ii view: Land Securities losses grow but share price soars

Given a restarted dividend and new growth initiatives, can this major REIT close the door on the virus?

First-half results to 30 September

• Loss before tax of £835 million compared to a loss of £147 million in 2019
• Net Asset Value (NAV) per share down 9.6% to 1068p
• Reinstated dividend down 48% to 12p per share
• Loan-To-Value (LTV) ratio increased by 8% to 33.2%
• Adjusted net debt of £3.9 billion, unchanged from 31 March 2020

Chief executive Mark Allan said:

"While today's results clearly show the impact of the pandemic on our business, Landsec remains in a fundamentally strong position. Together, the high quality of our portfolio and low leverage of our balance sheet provide a solid foundation for executing our growth strategy and creating value for all stakeholders. This strength also means we have been able to take a proactive and responsible approach to the challenges of Covid-19, supporting our communities and customers.

"As we begin to look beyond Covid-19, I am confident the business is well placed to capitalise on opportunities as they emerge. The investment market for high-quality London office assets, such as those owned by Landsec, has remained robust throughout the pandemic and there is little sign of that interest waning."

ii round-up:

Office and shop property owner Land Securities (LSE:LAND) reported an increased loss of over £800 million, as its Covid hit retail units helped drag the overall property value down by £945 million, or 7.7%, and net rental income down by 10.3%. 

Pandemic lockdown closures added to the online shopping pressures previously suffered. The value for its regional shopping centres dropped by a fifth, with management expecting values to fall by a further 15%.

But a pre-pandemic strong financial position and robust rent collection for its largest office property segment - helping to counterbalance retail weakness - enabled it to resume previously halted dividend payments, albeit at a near halving of last year’s comparative amount. 

Land Securities shares rose by 6% in UK trading, leaving them down by just under a third year-to-date. Shares for rival office and shop owner British Land (LSE:BLND) are down by a quarter in 2020, while shares for warehouse owner Segro (LSE:SGRO) and landlord to tenants such as Amazon (NASDAQ:AMZN) are almost unchanged. 

Retail outlets account for around a third of LandSecs' near £12 billion of overall properties by value. Regional shops form 7% and regional shopping centres a further 11%. Specialist or hotels account for around 12%, with offices dominant at just over a half.

In October, Land detailed four new strategic priorities. It is now working on optimising its central London properties, potentially selling some to reinvest in growth opportunities, reimagining its retail portfolio and exploring options, particularly for its six regional shopping centres. It is also in favour of realising and recycling capital from the disposal of 'subscale sectors', primarily hotel, leisure and retail park sectors, and growing through 'urban opportunities' by investing in mixed-used assets in London and potentially in other major UK cities.

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. Covid-19 does now look to have accelerated the trend towards online shopping. 

For investors, management’s push to try and get the company ahead of unfolding long-term macro trends has arguably been slow in coming. A halving of the dividend payment is also not what investors would have anticipated this time last year. That said, new strategic initiatives do underline the relatively new chief executive’s keenness to make his mark. The restarting of dividend payments resurrects a key shareholder attraction, while a loan-to-value ratio of 33.2% underlines a solid financial position. In all, with the shares still trading at around a one-third discount to their net asset value, room for investors to continue accumulating holdings remains.  

Positives: 

• Recommencing the dividend payment
• Growing in existing areas of competitive advantage

Negatives:

• Rent collection levels down
• Dividend payment reduced

The average rating of stock market analysts:

Strong hold