Land Securities Group plc Q1 2013/2014 Interim Management Statement Conference Call
Jul 17, 2013 AM EDT
LAND.L - Land Securities Group PLC
Land Securities Group plc Q1 2013/2014 Interim Management Statement Conference Call
Jul 17, 2013 / 07:30AM GMT
==============================
Corporate Participants
==============================
* Robert Noel
Land Securities Group PLC - Chief Executive
* Richard Akers
Land Securities Group PLC - Executive Director
==============================
Conference Call Participants
==============================
* Neil Green
JPMorgan - Analyst
* Hemant Kotak
Green Street Advisors - Analyst
* Christopher Fremantle
Morgan Stanley - Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Thank you for standing by, and welcome to Land Securities quarter 1 IMS conference call. At this time, all participants will be in a listen-only mode. There will be a presentation, followed by a question and answer session, (Operator Instructions). I must advise you this call is being recorded today, Wednesday, July 17, 2013.
I'd now like to hand over to your speaker today, Robert Noel. Please go ahead.
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [2]
------------------------------
Morning, everyone, and welcome to our first quarter IMS. As usual, I'm joined by Martin Greenslade and Richard Akers, and will give [us] a short rundown of what we've got to say and then take any questions you have.
As you'll see from the tone of the announcement, we're pleased with the position we're reporting. We see an increased interest in our developments, and we've maintained our virtually full occupancy across the remainder of the business.
In Central London, demand for office space is still below the long-term average, but it is increasing.
And due to the undersupply of efficient, technically resilient cost effective space in the market we're getting good levels of interest in our developments. At 62 Buckingham Gate, for example, we were 10% let on completion of the scheme in May. Since then, a further 43% has gone into solicitors' hands, and we're in advanced discussions on more space.
At 20 Fenchurch Street, we're now 52% pre-let, which is a slight increase on May; a further 4% in solicitors' hands; and, again, we're in advanced discussions on other floors.
As you know, since April 1, we've committed to build over 1.1 million square feet at Nova, Victoria, and 1 and 2 New Ludgate, timed to complete when there will be a scarcity of new space. Beyond that, the level of supply is less clear, and we'll continue to monitor this whilst considering options for future developments.
In retail, Trinity Leeds has moved to 94% let, 15 units have opened for trading since April 1, and we'll see Victoria's Secret, Trinity Kitchen, and the 107,000 square foot Primark store open later this year. Retailers continue to trade well at the center, and leisure goes from strength to strength.
Generally, the retail market remains challenging, as we said in the announcement. But despite this backdrop, we've maintained very high levels of occupancy in our centers. We've secured GBP5.5 million of lettings in the period; voids in the retail portfolio at the end of June were unchanged versus March at 2.9%; and units in administration fell slightly to 2.2%, despite Dwell, Modelzone, and Ortak going into administration during the period.
If we look at what's happened since the end of June, we've agreed terms for the re-letting of five of the six remaining HMV units; secured continued occupation of Republic on temporary rolling one-month leases, giving us income and flexibility. These actions more than offset the impact of Internacionale going into administration this month, with the result that our units in administration would currently stand at just 1.7%, if those all signed.
Footfall in the shopping centers was down 2.9%, but outperformed the market.
On a total sales growth basis, sales in our shopping centers rose by 2.5% on the same quarter last year. On a same store like-for-like basis, sales fell by 50 basis points.
Continuing recent trends, the food and beverage sector was a strong performer with growth of 3.3% versus the same quarter last year. That performance demonstrates why we're pleased with our increased exposure to the leisure sector, which reflects increased consumer demand for experiences.
We continue to recycle capital, funding our investment and development activity through the sale of those assets which are not well placed to adapt to change, or have no long-term place in our portfolio.
Since April 1, the major disposals were our 50% in Empress State, and this month we sold Oxford House to GPE, as you'll have seen this morning. Both of these were sold to special purchasers.
We disposed of retail assets in Liverpool and Welwyn Garden City, as we continue to reposition our retail portfolio as well.
Our finances remain in good shape, with our LTV at 37.2%, pro forma for the sales it's 36%; and cash and undrawn facilities of GBP0.9 billion.
Outlook unchanged. In May, I said that we moved into a new financial year with an optimism increased by -- sorry, tempered by caution, and that remains the case.
In London, we've seen an increase in interest from potential occupiers. No change to the supply constraint conditions in the market. The retail market, as I said earlier, remains challenging but we're working hard to maintain occupancy, and you've seen the evidence of that today.
Consumer and retail demand continues to evolve, and we're providing space which meets that demand, and selling assets which are less well placed to do so. Expect this approach to continue.
So we continue to deliver on the plan. Our development program is well placed and well timed. Our asset management is maintaining virtually full occupancy.
So, on that note, I think I'd like to hand you over to -- over to you for questions.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions). Neil Green, JPMorgan.
------------------------------
Neil Green, JPMorgan - Analyst [2]
------------------------------
Just two quick questions, please. How do these development lettings compare to your plan?
Also, these retail lettings you've announced, the GBP5.5 million, how do these compare to the prior passing rents? Thank you.
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [3]
------------------------------
Okay, let me talk about the London development lettings, because those are the only development lettings we've done, apart from some in Trinity Leeds; and then Richard will talk about the investment lettings in the Retail portfolio, because virtually all of the investment lettings this quarter were in the Retail portfolio because, if you remember, the London portfolio at May was full.
So the London developments, both lettings and in solicitors' hands, every single deal is ahead of our underwriting in terms of rent, rent free, and lease term; every single deal.
Richard?
------------------------------
Richard Akers, Land Securities Group PLC - Executive Director [4]
------------------------------
The investment lettings in the retail portfolio, as we said, are 1.8% above ERV. In terms of their comparison costs, we don't provide that. But rental values fell last financial year, so I think it's fair to assume that [these] would have been probably slightly below the passing rent that existed prior to those units becoming void.
------------------------------
Neil Green, JPMorgan - Analyst [5]
------------------------------
Okay, great. Thank you.
------------------------------
Operator [6]
------------------------------
Hemant Kotak, Green Street Advisors.
------------------------------
Hemant Kotak, Green Street Advisors - Analyst [7]
------------------------------
Can you just help us understand the motivation for selling Oxford House at this stage?
And just to help us understand what the price was above book value, and the profit on cost margin that you've forgone given the GBP90 million sale price, please.
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [8]
------------------------------
Yes, as ever, these things are never black and white, Hemant. We've been working on this now for quite some time, and both this and Empress State House, where people asked exactly the same question, why are you selling a building which is next to where someone else is doing something, and that's exactly the point.
We've been working on this sale for quite some time; it is right for us to do it, so we've done it. We're totally unemotional. We've got a price at which we are very happy. We can put that money to use better elsewhere, so that's what we're going to do.
We don't report on individual buildings ahead of book value; we will give you aggregate numbers on book value, as always, when we report in November. But we're happy with the sale.
And I'm sure Toby's happy with the purchase, so we're all happy, and that's great.
------------------------------
Hemant Kotak, Green Street Advisors - Analyst [9]
------------------------------
Just if I can push a little bit more on one point there. On Park House, I think you indicated what you left on the table, if I'm not mistaken. What do you think is the profit on cost margin that you've forgone by not sorting out a resi?
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [10]
------------------------------
I can't tell you that, Hemant, and I'm not -- if I knew, I would tell you.
The difference in Park House when we sold it is we were two months into a committed construction contract with a fixed price contract, so we knew exactly what the numbers. All we've got at Oxford House is a planning consent. We haven't even got a detailed design and a tender design yet, so we just don't know.
------------------------------
Hemant Kotak, Green Street Advisors - Analyst [11]
------------------------------
Okay, that's great. Just one more question, please. With News Corp planning to move out of Thomas More Square in 2014, I think it is, what's the best use for this asset? Is it still offices in the medium term? And then what are your plans for it?
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [12]
------------------------------
Yes, we think it's offices. And we're fairly well down the line of what we're going to do to it. Clearly, we've known about this potential move out of News International here, one of the tenants in the scheme, for some time.
As you will know, rents are low here, they're in the 20s, and so it's value space; always has been value space, and there is a place for that in the market. So we'll be just doing a little bit of reconfiguration work, and then re-letting that space, I suspect.
------------------------------
Hemant Kotak, Green Street Advisors - Analyst [13]
------------------------------
Thanks. And, sorry, I know I said last question but just one more quick one. How much more advanced discussions do you have at 62 Buckingham Gate and 20 Fenchurch Street, please? I think you mentioned that.
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [14]
------------------------------
Yes, again, I'm just not going to get into that. The impression we're trying to give, Hemant, which hopefully we've been successful, is that there is a marked increase in the amount of real discussions we're having on the space.
We will only tell you when something is in solicitors' hands, if everything has been agreed and it's been handed over to the lawyers to close. We're in that position on 43% of the rent, but we've got more discussions where we're not quite in that position yet, so we haven't reported that.
------------------------------
Hemant Kotak, Green Street Advisors - Analyst [15]
------------------------------
Thank you, Rob.
------------------------------
Operator [16]
------------------------------
Christopher Fremantle, Morgan Stanley.
------------------------------
Christopher Fremantle, Morgan Stanley - Analyst [17]
------------------------------
All my questions have been answered, thank you.
------------------------------
Robert Noel, Land Securities Group PLC - Chief Executive [18]
------------------------------
Thanks, Chris. Well, if there are no more, chaps, and you can still hear me, then thanks very much indeed for coming on the call. We're around all day if you've got any further questions. Ed's here, and Richard, Martin, and I are here all day, so look forward to hearing from you later if you've got any further questions. See you.
------------------------------
Operator [19]
------------------------------
That does conclude the conference for today. Thank you for participating. You may all disconnect.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------