ii view: Land Securities details robust performance despite falling values

A double-digit decline in share price over the last year puts this property play on an attractive valuation and dividend yield. Buy, sell, or hold?

Full-year results to 31 March

• Pre-tax loss of £622 million, down from a profit of £875 million
• Net assets per share down 12% to 945p
• Final dividend of 13p per share
• Total full-year dividend up 4.3% to 38.6p per share
• Net debt down 21% to £3.35 billion

Chief executive Mark Allan said:

“Our competitive advantages remain the high quality of our portfolio, the strength of our customer relationships and our ability to unlock complex opportunities. 

“Looking forward, we expect the combination of a 'higher for longer' interest rate environment and the continuing concentration of customer demand on the very best space to result in exciting opportunities and continued positive rental growth for Landsec.”

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ii round-up:

Office and shop property owner Land Securities Group (LSE:LAND) today detailed solid strategic and operational progress, despite reporting a swing into a full-year loss given falling property values in the face rising interest rates. 

A further £1.4 billion of mature office properties were sold under its push towards mixed-use and urban regeneration developments, with strong leasing, rising occupancy levels and growing rents seen across all parts of its portfolio. 

Shares in the FTSE 100 property company rose by more than 2% in UK trading having come into this latest update down around 16% in the past year. That’s similar to student accommodation specialist UNITE Group (LSE:UTG) and in contrast to a 4% gain for the FTSE 100 index itself. 

An overall 7.7% fall in the value of Land Securities' property portfolio to £10.2 billion resulted in a 12% decline in Net Asset Value (NAV) per share to 945p, generating an annual loss of £622 million compared to 2021’s pre-tax profit of £875 million. 

The group’s properties include office developments in Victoria London and the Bluewater shopping centre in Kent. 

Management previously targeted around £4 billion of property sales to invest in higher return arenas, with £2.4 billion made since late 2020 and a further £1.6 billion left to go. 

Property disposals helped net debt fall to £3.3 billion from £4.2 billion last year, with its credit rating at AA/AA- and its average weighted debt mature rising to 10.3 years from a prior 9.1 years. 

The total dividend for the year rose 4.3% to 38.6p per share. An AGM is scheduled for 6 July.  

Broker UBS repeated its ‘buy’ stance on the shares post the results. 

ii view:

Land Securities' stock market value of around £4.7 billion sits below warehouse and industrial property owner Segro (LSE:SGRO) at £10 billion, but above rival British Land Co (LSE:BLND) at £3.5 billion. Its strategy includes optimising its central London properties, readjusting its retail portfolio, and growing through 'urban opportunities' by investing in mixed-used assets in London and potentially in other major UK cities. 

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For investors, an uncertain economic outlook including potential for further interest rate rises should not be forgotten. The pandemic proved just how much the operations of a traditional shop and office owner can be disrupted, and the dividend payment is still not what it was given a full-year payout of 45.55p per share back in the pre-pandemic 2019.

More favourably, operational measures such as occupancy rates remain robust. Net debt has fallen, with no need to refinance any maturing debt until 2026, a refocusing of its portfolio towards mixed use developments such as Media City continues, while the share price currently stands at a discount of just over 30% compared to NAV. 

In all, and with the shares sat on an historic and forecast dividend yield of over 6%, income investors at least are likely to remain interested.  

Positives: 

• Discounted valuation
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Rise of e-commerce shopping

The average rating of stock market analysts:

Buy