Land Securities Group plc Q1 2012/2013 Interim Management Statement Conference Call
Jul 18, 2012 AM EDT
LAND.L - Land Securities Group PLC
Land Securities Group plc Q1 2012/2013 Interim Management Statement Conference Call
Jul 18, 2012 / 07:30AM GMT
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Corporate Participants
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* Robert Noel
Land Securities Group Plc - Chief Executive
* Richard Akers
Land Securities Group Plc - Executive Director
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Conference Call Participants
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* Osman Malik
JPMorgan - Analyst
* Michael Burt
Espirito Santo Investment Bank - Analyst
* Marcus Phayre-Mudge
Thames River Capital - Analyst
* Hemant Kotak
Green Street Advisors - Analyst
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Presentation
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Operator [1]
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Thank you for standing by, and welcome to the Land Securities Q1 IMS conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (Operator Instructions). I must advise you this conference is being recorded today on Wednesday, July 18, 2012.
I would now like to hand the conference over to your speaker today, Mr. Robert Noel. Please go ahead, sir.
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Robert Noel, Land Securities Group Plc - Chief Executive [2]
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Thank you, and good morning, everyone, and welcome to our first quarter interim management statement. As usual, I'm joined by Martin Greenslade and Richard Akers. And after a few words from me, we'll be happy, obviously, to answer any questions you may have.
I know you will all have read the release and, of course, many of you will have been at our Investor Day in London two weeks ago, so I will keep my comments fairly brief.
We are pleased with the activity we're reporting today. Developments are attracting lettings and, beyond the deals actually completed, we're in good discussions across our pipeline. Modern efficient space continues to appeal to potential occupiers, and a shortage of new space continues to limit their choice.
Our ongoing discussions show that the interest and the intent is there, and reaffirms that our well-managed development program offers us great opportunity, going forward. This showed through in our results.
In Retail, Trinity Leeds is now 72% pre-let, with a further 8% in solicitors' hands. In London, at 20 Fenchurch Street, the offices are now 19% pre-let or in solicitors' hands. And the offices at 123 Victoria Street are now 42% pre-let. There is demand for the right kind of space, in the right place, in both London offices and in retail.
Always disciplined, as you've come to expect, we will continue to bring forward new development opportunities. We're helped in this by the strength of our existing portfolio, and we secured GBP7 million of investment lettings during the period, and have continued to execute plans on every asset.
It is particularly pleasing to report, in our Retail portfolio, that our voids have remained flat at 3.6%, of which 0.7% is under offer, and our units in administration have fallen to 2%. This despite entering the period with the lingering impact of Game, La Senza and Peacocks in administration, joined in May by Clintons.
As you can see, our teams are working hard to manage our assets, and we are always looking to partner with the stronger retailers to maintain the appeal of our centers to shoppers and retailers.
We've also maintained our eye on potential new opportunities. Our purchases, aside from the Cornerhouse in Nottingham, have been small, but each opens up opportunities within existing assets. We remain patient on larger acquisitions but, as you would expect, we're out there, we're able to compete should we feel the opportunity suits our tastes.
This ability to compete is based on our financial strength. As you know, our strategy has been to fund our developments and acquisitions through sales, rather than increase debt. This has brought our gearing down as we move through the cycle. The pro forma LTV is 34.3% and we have very advantageous banking facilities. Our financial strength gives us access to opportunities.
Looking ahead, the wider market remains subdued, but we can only go by what we see in our own dealings. While transactions are taking longer, as I have said, the interest and intent are there for our developments. Deals on existing assets are also being done, but there is a need for a relentless focus on managing individual assets to keep occupancy up.
We will continue to progress our plans. We will continue to be risk-aware, but not risk-averse, and we will continue to marshal our financial strength to ensure we can react to any fluctuations in the wider economy.
So while the market is challenging, we remain confident in our position. We remain committed to our development pipeline, which continues to progress well and offer good opportunity. The focus for us is to continue to turn the interest we see across our schemes into lettings and grow income.
So with that, let's hand over to you for any questions you may have. And as I've said, I've Martin, CFO, and Richard, who heads up the Retail side, here with me as well.
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Questions and Answers
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Operator [1]
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Thank you. (Operator Instructions). [Osman Malik], JPMorgan.
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Osman Malik, JPMorgan - Analyst [2]
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Great result on keeping voids flat in the Retail portfolio. I was wondering if you had to give away any particular incentives, or anything else that you could say in addition to the 2.9% below ERV you said in the release?
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Richard Akers, Land Securities Group Plc - Executive Director [3]
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It's Richard Akers here. On incentives, and this goes for development lettings as well as investment lettings, they're very flat on previous periods, in fact going back quite a long way. So the answer is no, we haven't had to give away more incentives. Obviously, we are slightly below ERV on our lettings, but that's a very small sample, and we're not concerned about that particular result.
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Osman Malik, JPMorgan - Analyst [4]
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Okay. And did that include the lettings on Trinity Leeds, the new lettings that you've done, how did they compare with your expectations?
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Richard Akers, Land Securities Group Plc - Executive Director [5]
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The lettings on Trinity Leeds are absolutely in line with our plan and our appraisal. And the incentives that we're giving to Trinity Leeds are in line with all the development lettings that we've done in the past. So what we've said is around 18 months to 2 years for 10 year leases on development lettings. On investment lettings and centers are lower, around 12 months for a 10 year lease.
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Osman Malik, JPMorgan - Analyst [6]
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Okay, great. And just finally on Leeds, we're hearing some press rumors that Hammerson may be pressing forward with their Leeds development. Have you seen any indication that that's going to affect Trinity Leeds?
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Richard Akers, Land Securities Group Plc - Executive Director [7]
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Well, we're 80% letter in solicitors' hands now. We haven't seen any impact on our leasing program from the prospect of Hammerson schemes so far, and frankly, we're very confident in the success of Trinity Leeds and its position within the city center.
If Hammerson build a John Lewis store, and we know that is their anchor store, I think that would be a very good thing for Leeds city center, and for us.
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Osman Malik, JPMorgan - Analyst [8]
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Okay, great. Thanks, guys.
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Operator [9]
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Michael Burt, Espirito Santo.
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Michael Burt, Espirito Santo Investment Bank - Analyst [10]
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I was just wondering if you could give maybe some more detail on the impact of administrations in the Retail portfolio which you alluded to, and to what extent that you've been retaining stores, and if there has been any significant re-letting?
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Richard Akers, Land Securities Group Plc - Executive Director [11]
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Yes, I'll take that again. We said we're down to 2% of rent in administration in the Retail portfolio. A little over half of that is still trading, and the majority of those are with the three major retailers that went into administration, Game, La Senza, and Clintons.
And what I can say is, whilst it takes a long time to agree and document re-lettings to the buyers of those businesses, our expectation is that we will re-let 29 out of the 44 units to the buyers of those businesses. Whilst there will be two or three concessionary deals within that number, broadly those re-lettings will be in line with ERV.
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Michael Burt, Espirito Santo Investment Bank - Analyst [12]
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Perfect. Thanks very much.
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Operator [13]
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(Operator Instructions). Marcus Phayre-Mudge, Thames River Capital.
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Marcus Phayre-Mudge, Thames River Capital - Analyst [14]
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Just a question on this comparison between your Retail sales data and the BRC data. You mentioned on a like-for-like same retailer basis plus 1.4 which is an excellent number, how does that data set compare with the BRC, i.e. is that particularly focused in one particular subset? It's a fantastic number, I was just wondering if you could give us some more color on that?
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Richard Akers, Land Securities Group Plc - Executive Director [15]
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Yes, the answer is that this is BRC's non-food sales index is minus 0.2, and our sales are 1.4. It's the non-food sales which are the most comparable to our portfolio, so we think that's the right benchmark to look at.
Interestingly, that's on a strict like-for-like basis, which is the same as BRC. When we look at our sales on a same-center basis, which takes into account the fact that we might have replaced the retailer with a better retailer that has a higher level of sales, then our growth is 3.8% and that obviously also takes into account where we've let voids.
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Marcus Phayre-Mudge, Thames River Capital - Analyst [16]
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Okay. Sorry, so just to clarify, your figure includes food, or yours is also ex-food to keep it as --?
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Richard Akers, Land Securities Group Plc - Executive Director [17]
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Our figure is all our Retail sales, and it's the BRC non-food sales index. Now that's excluding grocery, not excluding food and beverage.
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Marcus Phayre-Mudge, Thames River Capital - Analyst [18]
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Okay, great. Thank you.
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Operator [19]
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(Operator Instructions). Hemant Kotak, Green Street Advisors.
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Hemant Kotak, Green Street Advisors - Analyst [20]
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Just sitting with the Retail theme, do you expect Retail sales to hold up, given the recent cuts to UK forecasts, and the potentially negative impact that this might have on consumer sentiment? Are we expecting to see conditions take a turn for the worse?
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Richard Akers, Land Securities Group Plc - Executive Director [21]
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I think all we can do really is tell you how we're finding it in the market, and we've given our figures for the sales that we've experienced over the last quarter. It is a tough market; we simply performed pretty well.
We saw consumer confidence perhaps improving a little bit towards the end of the quarter, maybe reflecting the Jubilee celebrations, and that's been a positive. We're hopeful that the tick down in inflation will also help with consumer confidence, but all we can do is tell you how it is. We're finding a reasonable amount of demand for our portfolio, and for our developments, and we think we will continue to maintain our stability.
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Robert Noel, Land Securities Group Plc - Chief Executive [22]
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I think if I can just butt in there as well. If you remember about our plan, we're talking about investing in the right locations where the retailers want to be. And don't forget that we've got a growing population in this country; we're now up to 66 million people. Everyone needs to wear clothes, and everyone needs to eat. So shopping's not going to disappear, and I think it may be a slightly over-whacked market at the moment. The key is being in the right locations.
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Hemant Kotak, Green Street Advisors - Analyst [23]
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Okay, thanks. And then secondary pricing, and even good secondary pricing, appears to be taking a hit. Do you think that prime is likely to follow any time soon? And then maybe a related question on secondary is, at what point does secondary pricing become attractive? When has it fallen enough?
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Robert Noel, Land Securities Group Plc - Chief Executive [24]
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Well, Hemant, you're not expecting us to give you a forecast on pricing. However, the one thing I would say is that the spread between property yields and gilts has never been wider. We don't see gilts [ticking] up any time soon. We're in negative real interest rate territory, which may be good for property, but gives you some sort of underlying view on the wider economies on this planet at the moment.
I don't think there's any real outward pressure on yield, because this spread is wide. So if there is going to be a landing for prices, it's going to be relatively slow.
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Hemant Kotak, Green Street Advisors - Analyst [25]
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Okay, thank you.
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Operator [26]
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Thank you. There are no further questions at this time, gentlemen. Back to you.
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Robert Noel, Land Securities Group Plc - Chief Executive [27]
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So guys, well listen, if there aren't any further questions we'll just wrap up. And I'd just like to thank you for coming on the call.
And just bear in mind, our business plan is not predicated on economic growth. We have been sticking to a very clear plan since late 2009, early 2010. We are developing into supply constrained conditions in London, we've got very good interest in our scheme, and we're building shopping centers and out of town stores which are predominantly pre-let, and we've got great interest in those as well. So we're pretty comfortable, and our balance sheet is bulletproof. Thanks very much.
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Operator [28]
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That does conclude your conference for today. Thank you for participating, you may all disconnect.
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