away from high streets and towards destination shopping centres hit – these offer lots of free parking, restaurants and cinemas. Then, the rise of online shopping has allowed many consumers to bypass the shops all together. 

Now, the pandemic has arguably reinforced consumers' experience of online shopping. Some of its office tenants, having successfully worked from home during the virus, could now be re-evaluating their need for office property, or at least the size of property going forward.

For investors, the recent halting of dividend payments would have been previously almost unimaginable. The impact of Covid-19 may have changed the outlook for property sectors such as large offices forever. The ability to work and shop remotely is now firmly established. 

But today’s new strategic initiatives appear to underline the relatively new chief executive’s need to make his mark. Selling non-core or subscale specialist properties to focus on its areas of strength appears sensible. The previously confirmed return to dividend payments following its coming interim results resurrects a key investor attraction. A more than 50% discount between its March end of year net asset value of 1,192p per share and the current share price offers attraction too. In all, while some caution remains warranted, this stock remains one for patient investors taking a long-term view. 

Positives: 

• Pending resumption of the dividend payment
• Refocusing the portfolio

Negatives:

• Rent collection levels down
• The size of the promised half-year dividend is unknown

The average rating of stock market analysts:

Strong hold