Land Securities embarks on a sell-off of assets as it grapples with the recession, reports Tony McDonough
ON MAY 14, the chief executive of Land Securities, Francis Salway, said the property giant would continue to sell assets this year and that there was no property it would not consider disposing of.
He was speaking on the day he reported that group pre-tax losses had come in at an eye-watering £4.77bn, a figure that was worse than City investors had been expecting. During 2008, the value of its portfolio had plummeted by £4.74bn.
Land Securities operates through several divisions – its retail property portfolio, including shopping centres, retail warehouses, shops outside London, and other regional properties.
Up until the middle of last week, Land Securities owned four properties in Merseyside and Cheshire – St John’s and Clayton Square shopping centres in Liverpool, and out-of-town retail parks near Chester and Aintree Racecourse.
On Wednesday last week, the company, a Real Estate Investment Trust (REIT), announced it was selling Aintree Racecourse Retail Park in a £61m deal to AIM-listed London & Stamford Property.
The 291,471 sq ft retail park generates £5.5m a year, and is let at rents ranging between £13 and £30 per sq ft. It is let to 13 tenants including B&Q, Homebase, Mothercare, Marks and Spencer, Next and Boots.
Land Securities developed the park in three phases between 1986 and 1989, spending around £13m. A further 50,000 sq ft of accommodation was added in 2001.
At the end of May, the group completed the sale of 22 Kingsway, London, to an overseas client of Jones Lang LaSalle for approximately £39m. It aims to raise £370m from asset sales over the next 12 months.
So Land Securities is clearly busy raising cash. The proceeds from such sales will all help to repair the company’s balance sheet and add to the £755m raised from investors in a February rights issue.
But will it be enough to see the company through the worst ravages of the recession?
At the end of last month, there were reports in the national press that the board was running out of patience with Mr Salway and the direction of the group. One report claimed he had been given just six months to revive the company’s fortunes or face the sack.
In a statement, Land Securities denied this: “In our preliminary statement only two weeks ago, it was made clear that the executive team led by Francis had shown their mettle in the face of the formidable challenges facing the industry. Nothing has changed since then.”
However, Mr Salway clearly faces a huge challenge in turning the situation around. Its shares have under-performed so far this year.
The credit crunch and the downturn have hit the commercial property sector hard with capital values and rents falling. The devaluation is slowing down but analysts – and, indeed, Mr Salway himself – believe low rents will continue to be a problem this year and next.
In a note at the time of the results, analysts at Nomura said: “With the indiscriminate and severe capital market devaluation of commercial property appearing to moderate, we believe the rental recession is likely to be the driver of further balance sheet impairment through 2009 and 2010.”
Brewin Dolphin analyst Bryan Johnston agreed there were more problems ahead.
He said: “Land Securities’ shares fell sharply after it reported a full-year pre-tax loss of £4.8bn.
“Received wisdom is that the UK property market is in freefall with the financial sector and the retail community facing formidable trading problems which may well result in significant reductions in headcount, with a comparable impact on demand for office space.”
But Mr Johnston did see some cause for optimism for the group when the recovery finally comes.
He added: “A more imaginative approach might be to acknowledge the prospect of an ultimate developing recovery in economic activity.
“This would, in turn, lead to a growing demand for property space and, in due course, perhaps a shortage, given that construction of non-pre-let premises is likely to grind to a standstill in the coming months.
“Land Securities’ shares look worth considering for the longer haul.”
The fortunes of the group, and its ability to raise capital, have particular importance here in Liverpool.
Land Securities is committed to a £100m upgrade of St John’s, a popular but fading facility that is in serious need of modernisation.
The proposals include dramatic improvements to its internal and external appearance, a double-height mall, glazed retail frontages to all streets and roof spaces introducing additional natural light into the centre.
The market, currently housed on the top level, will be re-sited in a purpose-built market hall on the first floor of a newly-extended Williamson Square building.
A new food terrace will be created on the first floor to allow shoppers to enjoy views of the city. Internally, improvements will be made to flooring, lighting, toilet facilities and access, including new entrances, lifts and escalators for the elderly and people with pushchairs and wheelchairs.
Work should have started next year, but that plan was scuppered by the credit crunch. It is now scheduled to begin in 2012, with a 2014 completion date. Even if this timetable is kept, the revamp won’t be complete until a full six years after the launch of Grovesnor’s £1bn Liverpool One retail development.
In April, Nick Davis, retail development director for Land Securities, reaffirmed the commitment to the upgrade.
He said: “St John’s has always been a popular centre, but we recognised it was in need of modernisation.
“We consulted with stakeholders as to what improvements they wanted to see before submitting our plans to the city council last year.
“We received detailed planning consent in June, and we will now be undertaking important preparation ahead of a possible start on site in 2012.
“We would have been targeting a slightly earlier start, but the economic downturn has been more severe than we expected.
“We believe that Liverpool is a strong city and we are confident that we will have returned to normal levels of demand for retail floorspace in the city by the time of starting on site.
“Our plans will deliver a major investment in the centre.”
City council leader Warren Bradley is also anxious for the refurbishment to get under way.
He said: “The whole country is facing challenging economic conditions and it’s a welcome boost to the city that Land Securities has confirmed its commitment to St John’s and its important position in Liverpool’s growing retail offer.”
Liverpool One has raised the bar since its spectacular launch last year and there is a danger that the part of the city centre where St John’s is located could fall a long way behind if there is any more delay to the centre’s refurbishment.
tony.mcdonough
