19th Jul 2006 11:30
Land Securities Group Plc19 July 2006 19 July 2005 LAND SECURITIES GROUP PLC ("Land Securities" / "Group") ANNUAL GENERAL MEETING Francis Salway, Group Chief Executive, and Peter Birch, Chairman, will make thefollowing remarks at the Group's Annual General Meeting to be held today at11.30 am in The Sainsbury Wing Theatre, The National Gallery, Trafalgar Square,London WC2N 5DN. Francis Salway, Group Chief Executive: "It gives me great pleasure to be able to report, once again, on a very strongperformance across the Land Securities Group. I believe that this demonstratesthe integrity of the strategy we introduced some six years ago of allocating ahigher proportion of our capital to property development and to outsourcing. Onall fronts the business has performed well, with a like-for-like investmentportfolio valuation surplus of 15.9% and a development valuation surplus of32.9%. "Land Securities Trillium had another excellent year - as was evidenced by thesale our share of the Telereal joint venture for a profit of just under £300m,through which we demonstrated the value inherent in this business. "Over the past few years our strategy has been to invest more capital intohigher return areas. This has resulted in increased levels of activity acrossthe Group, which is probably best demonstrated by the £3.25bn of capitalturnover achieved in the last financial year. "Notable contributions to this were the acquisition of Tops Estates plc - thefirst acquisition of a quoted PLC we have made since the 1960s - and theacquisition of LxB, a private property company. These purchases cement ourposition as a major force in the retail property market, with our portfolio nowstanding at some 20 million square feet. "In Central London, our repositioning of the portfolio continued. We sold £400mof property while reinvesting some £640m on purchases and spending £185m ondevelopment projects such as Cardinal Place which has transformed a rather tiredpart of Victoria Street in London. "We also continue to make good progress with leasing our development programme. Over the course of last year and in the first four months of this, we haveagreed over 700,000 sq feet of development lettings. "Last year was the first in which we benefited from the Group's new debtstructure. Given that we are a capital intensive industry, a key driver of ourperformance is our cost of debt. The new debt structure has proven to be verysuccessful - not only providing us with the lowest cost of debt in the sectorbut also with a quick and effective way of financing the business. For example,last year we completed a bond issue five days after the relevant board approvalhad been given. "This translates into shareholder value in a number of ways. Over the past twoyears, we have increased the dividend by approximately 25% and rebalanced thedistribution between the final and half-year dividend, which is now more evenlyspread between the two halves of the year. We have grown our net asset value byalmost 50% over the same period (if you exclude the accounting impact of thedebt refinancing). "Furthermore, strong business performance, combined with a shareholder appetitefor property, has translated into a strong share price performance. Over atwo-year timeframe to 31 March 2006, an investor in Land Securities' shares hasreceived a total shareholder return of 89% - far outstripping the performance ofthe FTSE-100 Index. "Before commenting on our future priorities, I would like to provide a briefupdate on market conditions. "Over the past two to three years we have seen a period of sustained yield shiftacross all types of property. This has been driven largely by the lower cost ofdebt. However, we believe that further yield shift is unlikely. "We have of course benefited from these market conditions. Our strong valuationuplifts have not solely been driven by yield shift but also by our assetmanagement and, particularly, development activities. This has led to ourinvestment property business outperforming the market by 2.2% over the pastfinancial year (as evaluated independently by Investment Property Databank, themarket benchmark). "In terms of the decisions we are making now to create future value, we aremindful of the full prices being paid for standing investments. We are,therefore, selective when acquiring assets, seeking out property which canbenefit from our asset management expertise or that offer future developmentpotential. "Turning now to the occupier markets, the picture here is a little mixed. Wecertainly have not had a bubble in retail rents, but life is undoubtedly tougherfor retailers, who are coming under pressure from rising costs and static sales. However, this is not universally true of all retailers. Our experience todate is that retailers are still seeking to take new space, particularly indominant locations, but they are now taking longer to commit and lettingincentives such as rent-free periods are rising. "In terms of London offices, market conditions have improved significantly overthe last year. The West End is particularly buoyant with little Grade A officestock available and we have set new rental highs for the Victoria office marketon lettings at our Cardinal Place development. In the City, as we predicted twoyears ago, rental growth is now just becoming evident. We started constructionworks on one million square feet of offices in London last year which weconsider to be well timed as we believe we are now entering a period of strongergrowth in rental values for London offices. "In terms of the Group's future priorities, as I have already mentioned, we arecommitted to property development as a way to create superior value forshareholders and our development programme will involve investing £3.1bn indevelopment projects over the next few years. Development is both a highreturn, and potentially a higher risk, activity and we have in place rigorousrisk management criteria against which we evaluate each scheme. We also haveoverall risk criteria to limit the total size of our programme to ensure thatour dividend remains covered should we fail to reach our lettings targets. "In London, we are currently delivering schemes at New Fetter Lane, Bankside (onthe South Bank near Tate Modern), and One New Change on Cheapside. In retail,we are on-site in Cambridge, Exeter, Bristol and Corby with future schemes inCardiff and Livingston. "This development programme, which has created substantial value forshareholders to date, is a key differentiator for us as a Group. "Our second priority is to grow Land Securities Trillium and over the past 12months we have identified two potential new areas for investment. First is theBuilding Schools for the Future ("BSF") programme, where the Government intendsspending up to £40bn over the next 15 years renewing the country's secondaryschools. In January of this year, we invested in a joint venture calledInvestors in the Community with the Mill Group. Through this vehicle, we havealready invested in a BSF project in Bristol and are targeting similaropportunities in Peterborough, Leeds and Waltham Forest. "Second is the Defence Training Review where, as part of the Metrix Consortiumwith QinetiQ, we are bidding on two packages addressing the combined trainingrequirements for the entire armed forces. Our consortium is proposing a majornew training centre to be developed at St Athan in Wales together with a numberof smaller facilities across the UK. QinetiQ are leading the training side ofthe bid and we are leading the property accommodation element. We hope to havea decision on this bid by the Autumn. "In addition we are shortlisted for a property outsourcing contract on theNorthern Ireland Civil Estate. "I would now like to turn to the subject which has dominated commentary on thequoted property sector for the last year, namely Real Estate Investment Trusts(REITs). We were delighted that when the Government legislation was unveiled itwas less restrictive than we thought might be the case during the consultationprocess. Some of the detail in the legislation and the accompanying regulationsis still to be finalised, and it is for this reason that we have not yet made aformal decision to convert to REIT status. However, based upon the currentdraft legislation, we believe that it will be highly attractive to ourshareholders for the Group to convert to a REIT and we expect to do this from 1January 2007. Converting to a REIT will require a change to our Memorandum andArticles of Association and an EGM will be convened this Autumn for thispurpose. "I would like to stress that REITs represent a change to the Group's taxstatus, not a change to its corporate form. The tax changes involved mean thatno corporation tax or capital gains tax will be payable on qualifying propertyactivities, which will clearly be beneficial to us. In return, we will need topay a conversion charge equal to 2% of the gross value of our assets and thenmeet certain conditions for operating as a REIT. "These conditions are currently met by Land Securities in its present form andwith our current strategy. In particular, Land Securities Trillium can continueto be part of Land Securities Group as a REIT, and a high proportion ofTrillium's current profits will be tax exempt. Indeed, across the whole Group,we expect around 90% of our profits to be tax exempt. "So, for a conversion charge estimated at £270 million (based on our balancesheet at 31 March 2006), we expect annual tax savings of around £75 million perannum - and a freedom to recycle assets within our investment portfolio withouttriggering capital gains tax liabilities. "It is our intention to distribute the tax saved as additional dividend. Thisis likely to result in an increase in our dividend of approximately one third ona full year basis post REIT conversion (coming on top of the 25% increase overthe last two years). "For a private shareholder, the benefit of the increase in dividend will bepartially, but only partially, offset by the fact that the REIT property incomedividend will attract a 22% withholding tax. The dividend will be taxed atshareholders' normal tax rate with a credit being attributed to the 22%withholding tax. Peter Birch, Chairman, concluded: "I would briefly like to summarise the strong position of the Land SecuritiesGroup. We have now established our track record in terms of the returns we aregenerating from the investment portfolio and tightened our business focus ontoareas where we have market leading positions. We are more active on thedevelopment front and we are growing Land Securities Trillium and, indeed, havealready proven our ability to create value through these activities. Our debtstructure is highly effective and provides competitive advantage in terms ofcost of capital. "Finally, we are about to enter a new environment for property as an asset classwith the introduction of REITs. We are very excited about the prospects thisoffers shareholders as a tax transparent way of investing in a highly liquid,publicly quoted property vehicle. "All in all, your company is in great shape and poised to grasp newopportunities in the future." For further information, please contact: Francis Salway/Emma DenneLand Securities Group PLCTel: +44 (0)20 7413 9000 Stephanie Highett / Dido LaurimoreFinancial DynamicsTel: +44 (0)20 7831 3113 NOTES TO EDITORS Land Securities Group PLC Land Securities is a FTSE 100 company, quoted on the London Stock Exchange. Ithas been at the forefront of the UK's commercial property industry for over 60years. Today, the Group maintains its market leading position as the UK's largestquoted property company by providing commercial accommodation and propertyservices to a wide range of occupiers. The Group's objective is to createattractive and sustainable returns for its shareholders through its activities,which include property investment, development and property outsourcing. Land Securities holds a market leading position in three areas of the UKcommercial property market: • Retail, • London offices and • Property outsourcing. Its £12.9 billion combined investment portfolio totals six and a half millionsquare feet, including office and retail space in Central London, 30 shoppingcentres, 30 retail parks and 10 supermarket properties located across the UK. It has a substantial development programme including major retail-led urbanregeneration schemes and Central London mixed-use developments. The Group isalso master planning one of Europe's largest regeneration schemes in KentThameside. The Group leads the market in property outsourcing where, through LandSecurities Trillium, it provides accommodation and property-related services tothe Department for Work and Pensions, Norwich Union, Barclays Bank, DVLA andthrough Telereal to BT. The Group is committed to environmental initiatives and community involvementrecognised by the Group's inclusion in the FTSE4Good and the Dow JonesSustainability Indices. For more information on Land Securities visit www.landsecurities.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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