Land Securities swings into loss as Brexit vote takes toll
Property company reports lower levels of London office take-up since vote to leave EU
The UK’s largest listed property company, Land Securities, swung to a loss in the six months to September 30 as the vote to leave the EU weighed on the commercial property market.
The FTSE 100 group recorded a £95m loss in the first half, down from a £708m pre-tax profit a year earlier, mainly because of a 1.8 per cent drop in the value of its assets to £14.4bn.
However, the value decline was less than analysts had expected and smaller than those recorded across the wider market, after Land Securities sold off more than £1bn of properties to cut risk in the run-up to the referendum.
Shares in Land Securities rose 4.4 per cent to £10.27 on Tuesday morning.
The group, which is the first major property company to report results since the June 23 referendum, announced 9.8 per cent increase in its first-half dividend to 17.9p.
Rob Noel, chief executive, said: “The outlook in the short term is one of uncertainty — we have a government that is set to trigger Article 50 [to leave the EU] in the next 90 working days and business doesn’t really know what its trading environment is going to be.
“We are seeing lower levels of office take-up than normal in London and we expect that to translate into weaker net effective rental values.”
However, he added: “We remain pretty chipper despite the market conditions. The business couldn’t really be in a better position.”
Land Securities is closely watched in the property industry for its positioning in relation to market cycles, and had warned ahead of the vote of a potential “demand shock” in London offices if the UK voted to leave the EU.
Mr Noel said he expected retail property to suffer as well.
“You have seen signs of it with ‘Marmitegate’. We import virtually 60 per cent of what we buy and the retailers are going to have to pass those increases on to the consumer … This will continue to widen the gap in performance between dominant [retail] destinations like ours and the rest,” he said.
Capital values across the office and retail property markets have fallen about 5 per cent since the Brexit vote, according to analysts at Peel Hunt. Property companies have seen steep drops in their share prices: Land Securities is trading about 13 per cent below its pre-referendum share price, while its biggest rival British Land is 20 per cent down.
Land Securities said on Tuesday that its revenue profit, an adjusted measure, was up 4.5 per cent to £192.5m, while its loan-to-value ratio rose slightly from 22 per cent to 22.6 per cent.
Mr Noel said the group was “fully locked and loaded” to begin acquiring land for the next cycle, with £1.5bn of cash and available borrowing facilities, but added: “I don't think we will be spending in scale over the next six months.”
The group’s speculative development levels are at record lows, while it has let 41 per cent of its Nova development in Victoria, one of the last of its new projects to conclude.
David Brockton, analyst at Liberum, said the results “demonstrate a resilient performance into a market correction”. British Land reports first-half results on Wednesday.