Half-yearly Report part 1 of 2
14 November 2007
For immediate release
Land Securities Group PLC ("Land Securities"/ "Group")
Interim results for the six months ended 30 September 2007
Highlights
* Strong performance in growing net assets
* Basic NAV at 2356p up 52p
* Adjusted diluted NAV up 55p to 2236p, an increase of 2.5%
* Out-performance vs IPD Quarterly Universe benchmark by 2.3%
* Valuation surplus of £130.8m or 0.9% on the investment portfolio
* Valuation uplifts from London offices of 4.2%, and Central London shops of
0.7%, with valuation deficits of 1.5% for shopping centres and 3.9% for
retail warehouses
* Excellent progress on the development programme
* Valuation surplus on development of £174.2m
* Development lettings totalling 850,000 sq ft
* Investment portfolio property sales of £929m at 7.8% above March 2007
valuations (before disposal costs)
* Investment portfolio valuation of £15.0bn
* Pre-tax profit of £375.2m (2006:£1,178.2m), down as a result of smaller
valuation surplus
* Revenue profit down 10.5% at £172.8m
* Earnings per share
* Basic EPS at 78.57p down 57.1%
* Adjusted diluted EPS up by 11.0% at 36.46p
* First two quarterly dividends for 2007/08 of 16.0p each, as announced
Retail Portfolio
* Princesshay shopping centre development in Exeter opened, now 92% let
* £0.6bn assets sold in H1, 4.1% above valuation (pre-disposal costs)
* Joint venture entered into with J Sainsbury on three supermarket assets
since period end
London Portfolio
* 1.1 million sq ft of developments completed in H1 and now 95% let
* Record rents for Mid-town in the range of £71psf - £76psf achieved in the
tower building at New Street Square
* The entire office element of 372,000 sq ft at Bankside 2&3 let to Royal
Bank of Scotland
* £0.3bn assets sold in H1, 15.3% above valuation (pre-disposal costs)
Property Partnerships
* Land Securities Trillium new business - £65m invested and £209m committed
in acquiring PFI contracts
* Disposals of £83.0m generating a profit of £25.1m
* Good progress on establishing the PFI fund: new £568m debt facility signed
since period end.
Commenting on the results, Francis Salway, Chief Executive of Land Securities
said: "We have benefited from a well timed development programme and a well
timed sales programme. The profits from our developments have ensured that we
delivered a positive increase in shareholders' net assets. And the combination
of the development profits and our selling assets at above valuation have
ensured that our property portfolio has out-performed the general UK commercial
property market."
Review of Business Structure
The Land Securities Board has completed its review of the structure of the
business and has concluded that over the long-term the Group's component
businesses, and shareholders, will benefit from separation, and proposes to
demerge the Group into three specialist separately quoted entities.
This change will represent a continued evolution of the company's business
model. In 2004, the Group demonstrated its preference for a focused,
sector-based approach by exiting industrial property and moving the group
structure to one built around the Retail, London and Outsourcing sectors rather
than the functions of asset management, development and outsourcing. Since this
time, the Group has developed three specialised business divisions, which have
enjoyed strong growth and each of which has considerable scale and leadership
positions within their respective peer groups.
These three divisions have performed well under the current diversified
structure, but the business models are distinctive and have different financial
characteristics:
* RETAIL: The Retail division seeks to create and enhance long-term dominant
assets through development and active management. It focuses on creating
attractive, retail environments to generate sustainable earnings growth.
* LONDON: The London portfolio has a greater emphasis on development activity
and capital recycling to manage effectively the cyclical nature of its
office market. The portfolio also offers a broader investment in London as
one of the world's major financial centres. It has material retail assets
and also major retail and residential elements in its development
programme. In addition, it offers shareholders significant value creation
potential from its Kent Thameside development, which will be material
relative to the size of this business.
* PROPERTY OUTSOURCING: The historic value creation from Trillium, with a
return on capital since acquisition of 28% per annum, has been outstanding.
It now has market leading positions in both property outsourcing and PFI.
However, with the growing role of PFI and PPP contracts, Trillium's
business and operations have increasingly different characteristics from
property investment, and as such the key valuation metrics are also
different.
Trillium has grown by 57% in the last year in terms of floorspace under
management, and it now manages more floor space than the London and Retail
divisions combined. Land Securities' brand and balance sheet have been
important to the development of Trillium to date. However, Trillium now has the
size and track record to operate independently of Land Securities. Having
regard to the different characteristics of Trillium's business and the
different valuation metrics, the Board considers that the creation of long-term
shareholder value is best achieved by demerger.
For the Retail and London divisions, the Board also believes that, over the
longer term, the development of each business and the needs of investors will
be better served by a separation of the two. Specifically,
* They operate in market segments with different characteristics and they
will be able to adopt a capital structure best suited to their respective
sectors' outlook;
* They will, in future, each have an acquisition currency that should be
valued in line with the assets or businesses they may wish to acquire at
any point in their respective cycles. As a combined group, the market
rating of London and Retail will tend to reflect an average of the less
favoured sector and the more favoured sector, reducing its effectiveness as
a potential acquisition currency;
* The full benefit of successful investment decisions will be more visible
and have greater financial impact in separate focused entities.
As separate companies:
* The management teams of London and Retail will have a clear investment
mandate and be able to allocate capital without competing demands driven by
the cyclical dynamics of a different property segment;
* Shareholders will be given the choice of making sector allocations in line
with their individual investment preferences. Shareholders benefit from
greater liquidity and lower transaction costs in dealing through shares to
change sector allocations, than can be achieved by a diversified property
company transacting in property assets;
* The businesses will be better placed to take advantage of significant
inflows of capital into global real estate funds which typically favour
investment in specialist companies. Over time, the ability to access this
expanding pool of capital is expected to help drive the valuation of
specialised property groups.
Both businesses will retain:
* The strength of their customer relationships through an unchanged presence
in their customers' markets;
* Stability of cash flows and stable income growth, which result from the
five year, upward only rent review structure in the UK.
Extensive and detailed work needs to take place before the company is in a
position to seek shareholder approval and effect the demergers. The demergers
will be executed when the preparatory work has been completed and only when
market conditions are favourable.
Commenting on the review of business structure, Francis Salway, Chief Executive
of Land Securities said: "We have three strong businesses, all performing
extremely well. However, our Board is committed to remaining at the forefront
of an evolving property sector and recognised the need to test our current
business structure. We have considered the issues carefully with a focus on the
long-term. We have concluded that the development of these businesses and the
interests of shareholders are best served by demerger into three separate,
specialised businesses, each of which will be of a scale to be at the forefront
of their sectors."
-Ends-
Land Securities will be holding a results presentation today at 9.30am (GMT)
and a live web-cast will be available at http://pres.landsecurities.com/
landsecurities035/default.asp
An interview with Francis Salway and Martin Greenslade, Group Finance Director,
is available at http://pres.landsecurities.com/landsecurities035/default.asp
Francis Salway / Donal McCabe John Sunnucks / David Allchurch
Land Securities Group PLC Tulchan Communications
T +44 (0)20 7413 9000 T +44 (0)20 7353 4200
Notes to editors
Land Securities is the UK's leading Real Estate Investment Trust. Our national
portfolio of commercial property, worth many billions of pounds, includes some
of Britain's best-known shopping centres, such as the Birmingham Bullring and
Gunwharf Quays in Portsmouth, as well as London landmarks such as the
Piccadilly Lights and Westminster City Hall. We are leading urban renaissance
through our billion pound development programme, transforming Exeter, Bristol
and Cardiff city centres as well as key sites in Central London. We are also
one of the leading names in property outsourcing and through urban community
development are involved in long-term, large-scale regeneration projects in the
south-east.
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