LAND SECURITIES GROUP PLC (“Landsec”)
Results for the year ended 31 March 2024
Continued operational strength, as values for best assets begin to stabilise
Mark Allan, Chief Executive of Landsec, commented:
“Our continued operational outperformance, with rising occupancy and positive rental uplifts in retail and London, is driving robust like-for-like rental income growth and demonstrates the importance of owning and operating the best-in-class real estate. Around 80% of our portfolio is now invested in twelve places with significant scarcity value, where our competitive advantages in shaping and curating these places mean we expect like-for-like rents to continue to grow.
“Following a reset of values over the past two years driven by rising interest rates, the stabilisation in rates and evidence of continued rental growth is starting to attract increased investor interest for the best assets. Around 60% of our portfolio already showed stable values in the second half and overall yields were largely stable in the final quarter, pointing to a positive outlook for our overall return on equity.
“The quality and return prospects of our portfolio are further bolstered by our strong balance sheet. After a period of proactive capital recycling, most recently with over £600m of non-core assets sold in the past seven months, we have meaningful capacity to invest in high quality assets that add to our best-in-class portfolio at what we believe to be an attractive point in the cycle.”
Financial highlights
| 2024 | 2023 | 2024 | 2023 | ||
| EPRA earnings (£m)(1)(2) | 371 | 393(3) | Loss before tax (£m) | (341) | (622) |
| EPRA EPS (pence)(1)(2) | 50.1 | 53.1(3) | Basic EPS (pence) | (43.0) | (83.6) |
| EPRA NTA per share (pence)(1)(2) | 859 | 936 | Net assets per share (pence) | 863 | 945 |
| Total return on equity (%)(1)(2) | (4.0) | (8.3) | Dividend per share (pence) | 39.6 | 38.6 |
| Group LTV ratio (%)(1)(2) | 35.0 | 31.7 | Net debt (£m) | 3,517 | 3,348 |
¾ EPRA EPS(1)(2) stable vs prior year’s underlying level(3) of 50.1p, in line with guidance, as occupancy growth and 2.8% LFL income growth offset rise in interest costs and impact of asset disposals
¾ Total dividend up 2.6% to 39.6p per share, in line with guidance of low single digit percentage growth
¾ Loss before tax moderated to £341m, reflecting a £625m or -6.0% adjustment in portfolio valuation weighted to first half of the year, as c. 60% of portfolio was effectively stable in value in second half
¾ Total return on equity improved to -4.0%, with 8.2% reduction in EPRA NTA per share(1) (2) to 859p, as outlook for return on equity turns more positive as values begin to stabilise
¾ Maintained strong balance sheet with, pro-forma for disposals post year-end, 7.0x net debt/EBITDA and a 32.3% Group LTV(1)(2) – down 2.1ppt over past two years despite adjustment in values
¾ FY25 EPRA EPS, post £572m net sales since H1, expected to be slightly below 50.1 pence in FY24 before any reinvestment of sales proceeds; FY26 currently expected to be slightly ahead of FY24
Operational highlights: high quality of portfolio underpins positive outlook for returns
Delivered continued outperformance in a market increasingly focused on best-in-class space, reflected in 8% uplifts on relettings/renewals and 130bps occupancy growth across London and major retail, driving 2.8% like-for-like net rental income growth. Values for best assets starting to stabilise, as interest rate outlook is more balanced and investor interest starts to return, which with c. 5.7% income return plus expectation of continued rental growth supports positive outlook for overall return on equity.
Central London: further growth in occupancy as property values begin to stabilise
¾ Delivered 1.4% LFL net income growth in offices, with overall occupancy +140bps to 97.3%, £35m of lettings signed or in solicitors’ hands 6% above ERV and relettings/renewals 15% above previous rent
¾ Registered consistent upwards trend in office utilisation throughout the year, with unique daily entries across our buildings up 18% vs prior year, and 81% of lettings in year resulting in customers taking more or same space, as demand remains firmly focused on high-quality space in the best locations
¾ West End values (72% of our London portfolio, up from 48% three years ago) virtually stable in second half, with overall change in Central London values moderating to -2.4% vs -4.5% in first half. Yields remain stable in final quarter, as successful leasing drives 5.0% ERV growth, in line with top end of guidance, with further low to mid single digit percentage growth expected for current year
¾ Started two net zero carbon developments in Victoria and Southbank, with expected 7.2% gross yield on total cost and c. 12% yield on capex, as recently completed schemes are now 89% let or in solicitors’ hands, with rents 12% ahead of initial assumptions
Major retail: strong income growth, as rental reversions reach inflection point and turn positive
¾ Delivered 6.9% LFL net income growth, with occupancy + 130bps to 95.4%, and £37m of lettings signed or in solicitors’ hands 6% above ERV and 2% ahead of previous rent for relettings/renewals, marking inflection point in rental reversions
¾ Further focusing investment in best-in-class destinations, with the sale of our two smallest outlets and accretive investment of c. £100m in existing destinations over next c. 3 years
¾ Capitalised on clear focus from brands on fewer, bigger, better stores, with the attraction our locations offer reflected in above-market 4.1% YoY sales growth, resulting in growing competition for space
¾ Attraction of high and growing cashflow reflected in 0.2% increase in asset values in second half (FY-1.1%), even though valuers’ assumed 1.4% ERV growth continues to trail operational performance, with low to mid single digit percentage growth in ERVs expected for current year
Mixed-use: starting first on-site preparations in London whilst optimising rest of pipeline
¾ Secured planning consent for 1,800-homes Finchley Road scheme and detailed consent for first phase, with site enabling works starting later this year, ahead of potential start of main project in 2025
¾ Progressing optimisation of plans for Mayfield and rest of portfolio to enhance risk/return profile
Underpinning our strategy: strong capital base following pro-active capital recycling
¾ Sold £625m of subscale and non-core assets since March 2023 including £400m post year-end, on average in line with March 2023 book value, materially exceeding acquisitions of £136m
¾ Maintained strong capital base, with long 9.5-year average debt maturity, £1.9bn cash and undrawn facilities, and pro-forma for disposals since year-end, a low 7.0x net debt/EBITDA and low 32.3% LTV, creating significant balance sheet capacity to become net investor at attractive point in time
¾ Capitalised on sector-leading access to credit, with AA/AA- ratings, via £300m bond issue at 4.75%
1. An alternative performance measure. The Group uses a number of financial measures to assess and explain its performance, some of which are considered to be alternative performance measures as they are not defined under IFRS. For further details, see the Financial review and table 14 in the Business analysis section.
2. Including our proportionate share of subsidiaries and joint ventures, as explained in the Financial review. The condensed consolidated preliminary financial information is prepared under UK adopted international accounting standards (IFRSs and IFRICs) where the Group’s interests in joint ventures are shown collectively in the income statement and balance sheet, and all subsidiaries are consolidated at 100%. Internally, management reviews the Group’s results on a basis that adjusts for these forms of ownership to present a proportionate share. These metrics, including the Combined Portfolio, are examples of this approach, reflecting our economic interest in our properties regardless of our ownership structure. For further details, see table 14 in the Business analysis section.
3. Including the benefit of £22m year-on-year increase in surrender premiums; adjusted for this, underlying EPRA earnings and EPS were £371m and 50.1 pence respectively.
A live video webcast of the presentation will be available at 9.00am BST. A downloadable copy of the webcast will then be available by the end of the day.
We will also be offering an audio conference call line, details are available in the link below. Due to the large volume of callers expected, we recommend that you dial into the call 10 minutes before the start of the presentation.
Please note that there will be an interactive Q&A facility on both the webcast and conference call line.
Webcast link: https://webcast.landsec.com/2024-full-year-results
Call title: Landsec Annual Results 2024
Conference call: https://webcast.landsec.com/2024-full-year-results/vip_connect
Forward-looking statements
These full year results, the latest Annual Report and Landsec’s website may contain certain ‘forward-looking statements’ with respect to Land Securities Group PLC (the Company) and the Group’s financial condition, results of its operations and business, and certain plans, strategies, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates.
Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as ‘anticipates’, ‘aims’, ‘due’, ‘could’, ‘may’, ‘should’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’ or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group’s ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the political conditions, economies and markets in which the Group operates; changes in the legal, regulatory and competition frameworks in which the Group operates; changes in the markets from which the Group raises finance; the impact of legal or other proceedings against or which affect the Group; changes in accounting practices and interpretation of accounting standards under IFRS, and changes in interest and exchange rates.
Any forward-looking statements made in these full year results, the latest Annual Report or Landsec’s website, or made subsequently, which are attributable to the Company or any other member of the Group, or persons acting on their behalf, are expressly qualified in their entirety by the factors referred to above. Each forward-looking statement speaks only as of the date it is made. Except as required by its legal or statutory obligations, the Company does not intend to update any forward-looking statements.
Nothing contained in these full year results, the latest Annual Report or Landsec’s website should be construed as a profit forecast or an invitation to deal in the securities of the Company.
Chief Executive’s statement
Successful execution on strategy. Focus on driving growth.
Over the last three years, our focus has been two-fold: firstly, on increasing our investments in best-in-class assets where our competitive advantages can drive long-term growth, and secondly on preserving balance sheet strength. The success of this is reflected in our continued like-for-like income growth and rising occupancy, significantly outperforming market averages. And despite the adjustment in property values over the past two years following the sharp rise in global interest rates, our pro-active capital recycling means that pro-forma for our recent hotels disposal, our 32.3% LTV is now lower than it was two years ago, and our net debt is down £1.1bn, creating balance sheet capacity to grow.
Owning the right real estate has never been more important, as the normalisation in cost of capital means value drivers in real estate have fundamentally changed compared to much of the 2010s decade, when ultra-cheap money and sector themes were key drivers of performance. Irrespective of sector, there is now a growing distinction between those assets that really fulfil customers’ future expectations and hence deliver like-for-like income growth and those that do not. This means future performance across the entire sector will be much more driven by asset quality than generic themes.
The successful execution of our strategy over the last few years means Landsec is well positioned in this context. Customer demand for our high-quality product has remained robust despite the unsettled political/economic backdrop, concerns about hybrid working and cost of living pressures for consumers. In London, our £6.2bn West End-focused portfolio is almost full, with occupancy up to 97.3%, so rents are rising. In retail, our £1.8bn portfolio of nine major destinations has seen occupancy rise to 95.4% and we have started to drive positive reversionary uplifts on lettings and renewals. As a result, our like-for-like net rental income increased by 2.8% last year and, following a period of interest rate-driven asset repricing, the valuation of c. 60% of our portfolio was effectively stable in the second half of last year.
Looking forward, we expect high demand for best-in-class space to persist and, as supply of this space remains limited, this will continue to drive like-for-like income growth. Meanwhile, as the interest rate outlook today appears more balanced than at any point in the last couple of years, yields and values for the best assets are starting to stabilise. Having sold early when values were higher, we now have balance sheet capacity to invest at an attractive point in time. As a result, Landsec is well-placed for growth.
Continued strength in operational performance
Our financial results reflect the quality of our portfolio, the strong operational performance of our platform and our resilient capital base. Our FY23 earnings included the benefit of a £22m increase in surrender premiums, which we adjusted for in our 50.1 pence underlying EPRA EPS. Our EPRA EPS last year was stable vs this underlying level, in line with our guidance, as the 2.8% growth in like-for-like income we delivered, and the completion of our successful developments fully offset the impact of our significant disposals during the past two years and a rise in finance costs. Our dividend for the year is up 2.6% to 39.6 pence per share, again in line with our guidance, reflecting a healthy dividend cover of 1.27 times.
During the first half of the year, the marked rise in interest rates across the globe resulted in upwards pressure on valuation yields, but this eased in the second half and throughout the year the impact of this has been partly offset by our 3.2% ERV growth. This meant that our portfolio value was down 6.0%, or £625m, for the year, driving a £341m loss and a 8.2% reduction in EPRA NTA per share for the year. However, the impact of this was weighted towards the first half, as yields remained stable in the final quarter and our total return on equity for the year improved to -4.0% from -8.3% in the prior year.
Table 1: Highlights
| Mar 2024 | Mar 2023 | Change % | |
| EPRA earnings (£m)(1,2) | 371 | 393 | (5.6) |
| Loss before tax (£m) | (341) | (622) | (45.2) |
| Total return on equity (%) | (4.0) | (8.3) | (51.8) |
| Basic (loss)/earnings per share (pence) | (43.0) | (83.6) | (48.6) |
| EPRA earnings per share (pence)(1,2) | 50.1 | 53.1 | (5.6) |
| Underlying EPRA earnings per share (pence) (1,2) | 50.1 | 50.1 | – |
| Dividend per share (pence) | 39.6 | 38.6 | 2.6 |
| Combined portfolio (£m)(1) | 9,963 | 10,239 | (2.7) |
| IFRS net assets (£m) | 6,447 | 7,072 | (8.8) |
| EPRA Net Tangible Assets per share (pence)(1) | 859 | 936 | (8.2) |
| Adjusted net debt (£m)(1) | 3,517 | 3,287 | 7.0 |
| Group LTV ratio (%)(1) | 35.0 | 31.7 | 10.4 |
| Proportion of portfolio rated EPC A – B (%) | 49 | 36 | |
| Average upfront embodied carbon reduction development pipeline (%) | 40 | 36 | |
| Energy intensity reduction vs 2020 (%) | 18 | 17 |
1. Including our proportionate share of subsidiaries and joint ventures, as explained in the Presentation of financial information in the Financial Review.
2. FY23 EPRA earnings and EPRA EPS include the benefit of £22m increase in surrender premiums; underlying EPRA EPS excludes this.