Land Securities Group plc Q3 2012/2013 Interim Management Statement Conference Call
Jan 23, 2013 AM EST
LAND.L - Land Securities Group PLC
Land Securities Group plc Q3 2012/2013 Interim Management Statement Conference Call
Jan 23, 2013 / 08:30AM GMT
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Corporate Participants
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* Robert Noel
Land Securities Group Plc - Chief Executive
* Martin Greenslade
Land Securities Group Plc - CFO
* Richard Akers
Land Securities Group Plc - Executive Director
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Conference Call Participants
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* Harm Meijer
JPMorgan - Analyst
* Mike Prew
Jefferies & Co. - Analyst
* Steve Bramley
Credit Suisse - Analyst
* Hemant Kotak
Green Street Advisors - Analyst
* Robert Duncan
Jefferies & Co. - Analyst
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Presentation
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Operator [1]
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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Land Securities' quarter 3 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 the conference is being recorded today, Wednesday, January 23, 2013.
And I'd now like to hand the conference over to your speaker today, Robert Noel. Please go ahead, sir.
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Robert Noel, Land Securities Group Plc - Chief Executive [2]
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Well morning, everyone, and welcome to our third 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 to answer any questions that you may have.
We're pleased with the performance we're reporting today. We continue to make good progress. We've seen momentum in development lettings and a strong operational performance across the portfolio. Our developments continue to attract quality occupiers and we're letting up space at good rental levels and on good lease lengths.
We're seeing interest across our schemes, in a market where occupiers continue to be drawn to modern, efficient space in the right locations.
At 20 Fenchurch Street, for example, since the beginning of October, we've secured two more lettings. Ascot, which we announced in November, and Royal Sun Alliance, which we announced separately today, taking it to 34% pre-let, with a further 18% in solicitors' hands. So 52% spoken for and there is good further interest with 15 months to go to completion.
At Trinity Leeds, further lettings in the period including securing Victoria's Secret and Armani Exchange have taken the development to 90% let or in solicitors' hands and bang on track for opening on March 21.
At 123 Victoria Street, the building is now 77% let or in solicitors' hands, and the offices at One New Change are now fully let.
Now underpinning our development program is the existing portfolio, and here, we've continued to manage space effectively as we execute plans for every asset. We've secured over 9 million of lettings in the period. Voids in our Retail portfolio were virtually flat at 3.2% versus 3.1% at September last year; a resilient performance in these challenging conditions. And even after including the recent HMV, Jessops and Blockbuster insolvencies, our retail units in administration were 2.2% and our occupancy rate was over 97%.
Retail sales in our shopping centers were up 0.3% versus the same quarter last year. Footfall was down at 1.4%, but strongly outperformed the market, reflecting the trend in shoppers visiting less often, but spending more per visit.
Food and beverage sales in our centers were up nearly 4% in the quarter, continuing to underpin our belief in the changing nature of customers' use of bigger centers and putting our portfolio at the heart of these changes.
In line with our plans to increase leisure within our business, we made two important acquisitions in the period. In November, as you know, we purchased The Printworks, Manchester's dominant leisure scheme. And last week we completed the acquisition of a further 42% interest in the ex-leisure fund and 100% of the management company. This gives us an unparalleled reach to the major occupiers in this area.
We'll continue to remain patient on larger acquisitions, but we have the balance sheet to act when those opportunities arise and we will not hesitate to do so.
Our finances remain in great shape. During the period, we received cash from the sale of the apartments at Wellington House and the final payment relating to the Park House deal. This cash has gone some way to offsetting the total investment in the quarter and, as a result, our LTV based on September valuations still, don't forget, has remained stable at 36%.
Looking forward, we operate in what continues to be a challenging environment. Transactions are taking longer than average to complete, but we continue to see interest in our developments and to let up space. We're working hard to ensure our existing assets are well let and we protect income, and you can see that in our voids performance.
So, as you can see, there's plenty going on and, despite the environment, we're pretty confident about our position.
In two months' time, in Leeds, we will have launched the only major shopping center to open this year. And in Glasgow opened over 100,000 square feet of new retail space on the prime shopping street at 90% plus let on both.
And there's plenty more for us to go for. We'll continue to work up our plans for the next phase in our development program. We're working to a clear plan, disciplined, as always; risk aware, not risk averse.
So on that note, I'd like to pass over to you for any questions that you may have now. Operator.
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Questions and Answers
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Operator [1]
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(Operator Instructions). Harm Meijer, JPMorgan.
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Harm Meijer, JPMorgan - Analyst [2]
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Rob, you also mentioned that you are open for larger opportunities. Are you actually seeing more?
And a second question here would be, would you also be willing to issue equity if something interesting comes along?
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Robert Noel, Land Securities Group Plc - Chief Executive [3]
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Well there are two parts to that question, Harm. On the first part; are we seeing more? I would say that our teams are actually underwriting more opportunities than they were this time last quarter, and as you saw, we've done two significant transactions in this quarter. Whether or not that will lead to more deal flow or not, I'm not sure. We're very patient, we've got plenty of opportunity within the portfolio.
As far as issuing equity is concerned, we have always been very clear. If we see value, we will buy it and we will work out a way of buying it at that time, and whether that -- and how we pay for that will depend on the circumstances. We would absolutely never preclude issuing equity.
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Harm Meijer, JPMorgan - Analyst [4]
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Great. And just the last one on just your development pipeline. Are there any new projects coming into focus?
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Robert Noel, Land Securities Group Plc - Chief Executive [5]
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Well of course we announced in November that we were starting Kingsgate House so that -- we're now -- we've got teams scrabbling around in the ground there. We're also underway demolishing Victoria Circle as you know. It's too early to announce a commitment to that scheme but I'm very much hoping that we'll be able to update the market by the time we speak to you in May on that one, and also on New Ludgate. Otherwise no change.
We continue also outside London to work hard on our plans on both Oxford and the extension to Buchanan Galleries, and as we said in the statement, our out-of-town program is also making quite good progress.
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Harm Meijer, JPMorgan - Analyst [6]
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That's perfect, Rob. Thank you very much.
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Operator [7]
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Mike Prew, Jefferies.
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Mike Prew, Jefferies & Co. - Analyst [8]
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Just going back to 20 Fenchurch, your 52% of committed or in solicitors' hands. Does that include Liberty Mutual that has been on some of the wires, the 18%?
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Robert Noel, Land Securities Group Plc - Chief Executive [9]
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Well, Mike, we'd never talk names until we've signed deals, so --
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Mike Prew, Jefferies & Co. - Analyst [10]
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Just between the two of us.
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Robert Noel, Land Securities Group Plc - Chief Executive [11]
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We have 18% in solicitors' hands, you can read into that what you will. As soon as we've got something to say we'll say it.
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Mike Prew, Jefferies & Co. - Analyst [12]
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Okay. Can I just ask an additional question, well for Martin really. You seem to be benefiting from subsidized interest lines, or deadlines. Are those a temporary phenomenon, do we see those disappearing or are they going to be a permanent feature do you think?
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Martin Greenslade, Land Securities Group Plc - CFO [13]
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I think we've seen our weighted average cost of debt come down slightly because we've used our revolving credit facilities, but we put those in place clearly with a view to using them. They last for a number of years, so are we being subsidized by it? I'm not so sure. I think if anything the credit market has eased a bit and so we are benefiting from the strength of our balance sheet and the relationships we have with our banks. I think that will continue.
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Mike Prew, Jefferies & Co. - Analyst [14]
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Okay. And just one thing on Google, the product search you've just announced. Will you have access to data that Capital Shopping Centres are talking about, and will this in future generate any EBITDA for the business?
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Richard Akers, Land Securities Group Plc - Executive Director [15]
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It's Richard Akers here. We will have access to some data but that's absolutely not at the forefront of our strategy. What we're trying to do is enable our retailers to execute their multichannel strategies within our shopping centers, and we think that is the best route to maximizing our own business by making our centers more attractive to retailers so that they'll pay more rent and we'll keep them fully occupied.
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Mike Prew, Jefferies & Co. - Analyst [16]
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Okay, terrific. Thank you very much.
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Operator [17]
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Steve Bramley, Credit Suisse.
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Steve Bramley, Credit Suisse - Analyst [18]
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Just a couple of questions, actually, if I may. The first is just to get a [temperature] check, and it's probably a question for Richard really on your insolvency positions. I suppose really, just thinking about how your watch list might be moving, and secondly, whether you're fairly concerned about what might potentially be round the corner.
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Richard Akers, Land Securities Group Plc - Executive Director [19]
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Fine. Obviously our position is that at December 31, we had 1.5% of the retail portfolio was in administration. If you include the Jessops, Blockbuster and HMV, that moves to 2.2%, as opposed to 1.8% at the half year and 2.8% at March last year. And so we've demonstrated that we can let this space when it comes back to us.
Clearly the three that have happened in January have been no surprise to anybody so they were absolutely predictable.
And in terms of what might happen in the future, well our view is that there is a great degree of structural change occurring but there is always change in the retail sector and we're seeing new retailers come in as well as some of those that haven't been able to cope with that structural change leaving the scene.
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Steve Bramley, Credit Suisse - Analyst [20]
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So you're not unduly concerned?
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Richard Akers, Land Securities Group Plc - Executive Director [21]
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No, I don't think so. I mean, nothing has happened which has surprised us. We know there's a lot of structural change happening, that's why we are focused on the major prime centers, centers people are travelling to go to, they're spending longer; why we're increasing the leisure and food and beverage provision in those centers. And so what's happened in January and the recent past hasn't really surprised us. We will get more insolvencies but there are also new retailers coming into the market for those centers.
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Steve Bramley, Credit Suisse - Analyst [22]
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Okay. Thank you very much, Richard. Rob, actually just a question for you, I suppose. It's just a broader question, but sterling's renewed weakness and possible ramifications for the London market. I can see that it's a positive from an occupational cost perspective but how about from the investment market sense? A weak currency is a benefit to a degree, but if we're going to go into another phase of weakening, which is certainly underway, do you see that as a problem potentially for the investment market?
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Robert Noel, Land Securities Group Plc - Chief Executive [23]
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I think that you need to remember that London is a global trading post, and as long as it maintains that status, there is no reason to think why investors should not seek out its product. If sterling is weak though, it's not helpful in investment markets because obviously in theory, it sort of questions your safe haven status. But sterling has been strong, variously strong and weak before; investment markets wax and wane. I don't think we're anywhere out of kilter and the market is certainly not over-priced at the moment.
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Steve Bramley, Credit Suisse - Analyst [24]
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Okay, thank you very much.
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Operator [25]
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Hemant Kotak, Green Street Advisors.
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Hemant Kotak, Green Street Advisors - Analyst [26]
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I've got three questions; one general and then one office and one retail please.
The general one to start with. How much should we read into the disparity between the lettings versus ERV in the London portfolio and the Retail portfolio? And to what extent is it appropriate to extrapolate to the wider portfolio please?
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Robert Noel, Land Securities Group Plc - Chief Executive [27]
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I think that you must remember, Hemant, that we are talking about a very, very small sample in both portfolios. We have -- our London portfolios to all intents and purposes is full. If you strip out the building we've cleared for redevelopment it's less than 2%. And our Retail portfolio is virtually full. So, we've only carried out GBP9.2 million of lettings in the quarter. That is great because we're filling our stuff, but it's very small in relation to our rent role.
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Hemant Kotak, Green Street Advisors - Analyst [28]
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That's a good point. How should we think about it in terms of what's happening in the market though, these two data points? I realize they're a small subset and maybe they're extremes.
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Robert Noel, Land Securities Group Plc - Chief Executive [29]
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I think you read into the market that there is upward pressure in London and there is no pressure, it's flat, in retail.
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Hemant Kotak, Green Street Advisors - Analyst [30]
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Okay. So, that's a valid assumption. That's a valid conclusion.
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Robert Noel, Land Securities Group Plc - Chief Executive [31]
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Yes.
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Hemant Kotak, Green Street Advisors - Analyst [32]
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Thank you. And then with regards to 62 Buckingham Gate, you've previously indicated strong interest there. What level of lettings do you expect on completion in May?
And then also a related question to that is, I think you are in discussions with Eni; I think that was reported in the press. It's also reported that, I think, they've pulled out. Can you comment on these things, please?
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Robert Noel, Land Securities Group Plc - Chief Executive [33]
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Well, let's deal with the press point first. The one thing that happens to us is the press write all sorts of stories about us all the time and, as I said to Mike Prew earlier on, we will confirm stories when they are -- we will announce stories when it's the right time to announce them. We never mention names before we -- we never have and I'm pretty sure we never will mention names before we have signed them because things come and things go.
In terms of 62 Buckingham Gate, remember the West End market is generally not a pre-let market. You get much higher percentages of pre-lettings in the City market because you're dealing with larger space users. In the West End market, you're generally dealing with 20,000 square feet and below. These people will generally look just before they're due to move, not two years in advance and so the pre-letting market is a rarity in the West End.
So in terms of 62 Buckingham Gate, we've got 10% in solicitors' hands. We have always had good interest and we still have good interest in this building. We are not going to let it cheaply because the West End market is not a pre-letting market.
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Hemant Kotak, Green Street Advisors - Analyst [34]
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Do you expect a significant deal by May, when it completes?
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Robert Noel, Land Securities Group Plc - Chief Executive [35]
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That would be nice, yes. That would be nice.
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Hemant Kotak, Green Street Advisors - Analyst [36]
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Okay. And then a retail question, please. The Q3 -- sorry, the last quarter, calendar quarter like-for-like tenant sales performance that you've said is 0.3%. Can you break that in terms of retail parks and shopping centers please?
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Martin Greenslade, Land Securities Group Plc - CFO [37]
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That's all shopping centers. We don't generally have data for our retail parks.
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Hemant Kotak, Green Street Advisors - Analyst [38]
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Oh, okay, sorry. Thank you. And then what's the number on a same center basis? Because the number you've quoted is same retailer which is often worse, that number. What's it on a same center basis so that I can compare it to some of your peers, please?
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Martin Greenslade, Land Securities Group Plc - CFO [39]
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I don't think we've calculated it for the quarter. We do for our half-year and full-year results but I don't have that number. But you're right that it is usually ahead of the pure like-for-like number. So this is absolutely like-for-like same retailer. But we'll have a look. We may be able to get back to you.
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Hemant Kotak, Green Street Advisors - Analyst [40]
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That would be helpful. Thank you very much.
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Operator [41]
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(Operator Instructions). Robert Duncan, Jefferies & Co.
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Robert Duncan, Jefferies & Co. - Analyst [42]
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It's actually to take Hemant's first question one step further. I appreciate the very small sample size during through the third quarter, but taking the year to date, could you please comment on the range of letting performance versus ERV split specifically between the retail warehouse portfolio and the shopping center portfolio?
And then can you just give a more general comment on the rental growth prospects you see; the differential between, say, the more traditional operators in the retail portfolio versus, say, the F&B?
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Robert Noel, Land Securities Group Plc - Chief Executive [43]
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Yes. As you will appreciate, this is a trading statement, not a reporting date. So the numbers are not audited and we don't have everything. Retail lettings to date this year versus ERV in total minus 1.1%. London, I haven't got the exact figure on me but it's around 2%.
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Robert Duncan, Jefferies & Co. - Analyst [44]
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Okay, that's fine. Can you just comment on the outlook for rents split between, say, the F&B style operators and say the more traditional retail operators?
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Robert Noel, Land Securities Group Plc - Chief Executive [45]
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Well, yes, the outlook for F&B operators we think is positive because spend is increasing. People are eating out more often than they were. In 2012, it's one in nine meals out; in 2010 it was one in 10 meals out and there is not enough space for the number of occupiers that are growing and sales are up, as we've said, in food and beverage almost 4% on the last quarter.
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Robert Duncan, Jefferies & Co. - Analyst [46]
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Okay, thank you.
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Operator [47]
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(Operator Instructions). Gentlemen, there are no further questions at this point. Please continue.
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Robert Noel, Land Securities Group Plc - Chief Executive [48]
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Great. Well, gents and ladies, thank you very much indeed for joining the call.
As you can see, we're pleased with the performance we're doing. We're delighted with the interest we're getting we're getting across our development pipeline. The asset management team are flat out, the balance sheet's in great shape and our plan is delivering. So, we're in good fettle and we look forward to reporting to you in May. Goodbye.
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Operator [49]
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And with many thanks to our speakers today, that does conclude the conference. Thank you all for participating. You may now disconnect.
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