ii view: Land Securities spells out Covid damage over past 12 months

A tough year but the shares offer a yield of over 3% and a discounted valuation. We assess prospects. 

Full-year results to 31 March

• Adjusted profit down 39.4% to £251 million
• Reported loss before tax of £1.39 billion, up from a previous loss of £837 million 
• Net assets per share down 17.5% to 975p
• Final dividend of 9p per share
• Total full-year dividend up 16% to 27p per share
• Adjusted net debt down 10% to £3.5 billion

Chief executive Mark Allan said:

"Our results for the year to March 2021 clearly reflect the challenges caused by both the pandemic and the associated restrictions. 

"We are now entering the recovery phase. Government action to support the economy was swift and the speed of the ongoing vaccination programme impressive. As a result, there is the real prospect of a strong consumption led recovery across the remainder of 2021 and 2022. Like many people, I was encouraged to see the relish with which people returned to experience in-person shopping as the easing of lockdown measures began in April, and early indicators are that this excitement is driving a strong return to our retail assets. With this week marking the next milestone in the Government's roadmap out of lockdown we expect to see even more.

"As a result of our proactive approach to the challenges posed by the pandemic, Landsec is poised for the recovery with a strategy that positions the business for long-term growth."

ii round-up:

Office and shop property owner Land Securities (LSE:LAND) today reported a 13.7% fall in the value of its portfolio to £10.8 billion, hit by the impact of Covid-19 on both rents and occupancy levels. 

Pandemic lockdowns closed most of its retail and leisure properties, while work from home initiatives emptied the majority of its office buildings.  The fall in property values helped generate a pre-tax loss of £1.39 billion, an increase on last year’s £837 million loss.   

Land Securities shares retreated marginally in UK trading, having gained by just over a fifth since pandemic market lows in March 2020. Shares for warehouse owner Segro (LSE:SGRO) and landlord to tenants such as Amazon (NASDAQ:AMZN) are up by more than 40% over the same time. Shares of GP surgeries and health centre tenants Primary Health Properties (LSE:PHP) have gained by just over a tenth. 

Unpaid rent and service charges helped raise group bad debt provisions of £127 million. Falls in the value of its retail and leisure properties proved most significant, with a more limited decline in London office values. The overall Net Asset Value per share fell by 17.5% to 975p. 

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, exploring options, particularly for its six regional shopping centres; 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.

A strong pre-pandemic financial position and robust rent collection for its largest office property segment enabled it to resume previously halted dividend payments, with the latest 9p per share final dividend giving a total payment for the year of 27p per share, up from last year’s 23.2p. However, that's still down from 45.55p the year before.

ii view:

Changing shopping habits have been shifting the property landscape for some time. Moves away from high streets to destination shopping centres and online are familiar. Now, a global pandemic has seen office workers relocate to home, raising questions about the level of need for an office and over how permanent or temporary any office space needs to be. Increased flexible working coming out of the pandemic may see companies increasingly reassessing their office needs. 

For investors, an increased pre-tax loss and a fall in the Net Asset Value per share clearly illustrate this was a highly challenging year. Raised uncertainty over office tenants and a 41% cut in the dividend payment compared to 2019 add to the negatives. But new strategic initiatives are being pursued under the relatively new chief executive, and an easing of Covid restrictions should assist its retail tenants. The increase in the overall dividend compared to last year also implies confidence in the outlook. A loan-to-value ratio of 32.2% appears to underline a solid financial position and the share price now sits at an approximate one-quarter discount to the Net Asset Value. For now, while some caution remains sensible, a historic and forecast dividend yield of over 3% and a discounted valuation appear to suggest emerging value. 

Positives: 

• Revamped strategy
• Discounted valuation

Negatives:

• Bad debt provision raised
• Dividend payment rebased

The average rating of stock market analysts:

Buy