Land Securities on Thursday reported a 5.5 per cent rise in underlying profit, as the UK’s largest listed commercial property company said its market had been unexpectedly robust since the Brexit vote but warned that the future trading environment was uncertain.
Rob Noel, chief executive, said: “We thought the effect [of the Brexit vote] on the London market might be stronger than it was. Most people have been surprised by the strength of the economy over the past six to nine months. But we are still in uncharted territory.”
Land Securities said it generated £382m of so-called revenue profit — an underlying measure of pre-tax earnings that strips out fluctuations in property values — in the year to March 31, compared with £362m in 2015-16.
But statutory pre-tax profit fell 91 per cent to £112m, mainly because of a fall in property values. The company’s performance in 2015-16 benefited from a steep rise in property values.
Land Securities’ shares were down almost 2 per cent at £10.97 in Thursday morning trading.
The commercial property market was bolstered in March when British Land, Land Securities’ nearest rival, announced the sale of London’s “Cheesegrater” tower to China’s CC Land for £1.2bn, setting a new record for price per square foot in the UK capital’s financial district.
This deal has led Land Securities’ co-investors in London’s “Walkie Talkie” tower at 20 Fenchurch Street to explore a sale.
Mr Noel indicated Land Securities, which has a 50 per cent stake in the Walkie Talkie, would also be open to offers: “No asset is sacrosanct,” he said. “We’ll sell for the right price if we think we can use the proceeds elsewhere.”
Land Securities has been more conservatively positioned over the past two years than British Land after anticipating that negotiating power in the commercial property market would move from owners to tenants.
Investors have largely cheered that move, trading Land Securities at a lower discount to the value of its assets than British Land.
Mr Noel said he believed the UK’s planned departure from the EU would lead to lower demand among tenants, falling rents and fewer construction commitments by property developers, although this was happening more slowly than expected.
“As we reach the acrimonious stage of dealing with the EU commission, we don’t know what our trading environment is going to be, whether we will be in the [EU] single market and whether the process will be quick or slow,” he added.
“That’s fundamental to business confidence, which is fundamental to the health of the real estate market.”
Land Securities has meanwhile been acquiring outlet shopping centres — which typically sell retail goods at a discount — as it seeks to adapt its portfolio to changing dynamics driven by e-commerce. After the purchase of three more sites the company said it was now “the leading owner-manager of outlets in the UK”.
The value of Land Securities’ portfolio fell 1 per cent to £14.4bn during 2016-17. Net rental income declined 0.7 per cent to £600m after asset disposals, but the company said this was offset by lower financing costs.
Land Securities proposed a final dividend of 11.7p, meaning its full-year payout would rise by 10.1 per cent to 38.55p.
Robert Duncan, analyst at Numis, said: “Management has maintained its cautious market outlook while highlighting the strength of its positioning; following the negative share price overreaction on British Land’s results yesterday, we think the market will react with caution.”
British Land’s shares closed down 3.3 per cent on Wednesday after it reported underlying profit for 2016-17 that was ahead of analysts’ expectations, but warned of ongoing uncertainty because of the Brexit vote.