Land Securities Group, Landsec, has today announced its intention to restructure its commercial property portfolio by selling off hotel, leisure and retail park properties. The UK’s largest property group will reinvest the funds raised in new office and mixed use properties in London and, “potentially other major UK cities”.
The group’s planned strategic overhaul was this morning outlined by chief executive Mark Allen during a virtual meeting with investors and analysts. Landsec’s share price, which has been in steady decline in recent years, in large part due to poor performance of particularly retail park assets, and doubts over their long-term viability, has inched up 1% today.
Regional shopping centres, which account for 13% of Landsec’s property portfolio, have been particularly noticeably impacted by growing competition from online retail. While some will be sold, other may be repurposed, with Mr Allen expressing the belief that many “offer significant repurposing potential”.
Some of the existing London offices in the portfolio will also be sold, with capital reinvested in new capital-based developments. Opportunities in other major UK cities will also be considered. Retail parks, leisure properties and hotels are for the chopping block, with Mr Allen seeing the company offering “little or no competitive advantage”, in these categories of commercial property.
Throughout the restructuring of the Landsec portfolio, the company will focus less on rental income and more on the “value creation”, of new developments. Mr Allen promised that the new strategy will “build on existing areas of competitive advantage”, in a way that will “position the business to benefit from long-term macro trends”.
The company also commented that reducing debt would allow it to be more adventurous, with the statement:
“Delivering our strategy will involve taking more operational risk and this will be offset through lower levels of financial gearing”.
Landsec has seen the valuations of much of its retail properties slide in recent years, culminating in a share price plummet of 46.9% between the start of the year and the market’s close last Friday. The current share price represents a 56% discount on Landsec’s book net asset value. A drop in rental income over the Covid-19 pandemic led to a warning earlier this month that 67% of its retail tenants and 18% of office tenants had not paid their quarterly rent due in September.
London, which currently accounts for 64% of Landsec’s portfolio value, will remain a focus. The company assured:
“London remains one of the world’s gateway cities and this portfolio represents a good source of liquidity over time, with clear potential to recycle out of some assets and reinvest into new growth opportunities.”
Mr Allen has had a difficult introduction to his role as chief executive, taking over the reigns from Rob Noel, who had been in charge for over ten years, during lockdown. Friction over Mr Noel’s overtly cautious approach to investments in new developments since the 2016 Brexit vote is thought to be one of the factors behind his decision to resign.
Land Securities Group, that now goes under the brand Landsec, dates back to 1944 when founder Harold Samuel acquired Land Securities Investment Trust, which at the time owned three houses in Kensington, London. Since the 1960s it has been the UK’s largest property company but has drawn criticism for a conservative approach that saw it miss out on booms in commercial property sectors including warehouses, healthcare and student housing.
Mr Allan’s previous role was as chief executive of mid-cap property investment group St Modwen Properties, a role he held for four years. His time at St Modwen was also a period during which the company went through a major strategic overhaul, selling £800 million of retails parks, shopping centres and offices.
The proceeds were reinvested in industrial and logistics properties in premium locations, offering higher yields. Landsec currently has little exposure to similar kinds of commercial property and it will be interesting to see if Mr Allen’s influence means some of the new portfolio ventures into industrial and logistics assets.
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