17th May 2024 09:45
(Alliance News) - Land Securities Group PLC's London portfolio looks in "good shape", while asset values may be at a "cyclical low", analysts on Friday said after the commercial property investor announced in line annual results.
The London-based company suggested commercial property prices have begun to stabilise as investor interest picks up given the more "balanced" outlook for interest rates.
Chief Executive Mark Allan said: "Following a reset of values over the past two years driven by rising interest rates, the stabilisation in rates and evidence of continued rental growth is starting to attract increased investor interest for the best assets."
"Around 60% of our portfolio already showed stable values in the second half and overall yields were largely stable in the final quarter, pointing to a positive outlook for our overall return on equity."
The comments came alongside results for the financial year ended March.
Pretax loss in the year narrowed to GBP341 million from GBP622 million a year prior.
EPRA earnings fell 5.6% to GBP371 million from GBP393 million a year prior, with EPRA earnings per share also down 5.6% to 50.1 pence from 53.1p.
EPRA net tangible assets per share decreased 8.2% to 859p on March 31 from 936p a year prior.
The total dividend was increased by 2.6% to 39.6p from 38.6p a year ago, in line with guidance of low single digit percentage growth.
Land Securities said it had delivered "continued outperformance," reflected in 8% uplifts on re-lettings and renewals and 130 basis points occupancy growth across London and major retail.
This drove 2.8% like-for-like net rental income growth.
Analysts at Stifel said the results were "in line with our expectations", with earnings held steady and growth expected from financial 2026 onwards.
Encouragingly, the broker noted occupier markets in the company's core areas remain strong, with new lettings 2% above previous passing rents, and occupancy high.
Stifel noted while the portfolio valuation fell 6%, as expected, much of this was in the first three-quarters of the year. "We are confident that the March 2024 [net tangible asset] per share will be the nadir."
Stifel thinks while the share price has recovered over the last month, helped by an improving interest rate and economic environment in the UK, there is more to come.
"We think the NTA per share of 859p announced today is likely the cyclical low, and the 20% share price discount represents a buying opportunity."
Stifel has a 750p per share price target for Land Securities. The stock was down 2.0% to 676.00p early Friday in London.
Shore Capital analyst Andrew Saunders said operationally Land Securities continues to action a transitional strategy to rebalance the business from a "legacy London office/retail landlord to one with greater exposure to higher return mixed-used and urban regeneration and sectors where it has competitive advantage."
"This strategy will take time to fully affect but we believe the business is moving in the right direction," he added.
Disposals of City offices have allowed Landsec to strengthen its balance sheet while also increasing its office weighting towards the West End - which is in structurally better shape, he pointed out.
"While there remain wider some challenges for the office sector at large, Landsec’s London portfolio looks in good shape," he added.
"Our view remains that investor sentiment towards UK-listed REITs is beginning to improve as the first rate cuts edge ever closer and we believe that the Landsec valuation looks more appropriate to a trading outlook with underlying improvement."
Shore Capital has a 'hold' rating on Land Securities.
By Jeremy Cutler, Alliance News reporter
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