Q3 2014 Land Securities Group PLC Interim Management Statement Call
Jan 21, 2015 AM EST
LAND.L - Land Securities Group PLC
Q3 2014 Land Securities Group PLC Interim Management Statement Call
Jan 21, 2015 / 08:30AM GMT
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Corporate Participants
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* Robert Noel
Land Securities Group Plc - Chief Executive
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Conference Call Participants
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* Mike Prew
Jefferies & Co. - Analyst
* Remco Simon
Kempen & Co - Analyst
* Hemant Kotak
Green Street Advisors - Analyst
* Christopher Fremantle
Morgan Stanley - Analyst
* Kieran Lee
Liberum - 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 Q3 IMS conference call. (Operator Instructions). I must advise that this conference is being recorded today, Wednesday January 21 2015.
I will now 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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Thanks very much. Morning, everyone, and welcome to our call. You'll have seen our brief statement so I'll just expand a little.
In London our leasing and construction momentum continues. Construction is on program and the occupier markets have started the New Year in robust form.
We have 87,000 square feet of development in solicitors' hands and on terms ahead of the September valuation assumptions.
In the London office market supply is tight, interest in our developments is keen and the investment market is strong, and this is despite current geopolitical and economic turbulence and the inevitable disruption of a general election.
As we reported in November, the resi market is subdued, but our exposure as you know is relatively limited, as we've pre-sold most of our units and as we've previously said, the remainder are only expected to sell post completion.
We're in a strong position in London and are very confident in the quality and prospects of our developments.
Looking at them individually, in the City, the Sky Garden at 20 Fenchurch Street is now open to the public; there are only three-and-a-half floors left to let and there is strong interest in the space.
1, 2 New Ludgate are due to complete in April and at 1 New Street Square, due to complete in July next year, the building is now rising out of the ground fast.
In Victoria the Zig Zag building in Kingsgate are scheduled to complete in July and the construction of Nova, on schedule for completion in July next year, again is also moving ahead rapidly.
Elsewhere in the West End both 20 Eastbourne Terrace and Oriana Oxford Street are progressing well and are on schedule to complete in February and November 16 respectively.
There was one disposal from the London portfolio in the quarter. We took advantage of market liquidity to sell Mark Lane for GBP73.2 million and there was one opportunistic acquisition, the remaining 50% of Thomas More Square for GBP85.3 million. We now own 100% again and are leasing it into a rising rental market.
Overall the London investment portfolio is practically full and our portfolio management continues to be focused on re-gearing and extending leases where possible. As you know, we're keen to increase the weighted average unexpired lease term of our offices which stood at 9.1 years in September.
In retail the strategic shift of our shopping center portfolio towards dominance, experience and convenience is pretty much complete. Since the beginning of the financial year we've taken advantage of strong investment demand to sell down shopping centers which do not fit in with our strategic themes, with GBP813 million of sales at 14% ahead of the March 2014 valuation; and re-invested GBP834 million in Bluewater and the remaining 50% of Buchanan Galleries.
During the quarter we sold Bristol, Livingstone, Exeter and Salisbury.
Over Christmas our re-shaped dominant shopping center portfolio of Bluewater, Trinity Leeds, White Rose, St David's, Buchanan Galleries and Gunwharf Quays recorded a good performance. Overall on a same store like-for-like basis, retailer sales were up 3.2% this quarter on the same quarter last year versus the BRC benchmark of 2.1%.
On a total sales growth basis, retailer sales were up 3.8% over the same period. Footfall in our shopping centers was up 2.3% ahead of the national footfall benchmark which was down 1.6% in the same period.
Voids and units in administration in retail's like-for-like portfolio were 3.8% at December 31; this is up a tick from 3.6% in September. Since December 31, Bank, USC and Austin Reed have gone into administration with a total rent roll of GBP1.4 million and comprising seven units within our portfolio.
As I said, most of the major changes to our shopping center portfolio are complete so our shopping center focus is now on optimizing space and consumer experience, improving data capture and connectivity and creating rental tension.
We also remain very confident about the potential development of new destinations in Oxford and Glasgow but have no further news on either of these this morning. We will update you at the year-end, if not before.
Moving to the balance sheet and as expected, following our recent sales our net debt has decreased from the September high which followed the Bluewater acquisition. This is in line with our broadly net debt neutral approach and our aim of seeing LTV decline across this phase of the cycle.
Now I think that pretty much wraps up on the major points and as usual we are very happy to take your questions. So over to you.
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Questions and Answers
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Operator [1]
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(Operator Instructions). Mike Prew, Jefferies & Co.
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Mike Prew, Jefferies & Co. - Analyst [2]
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Can you just update us your thinking on where we are in the cycle? You've got 10-year bonds at 1.5% and likely to fall further. Have you been a little bit too cautious for too long, keeping in mind some of the growth that's coming through?
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Robert Noel, Land Securities Group Plc - Chief Executive [3]
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Yes, Mike, we've got, as we said pretty clearly in the statement, 1.4 million square feet of space coming through over the next 18 months to let. Clearly that won't all be let by completion. We've got quite a lot of operational exposure to that market and we're very happy with that.
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Mike Prew, Jefferies & Co. - Analyst [4]
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Okay. So can you just -- I'm not familiar with the terms retail sales and total sales growth, what's the difference in definition between the 3.2% and 3.8% numbers?
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Robert Noel, Land Securities Group Plc - Chief Executive [5]
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3.2% are same store like-for-like, i.e., it's the same store this year, same store last year; total sales will be, if we've changed a retailer and they've gone in and another retailer's gone out, it'll be that. So it's --
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Mike Prew, Jefferies & Co. - Analyst [6]
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And (technical difficulty) center, where does that fit in your current strategic thinking about the newly-shaped retail portfolio?
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Robert Noel, Land Securities Group Plc - Chief Executive [7]
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Sorry, Mike, you broke up on static there, so I didn't hear.
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Mike Prew, Jefferies & Co. - Analyst [8]
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The O2 center which you mentioned, where does that fit into the retail stack and where you're thinking about your new strategy?
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Robert Noel, Land Securities Group Plc - Chief Executive [9]
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This is absolutely a (inaudible). I think we got asked the same question in November. We've got our destination out of town and we've got our high density population six centers in town, which are effectively O2, Lewisham, West12, Clapham, Wandsworth and also, to a certain extent, the Hatfield Galleria. So they're more general London schemes.
O2, by the way, clearly as you know, a couple of years ago we bought in the freehold and are working on quite a big area of land that we own now as well.
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Mike Prew, Jefferies & Co. - Analyst [10]
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Okay, great. Thank you very much.
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Operator [11]
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Remco Simon, Kempen.
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Remco Simon, Kempen & Co - Analyst [12]
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Certainly in terms of [letting update], you mentioned you've got some additional space under offer. But could you maybe talk a little bit more about how you see letting progressing on your developments? You've got 1.4 million square feet still to let; that number hasn't really changed since November. I appreciate it's only been two months and you had the Christmas period in between, of course, but could you maybe talk a little bit more about how you see that for some of these schemes?
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Robert Noel, Land Securities Group Plc - Chief Executive [13]
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I think you've answered your question yourself, Remco. We stood up in front of you in November; we then had a drinks party in Claridges, went away for three weeks at Christmas and came back and we've got 87,000 square feet under offer. So we're quite happy.
This is a market which is effectively playing towards us at the moment. I think landlords' negotiating power is increasing rather than decreasing. There simply isn't enough space. And if you go back to what we've said consistently over the last six months, we are holding out for long leases and we're getting them.
Now these things are not easy, but we are getting them and we're very happy with where we sit. It's a quarterly statement; we've effectively had five working weeks since we last spoke to you, so detailed stuff we're just not going to get into.
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Remco Simon, Kempen & Co - Analyst [14]
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(Inaudible), that's fair. Second question, you mentioned a comment about political uncertainty around the elections; is that something which is a major concern to you? Or do you expect it will be more something like the Scottish independence where everyone will be nervous for two weeks and then it will blow over and we all get back to business as usual?
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Robert Noel, Land Securities Group Plc - Chief Executive [15]
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I wish I knew. Life would be easier if we didn't have an election this year; that's all I can say really. It's the same every time we have an election.
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Remco Simon, Kempen & Co - Analyst [16]
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Fair enough. Thank you.
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Operator [17]
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Hemant Kotak, Green Street.
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Hemant Kotak, Green Street Advisors - Analyst [18]
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Just a question on the pretty strong like-for-like same store sales number. Is there any particular center that is driving it in either direction, please?
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Robert Noel, Land Securities Group Plc - Chief Executive [19]
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No. And Hemant, we don't give that -- we haven't given that information and we don't really want to go down that line because otherwise we have to give it every time. We've got six centers out of town, I think, or seven, big ones; they will clearly drive it because of the sheer volume of them. But we won't give that breakdown.
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Hemant Kotak, Green Street Advisors - Analyst [20]
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Okay. And then in terms of [tenant admins], you named three there, three notable ones. What's the outlook like for maybe the rest of Q1? Do you expect many more?
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Robert Noel, Land Securities Group Plc - Chief Executive [21]
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Well again, rather like the election result, I wish I knew. We've got very few people on our watch list at the moment. In fact we've got fewer people on our watch list this quarter than we had last quarter. (multiple speakers) any guidance.
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Hemant Kotak, Green Street Advisors - Analyst [22]
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Okay, that's great. And then just one last question please. You've actively repositioned your shopping center portfolio to a very high average quality. I just wonder how you feel about your retail parks, and how they're positioned in terms of quality relative to peers, and is there any plan to reposition there please?
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Robert Noel, Land Securities Group Plc - Chief Executive [23]
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There are no plans to reposition there. As to their quality versus peers, you're the analyst, not me.
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Hemant Kotak, Green Street Advisors - Analyst [24]
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So just to follow up on that, Robert, you're happy with your quality of retail parks because, clearly, there was some corrective action that you felt like the quality was not appropriate for the environment for shopping centers. But for retail parks there's no issue you feel?
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Robert Noel, Land Securities Group Plc - Chief Executive [25]
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I'm never happy, Hemant, with anything as anyone who's ever worked with me will testify to. We will always work and jerk our portfolio, and we're working on every orifice of it every day. I think just to talk about what our plans are on a call like this, as a quarterly statement, is not the right thing to do. We always look at our portfolio, but there are no plans to sell or reshape our retail warehouse portfolio to any large degree at the moment.
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Hemant Kotak, Green Street Advisors - Analyst [26]
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Okay, that's great, thank you.
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Operator [27]
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Christopher Fremantle, Morgan Stanley.
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Christopher Fremantle, Morgan Stanley - Analyst [28]
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On the disposals that you've made in the quarter, I appreciate the sales you've made so far this year ahead of March valuation. Are any of the sales that you've made in the quarter materially ahead of September valuations?
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Robert Noel, Land Securities Group Plc - Chief Executive [29]
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It's very difficult for us to give that because of the ones we've sold in the quarter, the main one, Bristol, was held as an asset for sale in September because we'd exchanged contracts, as you remember. But technically it was a sale in the quarter, so it was valued at the contract price.
And so if we gave you sales against the September number you would work out very quickly what they were for individual centers. And we've always said we'll just give you the aggregate, but because over three quarters we've got quite a big aggregate number we felt very happy giving it to you this time.
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Christopher Fremantle, Morgan Stanley - Analyst [30]
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Okay, but for the remaining stuff that you have sold, you're not able to give an aggregate figure?
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Robert Noel, Land Securities Group Plc - Chief Executive [31]
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What I can tell you is that Bristol sold in line with September because you can take that from the statement. And I can tell you that everything else sold above the September number, I'm just not going to tell you by how much.
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Christopher Fremantle, Morgan Stanley - Analyst [32]
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Okay that's fine. Thank you.
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Operator [33]
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Kieran Lee, Liberum.
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Kieran Lee, Liberum - Analyst [34]
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Just a quick question regarding the development pipeline. Given the successful performance of developments to date, and the tailing off of the pipeline from next year, are you planning on restocking this? If not for this cycle, for the next?
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Robert Noel, Land Securities Group Plc - Chief Executive [35]
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Well, the answer is, Kieran, we're always on the lookout for deals to restock the pipeline, be it development or non-development, all the time. And we spoke, if you recall, about 21 Moorfields at our November presentation. So the answer to that is of course we are. As for plans for committing to any more developments, the position hasn't changed from that which we said in May. We do not plan to add to our speculative program at the moment.
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Kieran Lee, Liberum - Analyst [36]
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Brilliant. Thank you very much for that.
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Operator [37]
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Thank you. There are no more questions, please continue, sir.
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Robert Noel, Land Securities Group Plc - Chief Executive [38]
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Okay. Well listen, guys, thanks very much for attending the call. I'm sorry, we did debate whether we were going to continue these quarterly calls because when they fall in January it's only as we said earlier, five working weeks since the last stuff so you've never really got much news.
But we felt we should continue it as you're expecting it, and we'd be very grateful for feedback as to whether or not you think it's a good idea. But anyway I'll leave that with you. Happy New Year to those of you that we haven't spoken to, and we'll see you in May.
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Operator [39]
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Thank you. That does conclude our conference today. Thank you for participating. You may all disconnect.
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