Land Securities : Download Half-yearly results 2020 presentation

Note: Photographic content has been commissioned post-impact of Covid-19

Landsec - Half-yearly results 2020/21	2

Overview

Mark Allan

Financial review

Martin Greenslade

Portfolio review

Colette O'Shea

Outlook

Mark Allan

Landsec - Half-yearly results 2020/21	3

An extraordinary six months but…

• Managing the impact of Covid-19 proactively and responsibly
• Business fundamentals remain strong
• London remains attractive
• Reinstating dividend alongside interim results
• Looking beyond Covid-19 to medium and longer-term opportunities
• New strategy positions Landsec for growth

Gunwharf Quays, Portsmouth

Landsec - Half-yearly results 2020/21	4

Managing the impact of Covid-19 proactively and responsibly

• Safety is our number one priority
• Strengthened customer relationships through collaborative dialogue
• Measured approach to development
• Neutral debt position over the period
• Financially prudent with cautious provisioning

Gunwharf Quays, Portsmouth

Landsec - Half-yearly results 2020/21	5

Business fundamentals remain strong

• Low LTV
• Good portfolio liquidity
• London, in particular, defined by quality, resilience and liquidity
• Long held focus on sustainability creating value
• Significant medium-term regeneration potential within urban opportunities
• Strong track record, reputation and relationships
• Team characterised by experience,

expertise and capability	Dashwood, EC2

Landsec - Half-yearly results 2020/21	6

Looking beyond Covid-19 to medium and longer-term opportunities

• How offices are used will change
• Expect increased obsolescence of older office stock in London to provide development opportunities
• Urban mixed-use/regeneration to deliver the change the built environment needs
• Financial and human resources in place

123 Victoria Street, SW1

Landsec - Half-yearly results 2020/21

Bifurcation of the central London occupational market continues

• Take-upwas 2.2m sq ft, 67% below the long-term average
• Availability increased by c.45% since Q1: vacancy rate increased to 6.5%
• Demand and supply balanced in run up to Covid-19
• Only 26% of available space is grade A(1)
• 46% of space under construction is already pre-let(2)
• New space represents 48% of total take-up(3) compared with a LTA of 39%

Sources:

1. CBRE
2. CBRE, Knight Frank, Landsec
3. CBRE, Landsec

7

Central London office market

m sq ft

%

18		36
16		32
14		28
12	Forecast	24
10	20
8		16
6		12
4		8
2		4
0		0
-2		-4
-4		-8
-6		-12
-8		-16
-10		-20
-12		-24
-14		-28
-16		-32

1984	1986	1988	1990	1992	1994	1996	1998	2000	2002	2004	2006	2008	2010	2012	2014	2016	2018	2020	2022	2024
				Early 90's recession					Dotcom		GFC			Referendum	Transition
																								period ends
		New space take-up			Completions				Forecast speculative completions			Rental growth (RHS)

London office market availability - grade A vs secondhand space

Proportion of total
80%	74%
70%
60%
50%	50%

40%

30%

20%26%

10%

0%

Q2 2008

Q4 2008

Q2 2009

Q4 2009

Q2 2010

Q4 2010

Q2 2011

Q4 2011

Q2 2012

Q4 2012

Q2 2013

Q4 2013

Q2 2014

Q4 2014

Q2 2015

Q4 2015

Q2 2016

Q4 2016

Q2 2017

Q4 2017

Q2 2018

Q4 2018

Q2 2019

Q4 2019

Q2 2020

Share of grade A space

Share of secondhand space

Landsec - Half-yearly results 2020/21	8

Central London investment market robust despite short-termCovid-19 pressures

Investment market

• Investment activity in calendar Q2 significantly below the long-term average but began to recover in Q3 and Q4 has started strongly
• Low rate environment and yield premium for London vs other global cities provides support for yields/values

Three themes emerging

- Strong investor demand for quality assets

- Obsolescence of older stock accelerating

- Evolution of how space is secured and utilised	Nova, SW1

Landsec - Half-yearly results 2020/21	9

Structural trends in retail accelerating, but outlets remain resilient

• Covid-19has accelerated structural trends, but affecting different assets in different ways
• Outlets remain resilient
• Retailers likely to have fewer full price stores in future, but the physical store has a clear role to play in an omnichannel world
• Investment market for shopping centres remains stalled
• Establishing sustainable rents key to investment market stabilising
  - c.15% below September ERVs

Bluewater, Kent

Xscape Yorkshire

Landsec - Half-yearly results 2020/21	11

Financial summary

30 Sept 2019				30 Sept 2020		% change
£225m		Revenue profit(1)		£115m	-48.9
£(368)m		Valuation deficit(1)		£(945)m	-7.7(2)
£(147)m		Loss before tax		£(835)m
30.4p		Adjusted diluted earnings per share(1)		15.5p	-49.0
1,192p(3)		EPRA net tangible assets per share		1,079p	-9.5
23.2p		Dividend per share		12.0p	-48.3

1. Including our proportionate share of subsidiaries and joint ventures
2. The percentage change for the valuation deficit represents the fall in value of the Combined Portfolio over the period, adjusted for net investment
3. As at 31 March 2020

Landsec - Half-yearly results 2020/21	12

Revenue profit

£m	Net rental income movement £(118)m

-

225

115

Revenue profit	Gross rental	Net	Bad debt	Net direct property	Net indirect	Net finance	Revenue profit
six months ended	income	service charge	expense	expenditure	expenses	expense	six months ended
30 Sept 2019							30 Sept 2020

Landsec - Half-yearly results 2020/21	13

Analysis of bad debt provisions

By activity		£m		By segment		£m
Provisions related to customer support fund concessions	20		Central London	8
Other provisions for rents receivable	45		Regional retail	44
Provisions for service charge receivables	12		Urban opportunities	6
Tenant lease incentive provisions	10		Subscale sectors	29
Bad debt expense charged to revenue profit in the period	87			87

Landsec - Half-yearly results 2020/21	14

Rent collection by activity

Period ended 30 Sept 2020(1)

Amounts received to date

29 September quarter day

Amounts received to date

Offices	99%	96%
Rest of Central London	74%	50%
Regional retail	51%	50%
Urban opportunities	54%	60%
Subscale sectors	69%	47%
Total	77%	78%

(1) Due dates from 25 March to 28 September 2020

Landsec - Half-yearly results 2020/21

Combined Portfolio valuation

15

£11.8bn portfolio

Valuation declined 7.7% or £945m

	Subscale
	sectors
Urban
opportunities	Leisure
	5%
	4%
Regional	Outlets
retail
7%

Regional

shopping centres

and shops

11%

Retail parks 3%

Hotels

3%

£11.8bn portfolio

Central London

Offices

57%

3-month to 6-month rent concessions assumed for certain sectors: £72m impact

Other London

central retail

London 6% 4%

Landsec - Half-yearly results 2020/21

Combined Portfolio valuation

Central London

£7.9bn portfolio,	Valuation declined
67% of Combined Portfolio	3.8%

Offices (-2.3%)

• Like-for-likerental values down 1.0%
• +2bps like-for-like equivalent yield shift to 4.6%
• Like-for-likeassets down 1.9%
• Developments decreased by 3.9%

London retail (-16.7%)

• Like-for-likerental values down 16.5%
• +12bps like-for-like equivalent yield shift to 4.4%

Other central London (0.2%)

• Like-for-likerental values are flat
• Like-for-likeequivalent yield flat at 4.3%

	Retail
Leisure	parks
3%
5%
4%	Hotels
3%
Outlets
7%
Regional
shopping centres
and shops
11%

Other London

central retail

London 6% 4%

16

Central

London

Offices

57%

Landsec - Half-yearly results 2020/21

Combined Portfolio valuation

Regional retail

£2.1bn portfolio,	Valuation declined
18% of Combined Portfolio	16.4%

Like-for-like rental values down 10.1%

Regional shopping centres and shops (-20.4%)

• Like-for-likerental values down 14.4%
• +42bps like-for-like equivalent yield shift to 6.6%

Outlets (-8.8%)

• Like-for-likerental values down 1.3%
• +38bps like-for-like equivalent yield shift to 6.3%

Regional retail

	Retail
Leisure	parks
3%
5%
4%	Hotels
3%
Outlets
7%
Regional
shopping centres
and shops
11%

Other London

central retail

London 6% 4%

17

Offices

57%

Landsec - Half-yearly results 2020/21

Combined Portfolio valuation

Urban opportunities

£0.4bn portfolio,	Valuation declined
4% of Combined	9.8%
Portfolio

Like-for-like	+15bps like-for-like
rental values	equivalent yield
down 5.8%	shift to 5.3%

Urban		Retail
opportunities	Leisure	parks
3%
	5%

4%	Hotels
3%
Outlets
7%

Regional

shopping centres

and shops

11%

Other London central retail

London 6% 4%

18

Offices

57%

Landsec - Half-yearly results 2020/21

Combined Portfolio valuation

Subscale sectors

£1.4bn portfolio,	Valuation declined
11% of Combined Portfolio	12.4%

Leisure (-15.3%)

• Like-for-likerental values down 3.9%
• +70bps like-for-like equivalent yield shift to 7.1%

Hotels (-13.1%)

• Like-for-likerental values down 13.2%
• +27bps like-for-like equivalent yield shift to 5.4%

Retail parks (-7.3%)

• Like-for-likerental values down 6.1%
• +16bps like-for-like equivalent yield shift to 7.6%

Subscale sectors

	Retail
Leisure	parks
3%
5%
4%	Hotels
3%
Outlets
7%
Regional
shopping centres
and shops
11%

Other London

central retail

London 6% 4%

19

Offices

57%

Landsec - Half-yearly results 2020/21

Financing position

A strong position with available resources

• Group LTV 33.2%
• Weighted average cost of net debt 2.1%
• Next bond expected debt maturity: £10m in September 2023
• Cash and available facilities £1.2bn

Bond debt

Bank debt

Commercial paper

Other

Net cash

20

30 September 2020

£m

2,350

476

1,079

59

(24)

Adjusted net debt	3,940

Landsec - Half-yearly results 2020/21	21

Reinstating the dividend

• Reinstating the dividend at 12p per share representing two quarterly dividends
• Retaining quarterly payments
• Dividend will be c.1.2x-1.3x covered by underlying earnings

Cardinal Place, SW1

Landsec - Half-yearly results 2020/21	22

Looking ahead

• Retail and leisure sectors remain challenging
• Disciplined approach to capital investment
• Resilient balance sheet with firepower

CGI of Timber Square, SE1

Landsec - Half-yearly results 2020/21	24

Central London portfolio

A resilient portfolio with the ingredients to thrive

• 98% let
• £1.4m of lettings, with a further £6.2m in solicitors' hands
• £7.2m office rent reviews at 1.2% above passing rent

- £3.2m of income renegotiated in response to Covid-19

• Office WAULT of eight years
• Flexible development programme

Nova, SW1

Landsec - Half-yearly results 2020/21	25

Regional retail portfolio

Managing ongoing restrictions

- 93% let

• £2.2m of lettings, with a further £9.9m in solicitors' hands
• Responding to capacity issues and changing local restrictions
• July to September footfall -39.2%year-on-year, in line with ShopperTrak national benchmark of -39.9%
• July to September same centre sales (excluding automotive) -26.3%, compared to the BRC national benchmark of -12.3%
• Significant variation between assets

Gunwharf Quays, Portsmouth

Landsec - Half-yearly results 2020/21	26

Subscale portfolio

Supporting our customers to resume trading

• 95% let
• £1.2m of lettings, with a further £2.4m in solicitors' hands
• All leisure and retail parks reopened, but now operating under new restrictions

- 21 hotels reopened and two remained closed. However rental income impacted by turnover leases

Novotel, Greenwich

Landsec - Half-yearly results 2020/21	27

Urban opportunities portfolio

Working with customers to responsibly manage trading

• 94% let
• £0.2m of lettings, with a further £1.2m in solicitors' hands
• Suburban London assets fully re-opened when initial restrictions lifted

- Assets benefitted from working at home

• Plans progressing for 8m sq ft of mixed-use space

West 12 shopping centre, Shepherd's Bush

Landsec - Half-yearly results 2020/21	28

Supporting our customers during Covid-19

• Safety number one priority
• • More signage
  • More security
  • More cleaning
  • More communication
• Proactive leadership has strengthened customer relationships

Gunwharf Quays, Portsmouth

Landsec - Half-yearly results 2020/21

Actively engaging with our customers

Pro-active conversations

• Approximately 600 retail, leisure and F&B customers across the portfolio
• Engaged with customers systemically, starting with the top 30/strategic partners
• Now granted concessions of £20m of the £80m support fund

29

Top 30 /
strategic	44%		81%
partners

31 - 100 20%

52%

Remainder	36%
> £50k rent
		42%
	Rent roll	Rent agreed

Landsec - Half-yearly results 2020/21	30

Optimising for growth

Attractive and resilient

• 98% let
• Mutually beneficial opportunities
• • Re-negotiatedsix leases
  • 58,000 sq ft
  • Extended terms by average of nine months
  • £3.2m income secured
• Lower letting activity, little available space
• • 25,000 sq ft, £1.4m
  • £6.2m in solicitors' hands

Eastbourne Terrace, W2

Landsec - Half-yearly results 2020/21	31

Impact from Covid-19

Office occupancy varied

• October average office occupancy of 15%
• Banking, financial and professional services higher than creative, tech, media and government sectors
• Issues facing customers for return to work
• • Changing Government guidance
  • Transport
  • Lack of collaboration spaces

Average weekly occupancy rate by property

30%

25%

20%

% Average

15%

10%

5%

0%

100 Victoria Street

123 Victoria Street

140 Aldersgate

16 Palace Street

5 New Street Square

6 New Street Square

60 Ludgate Hill

62 Buckingham Gate

80 Victoria Street

Dashwood

Nova North

Nova South

One New Change

The Zig Zag Building

10 Eastbourne Terrace

20 Eastbourne Terrace

30 Eastbourne Terrace

Note: Occupancy rate = Average occupancy (AO) for October / AO for February where AO is calculated as total occupancy for a given building divided by the number of weeks

Landsec - Half-yearly results 2020/21

Longer-term office trends

Giving customers access to our expertise

• Realisation of wider impact of working from home
• Hybrid model likely
• Range of products provides flexibility
• Healthy environments and sustainability are essential requirements
• Working towards WELL certified portfolio

32

Blank Canvas - Self-contained offices completed to

a Cat A or Shell condition with traditional pricing and lease

Customised - Self-contained offices fitted and managed

by Landsec 'On-demand' fitout delivery

Myo - Private serviced offices with communal facilities and dedicated on site team

Landsec - Half-yearly results 2020/21

Dashwood

Active management to provide all three products

• Floors 9 to 12 original proposed Myo
• Floors 9 to 11 customer needed to extend lease
• Floor 8 customer marketing
• Floors 6 to 9 new Myo
• Landsec Lounge on ground floor

Dashwood, EC2

Landsec - Half-yearly results 2020/21	34

Changing the future of office ground floors

• Hardest hit with the low office and tourist footfall in the streets of London
• 6% of capital value
• Essential to London's living and working ecosystem
• Reimagining the ground floor

Cardinal Place, SW1

Landsec - Half-yearly results 2020/21

Taking advantage of the optionality in the development pipeline

• Pre-pandemic1.4m sq ft development pipeline across five office schemes
• Continuing with 564,000 sq ft pre-let scheme at 21 Moorfields, with a TDC of £576m
• Committing TDC of £381m to progress two speculative schemes across 284,000 sq ft at Lucent and The Forge

35

CGI of Lucent, W1		CGI of n2, SW1

CGI of 21 Moorfields, EC2

CGI of The Forge, SE1		CGI of Portland House, SW1

Landsec - Half-yearly results 2020/21	36

21 Moorfields

Pre-let to Deutsche Bank

• Operating at around 75% capacity since August
• Completion scheduled in June 2022
• Only four months behind programme
• £576m TDC, 6.5% yield

21 Moorfields, EC2

Landsec - Half-yearly results 2020/21	37

Adapting development to a Covid-19 world

Thinking and planning has evolved

• Procuring contracts with optionality
• Focus on wellbeing within our designs

- Touchless access

• More collaboration and creative spaces as well as private work areas
• Lower densification

- More divisibility

• More staircases to support

lifting capacity

• Alternative uses for retail space

Landsec - Half-yearly results 2020/21	38

Lucent

One of the most iconic views in the world

• 144,000 sq ft
• Floorplates range from 3,000 sq ft to 25,000 sq ft with flexibility to be divided
• Landsec Lounge, event and collaboration space
• 20 balconies and terraces
• Completed significant parts of basement and piling, ahead of schedule
• Delivery December 2022

- £241m TDC, 5.6% yield
CGI of Lucent, W1

Landsec - Half-yearly results 2020/21	39

The Forge

Unique product for its location

• 140,000 sq ft
• Floor plate 3,000 sq ft to 15,000 sq ft
• Sub-structureworks complete by December
• New 'kit of parts' approach
• Delivery June 2022
• £140m TDC, 6.8% yield

CGIs of The Forge, SE1

Landsec - Half-yearly results 2020/21	40

Castle Lane

De-risked and progressing

• Scheme will provide 88 residential units of affordable housing
• Pre-soldto Notting Hill Genesis and de-risked
• Delivery April 2023
• £46m TDC

Castle Lane, SW1

Landsec - Half-yearly results 2020/21

Development pipeline

	Jul 2021	Apr 2023
	Castle Lane, SW1
On site	Jun 2022
The Forge, SE1
On site	Dec 2022
Lucent, W1 (including Wardour Street, W1)
On site	Jun 2022

21 Moorfields, EC2

41

Castle Lane

55k sq ft

The Forge

	140k sq ft
Lucent	144k sq ft
Wardour St	5k sq ft

21 Moorfields

564k sq ft

Note: Earliest start on site dates.

2020

2021

2022

2023

2024

2025

2026

Landsec - Half-yearly results 2020/21

Development pipeline

On site	Jan 2024
n2, SW1 (including Nova Place, SW1)

- Completion of the core anticipated by Spring

• Continuing procurement
• Option to gear up in less than six months

42

n2	166k sq ft
Nova Place	41k sq ft

Note: Earliest start on site dates.

2020

2021

2022

2023

2024

2025

2026

Landsec - Half-yearly results 2020/21	43

Development pipeline

Apr 2021	Nov 2024		Portland House
Portland House, SW1			400k sq ft

• Secured planning consent
• Continuing vacant possession
• Stripping out underway

Note: Earliest start on site dates.

2020

2021

2022

2023

2024

2025

2026

Landsec - Half-yearly results 2020/21	44

Development pipeline

Mar 2021	Nov 2023
	Timber Square
Timber Square, SE1			380k sq ft

- Currently occupied

- Planning application submitted

• Target consent date December

Note: Earliest start on site dates.

2020

2021

2022

2023

2024

2025

2026

Landsec - Half-yearly results 2020/21	45

Development pipeline

Oct 2021	Sept 2024		Red Lion Court
Red Lion Court, SE1			237k sq ft

- Currently occupied

• Planning application to be submitted Q1 2021

																																																																														Note: Earliest start on site dates.
2020	2021	2022	2023	2024	2025	2026
Nova Place & Red Lion Court remain within
																																																																														the pre-development category

Landsec - Half-yearly results 2020/21	46

Development pipeline

- 21 Moorfields and Castle Lane progressing and de-risked

- Committing £381m of TDC across 284,000 sq ft

- Delivering between June and December in 2022

Note: Earliest start on site dates.

Nova Place & Red Lion Court remain within the pre-development category

Landsec - Half-yearly results 2020/21

Investment activity

Good demand for quality assets

• 7 Soho Square sold for £78m at a yield of 4%, 4.3% above March book value
• Investment volumes
• • Q1 £1.6bn
  • Q2 £0.8bn
  • Q3 £0.9bn
  • Q4 £1.4bn exchanged or completed
  • A further £3bn under offer

47

£bn	Investment volumes
25

20

15

10

5			Q3

										Q2
0										Q1
2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020

Capital inflow by origin

100%

75%

50%

25%

0%

1984-	1990-	2000-	2010- 2013- 2016	2017 2018 2019	Q1-Q3
1989	1999	2009	2012	2015			2020
					Domestic		International

Source: CBRE; shows calendar years

Landsec - Half-yearly results 2020/21	48

Regional retail portfolio

Varied performance

• Footfall in line with benchmark at -39%year-on-year
• Same centre sales (excluding automotive)
  -26.3%, compared to the benchmark of -12.3%
• Outlets
• • Footfall -33.8%
  • Sales -16.6%
  • Demonstrates larger basket size
• Shopping centres
• • Footfall -40.8%
  • Sales -31.8%
  • Significant variations between assets

Sales and Footfall

• decline vs. last year

0
-10
-20
-30
-40
-50
-60
-70
-80
	Outlets sales	Shopping centres sales
-90	Outlets footfall	Shopping centres footfall
-100
June	July	August	September

Note: All data relates to July-September

Landsec - Half-yearly results 2020/21	49

Five Reimagine retail objectives

Determine	Elevate the consumer	Create operational	Maximise our	Repurpose space
sustainable rents	experience	excellence and	vibrant outlets	to reduce the retail
		efficiency and new		footprint and enhance
		leasing models		the mix
1	2	3	4	5

Completed work		Define the push and		Service charge on track		£0.7m of lettings		Working towards
assessing sustainable		the pull. Push is about		to achieve a 4% saving		to new brands		masterplans for each
rents, c.15% below		collaboration, pull is		this year, in addition to				shopping centre by
September ERV.		the right mix for the		the 8% saving already		£2.5m of enhancement		March 2021
Represents declines of		catchment		due to Covid-19		works continues
35-40% peak to trough						through lockdown		Opportunity to create
		Customer segmentation		Continuing to look at				competitive tension
Provides new		work progressing and		efficiencies to reduce				and introduce new uses
foundation for		on target to complete		occupational costs
investment and		in December
leasing decisions

Landsec - Half-yearly results 2020/21

Summary

• Extraordinary times impacted our like-for-like performance
• Central London office portfolio is full, ground floors will change
• Adjusted development pipeline to manage committed costs and delivery
• Making progress on five Reimagine retail objectives
• We will be ready to help our customers reopen on 3rd December when lockdown lifts
• We understand the challenges and have a plan to make the most of the opportunities

50

Gunwharf Quays, Portsmouth

Piccadilly Lights, W1

One New Change, EC4

123 Victoria Street, SW1

Nova, SW1

Gunwharf Quays, Portsmouth		Dashwood, EC2

Landsec - Half-yearly results 2020/21

Our new strategy positions Landsec for growth

Focus on total return and value creation

52

Our central London business

High-quality, resilient portfolio

Align to growth sectors and geographies through targeted recycling and development

Our retail business

(shopping centres and outlets)

An understanding of sustainable rents, appropriate leasing models and a customer-centric approach are key

Working with our customers to create a sustainable future for our centres, re-evaluating the type and volume of space

Capital from subscale sectors

Our retail parks, leisure and hotels lack scale and competitive advantage

Over the medium-term, we will exit these sectors and invest the proceeds into higher growth areas

Through

urban opportunities

Apply our proven skillset to deliver urban mixed-use schemes

Existing opportunities and a number of approaches to expand and accelerate progress

c.£4bn of asset recycling over the next few years

Landsec - Half-yearly results 2020/21

53

What you can expect from

Landsec over the next 12 months

• Preserving our financial strength: low leverage and portfolio liquidity
• Capital recycling in central London portfolio to realise significant value creation
• Balanced progress on central London developments
• • Progressing the projects that offer best risk adjusted returns
• Increasing range of office propositions
• Clear progress towards a new retail operating model
• Planning progress across our Urban opportunities portfolio and potential growth in that portfolio
• Steps to put in place the right culture and organisation to support the strategy

Cardinal Place, SW1

Landsec - Half-yearly results 2020/21

54

An extraordinary six months but… reasons to be positive

• Managing the impact of Covid-19 proactively and responsibly
• Business fundamentals remain strong
• London remains attractive
• Looking beyond Covid-19 to medium and longer-term opportunities
• New strategy positions Landsec for growth

123 Victoria Street, SW1