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QD view – Will Landsecs return to former glory?

Mark Allan, the new chief executive of Land Securities, this week set out his strategy for growth at the former goliath of listed property companies.

Since taking over the hot seat from Rob Noel in April, Allan has been undertaking a strategic review of the business.

That review has concluded with four key pillars for future growth: optimising its central London business, reimaging its retail business, selling out of subscale sectors and growing through “urban opportunities”.

He will no doubt be a bolder leader than Noel but does the strategy go far enough to turn around Land Securities’ fortunes?

The company’s portfolio is focused on offices (53.4% at March 2020), retail (34%) and hotels and leisure (12.6%), so it is little wonder that it has been hit harder than most during the COVID-19 pandemic.

Its share price has fallen 45% since mid-February and it is trading at a 55% discount to its last reported net asset value (NAV).

Allan has previous in leading strategic turnarounds at public companies. He was chief executive at student accommodation specialist Unite Group for 10 years before taking the reins at St Modwen Properties and leading its transformation out of retail and into logistics development.

His latest strategic review is not as radical as at St Modwen, however, but it certainly is on a larger scale.

Land Securities will embark on a £4bn asset sale programme over the next six years, representing a third of its £12.8bn portfolio according to March book values.

The key figure there is six years. It is clear that this turnaround is not going to be quick.

Hotels, leisure and retail parks collectively amount to £1.6bn of the sales programme, across 51 properties. However, it will not start with these, but with the London offices where it has already added value. Recent investment deals in the market show that the London office market is pretty liquid and pricing has held up.

Once the hotel and leisure sectors recover from the pandemic and stronger pricing returns, it will look to dispose of assets in these sectors.

Allan is not going to take any development risk either. It is very much a wait-and-see scenario for its development sites, which is understandable during COVID. Even so, Allan has put a two to three-year time frame on putting capital back into developments.

In the long term, mixed-use urban regeneration is expected to amount to about 25% of the portfolio in the next five years.

Ultimately, the landlord’s plan is to reduce its portfolio to three categories – central London, mixed-use urban regeneration, and regional retail – by 2026.

Regional retail (a mix of shopping centres and retail parks outside London) is forecast to make up around a sixth of the portfolio by that point, and it will look at repurposing retail space at current sites into residential.

As far as mixed-use urban regeneration goes, logistics, healthcare and senior living are sectors that will almost certainly feature in the strategy.

Allan is repositioning Land Securities to a total return business away from income as the key driver for growth.

Through its development and urban regeneration value-add focus, it hopes to see substantial capital value growth in its portfolio and consequently NAV.

This is not going to be a quick turnaround process, but the group seems to be on the right path to growth under Allan’s stewardship.

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