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LandSecs abandons demerger plan

Land Securities has abandoned plans for a demerger and slashed the value of its portfolio by £1.7 billion. The UK’s largest property company had been planning a three-way split. However, announcing the company’s half-year results on 14 November, chief executive Francis Salway revealed that while the sale of its Trillium outsourcing division would go ahead, further demerger plans had been shelved.

"The board continues to believe in the benefits of specialization, but has decided that, given current adverse market conditions, it would not be in shareholders’ interests to proceed with implementation," he says.

The real estate investment trust decided in 2007 that splitting off its retail and London portfolios, valued at £12.1 billion ($18 billion) in total, would produce maximum value for shareholders. However, in the present climate LandSecs’ price expectations are unlikely to be met.

Negotiations for the £950 million sale of Trillium are continuing with a consortium understood to include property investor William Pears Group and Australian bank Macquarie. Middle Eastern investors are also thought to be interested in acquiring Trillium. Salway adds that the timescale for the sale was likely to be, "protracted in the current environment."

LandSecs’ half-year results reported a drop of 20.7% in net asset value as the Reit wrote down the value of its property portfolio by £1.723 billion, contributing to a pre-tax loss of £1.737 billion. The London portfolio slumped in value by 13%, with office properties falling 11% in the West End and 20% in the City. Developments were valued downwards by 11.5%.

The company claims that its office development pipeline is well suited to the present cycle, with only 19,300 square metres scheduled for completion in London over the next two years.

Retail properties fared even worse, with write-downs of 15% on retail warehouses and 14.9% on shopping centres. Supermarkets were more resilient, falling in value by 7.4%; London retail showed a drop of only 0.5%.

In October, LandSecs opened the 100,000 square metre Cabot Circus shopping centre in Bristol in a 50/50 joint venture with Hammerson. The new open-air mall is 91% let. The developer is due to complete a further 89,900 square metres of retail space at the St David’s scheme in Cardiff in October 2009, in partnership with Capital Shopping Centres.

There were some positive signs for the company, however. It let 92% of the 104,940 square metres of development completed in this financial year and revenue profits rose by 13.3% to £198.5 million. The interim dividend was increased by 3.1% to 33p a share.

Salway admits that the extent of the slowdown has been greater than expected. He pledges to sell assets selectively to maintain the strength of LandSecs balance sheet, while continuing to invest in the development pipeline in preparation for the recovery.

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