- Total cash consideration of £245 million
- Financing drag eliminated
- Progress towards £2 billion office disposal target
Shares in Land Securities (LAND) ticked up 0.5% to 577p after the commercial property developer announced the £245 million sale of a London office block to Arora Group in a deal that leaves its disposal programme ‘ahead’ of initial expectations.
Known as Landsec for short, the FTSE 100 company insisted the sale of the non-core QAM (Queen Anne’s Mansions) office block in Victoria provides ‘strong evidence’ of the continuing recovery in the central London investment market and is ‘immediately accretive’ to return on equity.
POSITIVE EARLY PROGRESS
London-based Landsec said the sale marked ‘significant early progress’ on its objective to release £2 billion of capital from offices by 2030, as part of the group’s strategy to focus its portfolio on assets which can deliver sustainable income and EPS (earnings per share) growth over the long term.
Developed by Landsec in the 1970’s, QAM is currently fully let to the UK Ministry of Justice on a lease expiring in December 2028.
Landsec said the disposal would reduce its full-year 2026 EPRA earnings by £7 million and its full-year 2027 earnings by £15 million.
However, EPRA earnings from full-year 2028 onward are largely unaffected by the sale and the company sees ‘upside potential as and when proceeds are reinvested in accretive acquisitions’.
CRYSTALLISING VALUE
Chief executive Mark Allan said: ‘This sale provides strong evidence of the continuing recovery in the central London investment market and allows us to crystalise a full value for this off-strategy asset much sooner than we had envisaged.
‘Including QAM, overall disposals since 31 March now total circa £500 million, which is ahead of our initial expectations and, combined with continued robust operational performance across the business, means we are making encouraging early progress in delivering against our strategy.’
Panmure Liberum’s Bjorn Zietsman, who has a 705p price target for Landsec, observed: ‘By crystalising value today at an attractive price relative to office vacant possession levels, Landsec has removed this drag, eliminated the financing cost of carrying a non-returning asset, and accelerated progress towards its £2 billion office disposal target.’
TAKING THE WIN
AJ Bell investment director Russ Mould commented: ‘Getting the best part of a quarter of a billion pounds for an asset you don’t really want has to be chalked up as a win for Land Securities.
‘Queen Anne’s Mansions would have needed significant refurbishment at the end of its current lease to the Ministry of Justice but now that is a problem for the new owner, billionaire hotel tycoon Surinder Arora.’
Mould added: ‘This deal also represents a meaningful step along the road to its target of raising £2 billion from its portfolio of office assets to recycle into more profitable parts of the business.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
