Landsec keeps its powder dry for next phase in the cycle

UK’s largest listed property company Landsec is continuing to keep its powder dry for speculative development in central London office developments, the company’s CEO Rob Noel said in an interview in the latest edition of EPRA’s quarterly magazine. 

‘When we reckon we can build speculatively and get an adequate return for the risk that we’re taking, of course, we’ll start again,’ Noel said. ‘At the moment, as the UK goes through an uncertain trading period, you should require far greater returns from development risk than the market is offering, so the view that we have taken is that it’s not the right thing to do. We are never shy of making a move, but we will make it when we think it’s the right thing for shareholders, not just because people want us to do it.’

In 2014 Landsec announced that it would not extend its commitment to speculative development in central London office developments beyond the end of 2016. From 2017, it would be pre-let development only. While the market appears to be approaching the end of the current investment cycle and economic growth slows amid uncertainty over how the country will exit the European Union, Landsec’s latest results, published last month, showed healthy leasing activity and only a slight drop in the value of its £14.1 bn (€15.8 bn) of assets.

Cash on hand
Landsec delivered the final speculative development in its programme last year, and is now committed to a further £600 mln of projects for which it has tenant commitments. These include 21 Moorfields, the future headquarters of Deutsche Bank in the City of London. When the time is right, Landsec has enough firepower to step back into the spec development market, Noel said. At end-March, the company had cash on hand and loan facilities totalling £1.1 bn.

One future opportunity lies in the company’s smaller shopping centres dotted around London, which offer the potential for redevelopment, he said.

In 2011, as the newly recruited managing director of the company’s London portfolio, Noel activated the developments at 20 Fenchurch Street, Ludgate Hill, New Street Square and various projects in Victoria with no tenants in place. The strategy was to deliver the buildings in 2014 to 2016 to take advantage of the favourable conditions resulting from the dearth of development in London following the global financial crisis.

That strategy has paid off: full-year figures released in June showed a 9.9% increase in earnings per share, little change in the value of its portfolio and led the company to lift the annual dividend by 14.7%.

The full interview with Rob Noel appeared in the June edition of EPRA Industry Magazine. Click here for the link. 


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