Land Securities : Annual results 2020 - presentation

Introduction

Mark Allan Chief Executive

Landsec

3

Introduction

Reflections on Landsec

Strength and resilience

• Our people's quick response to the pandemic
• Working proactively and collaboratively together and for our customers
• Quality of our portfolio and financial resources

Leadership in sustainability

• Commitment to tackling climate change
• Our responsible actions onCovid-19

Opportunities for change in challenging times

Cardinal Place, SW1

Financial results

Martin Greenslade Chief Financial Officer

Landsec

5

Our year in context

Continuation of the trends in H1…. until March

Office

SpecialistRetail

April 19 to	Healthy market conditions
mid-March 2020
Portfolio virtually full
	Myo and Fitted going well
	Demonstrable progress on
	development plan

Mid to	Our office assets are open
end-March 2020	with 10% usage
	Development programme
	delayed

Leisure and hotels virtually full

Good demand from consumers and operators despite headwinds in F&B market

Cinema attendance up

Hotel revenues flat

Piccadilly Lights ahead of expectations

Leisure and hotel assets closed

Rental income down

Nuanced markets

Outlets and London steady

Regional retail and retail parks impacted by declining values and poor investor sentiment

Shopping centres still open but only essential shops trading

Significant reduction in rental income

Landsec providing support to help sustain customers and the industry

Landsec

6

Financial summary

31 March 2019

£442m

£(557)m

£(123)m

59.7p

1,348p

45.55p

		31 March 2020		% change
Revenue profit(1)		£414m	-6.3
Valuation deficit(1)		£(1,179)m	-8.8(2)
Loss before tax		£(837)m
Adjusted diluted earnings per share(1)		55.9p	-6.4
EPRA net tangible assets per share		1,192p	-11.6
Dividend per share		23.2p	-49.1

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 year, adjusted for net investment

Landsec

7

Revenue profit

£m

(12)4

3

(23)

442

437

414

Revenue profit	Net rental income	Net indirect	Net finance	Revenue profit	Provisions related	Revenue profit
year ended		expenses	expense	before provisions	to 2020/21 rent	year ended
31 March 2019				related to		31 March 2020
				2020/21 rent

Landsec

8

Net rental income analysis

£m	Like-for-like net rental income

618

583

Landsec

9

How has Covid-19 impacted valuations?

Reduced portfolio valuation by c.£380m

ERVs unchanged

Loss of income is reflected in the capital deduction

Capital deductions on Retail and Specialist

3 months' rent deducted across both segments

• 3 months more on London retail
• 4 months more on hotels

Equivalent	Extended	Delayed
yields	voids	development
pushed out		completion

+15-35 bps on outlets		+3 months on all	6-month assumed
		Office voids - but	delay in practical
+25-50 bps on		limited impact in our	completion(2)
regional retail,		well let portfolio
retail parks and
leisure		Extended voids
		in Retail varying by
+25 bps on hotels(1)		location
Very little Covid-19
impact on London
yields (Office
and Retail)

1. Discount rate applied was +25bps. Our hotels are generallyturnover-only and are valued on a 10-year discounted cash flow
2. The valuer's blanket estimate of a likely purchaser's expectation of practical completion at the time of the valuation and not reflective of our latest viewscheme-by-scheme. See appendices for expected impact of Covid-19 on PC

Landsec

10

Combined Portfolio valuation

£12.8bn portfolio, valuation declined 8.8%

One third of the decline attributable to Covid-19

+1.8%

+1.1%	+1.3%

		-15.0%	-10.3%		-10.9%
			-27.6%	Retail parks £0.4bn -25.5%	Leisure and hotels £1.2bn
Office £6.8bn	London retail £1.4bn	Regional retail £1.7bn	Outlets £0.9bn	Other £0.4bn

Approximate pre-Covid-19 valuation	Retail	Specialist
	£4.3bn, -20.5%	£1.6bn, -8.0%

Landsec

Year end financing position

A strong position with available resources

Year end cash balance to cover commercial paper and provide liquidity buffer

Average cost of debt 1.8% (2.4% cost

of net debt)

Group LTV 30.7%

Next bond expected debt maturity: £10m

in September 2023

Cash and available facilities £1.2bn

Bond debt

Bank debt

Commercial paper

Other

Net cash

11

31 March 2020

£m

2,350

1,944

977

23

(1,368)

Adjusted net debt	3,926

Landsec

12

Looking ahead

Huge impact in business from Covid-19 over last 2 months

• Increased valuation deficit by around £380m
• Reduced income by £5m
• Provided £23m in respect of next year's rent

Very difficult to predict level of rent payment in June

Turnover rent accounted for c.£38m of income in 2019/20

No income from Portland House (2019/20: £11m)

Committed development expenditure c.£340m 1/3 spent in next 6 months if sites remain open

Robust balance sheet and considerable liquidity

CGI of Lavington Street, SE1

Portfolio review

Colette O'Shea

Managing Director

Landsec

14

Supporting our people, partners and communities

Our staff are on full pay

Invested in technology to enable flexible working

Supporting our critical service providers

Work continues on site with additional safety

measures

Daily contact with our customers

Increasing our contributions to charities

Free car parking for NHS staff at our retail destinations

Piccadilly Lights, W1

Landsec

15

A summary of our year to 31 March 2020

98% let

£39m of investment lettings

• £23m office rent reviews, 7% above passing rent

Group like-for-like net rental income down 1% (excluding £23m provision for next year's rent)

Our office WAULT is 8.1 years

Outperforming sales and footfall benchmarks

Progressing and widening retail re-purposing plans

1.0m sq ft of London development pipeline on site with flexibility to phase programmes

CGIs of Lucent, W1

Landsec

16

Office markets mixed in H2

Vacancy up, but speculative developments are pre-letting well

Take-up 7% down on long-term trends in the second half

London 12-month rolling quarterly take-up (£ per sq ft) 16

1410-year quarterly average

12
10
				Secondhand
8
6
4					New completed
2
				Pre-let
0
Q1	Q1	Q1	Q1	Q1
2016	2017	2018	2019	2020

Office space under construction in London

13.5m sq ft

45% pre-let

Source: CBRE. Additional disclosure can be found in the appendices

Central London vacancy rate up to 4.5%

Vacancy rate 5.0%

4.0%	10-year quarterly average

3.0%

2.0%

1.0%

0.0%

Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1
2018	2018	2018	2019	2019	2019	2019	2020

12-month investment volumes down 40% on 2019

London office investment vols (£bn)

20
15
10	40%
17.2
5	10.4
0

12 months ending	12 months ending
March 2019	March 2020

Landsec

Office

Our current position and immediate plans

Offices 99% let

All of our buildings open

Usage only 10%

Facilities management reduced to a minimum

Like-for-like net rental income up £7m

89% of the rent due at the year end received

Fitted and Myo flexible products

• Fully let ahead of plan
• Draw for HQ operators

17

Fitted at 123 Victoria Street, SW1

Myo at 123 Victoria Street, SW1

Landsec

18

Office

Resilient portfolio

Portfolio constructed with change in mind

• Need for healthy buildings with plenty of fresh air and good lifting capacity
• Lower occupation densities
• Flexibility that allows for layout changes
• Supporting more flexible working practices

HQ occupiers' demand for quality, safety and security of infrastructure cannot be replicated at home

Dashwood House, EC2

Landsec

Retail

Our performance pre-Covid-19

Sales 4.1% above benchmark

Footfall 2.5% above benchmark

94 units/31 customers in CVA/Administration

• 29% of those units closed
• One third of lost income replaced over last three years

£10m impact on LFL net rental income, 1.7% of group net rental income

• Excludes £19m provision for next year's rent

Pre-Covid-19 services charges were cut by 4%. Additional saving of over 20% for lockdown period

19

Sales and footfall outperforming benchmarks

11 months to February 2020 vs same period last year

1.0%

0.5% 0.9%0.1%

0.0%

-0.5%
-1.2%
-1.0%
+4.1%
-1.5%
-3.2%
-2.0%	-3.7%
+2.5%
-2.5%

-3.0%

-3.5%

-4.0%

Landsec	Landsec	BRC		Landsec	ShopperTrak
Sales	(excl.	Benchmark		Footfall	Benchmark
	automotive)
	Sales			Footfall

Landsec sales are same centre. The BRC Benchmark used is non-foodin-store total.

Figures for the 12 months to March 2020 include the impact of the Covid-19 lockdown and are as follows:

• Landsec same centre sales:-3.8%; excluding automotive: -4.5%; benchmark: -6.0%.
• Landsec footfall:-4.3%; benchmark: -6.5%.

Landsec

20

Retail

Impact of Covid-19

Only sites with essential operators are trading

• Chemists and supermarkets remain open
• 38% of rent due atyear-end received

Talking with over 500 retailers

Covid-19 has accelerated structural issues

Working in partnership with our customers

Gunwharf Quays, Portsmouth

Landsec

Retail

Continuing to progress re-purposing

Potential for new homes expanded over 75% to c.7,000 homes across four London sites

• O2, Finchley Road
• W12, Shepherd's Bush
• Lewisham Shopping Centre
• Southside, Wandsworth

Masterplanning for introduction of residential and office at Buchanan Galleries

• Planning application submitted for 120,000 sq ft office on adjacent site

21

Proposed development, W12, Shepherd's Bush

Proposed development, Buchanan Galleries, Glasgow

Landsec

Specialist

Leisure, Hotels and Piccadilly Lights

Xscape, Milton Keynes			Novotel, Hammersmith
Leisure		Hotels
Like-for-like net rental income		18 out of 23 hotels closed
down £1m		£26m of turnover-only income
All leisure parks and cinemas closed		in 2019/20
			Potential underlying site values
			ahead of book value

22

Piccadilly Lights, W1

Piccadilly Lights

Shorter-term leasing activity has diminished. Bookings in place for later this year

Rent on the three longer-term leases has been paid

Offering Public Health England free space

Landsec

23

Supporting our occupiers through the crisis

£80m rent support fund helping our customers

Reviewed on a case-by-case basis

Focusing first on independent businesses and F&B providers

Landsec

24

Development

Progressing with optionality

1.0m sq ft on site

Flexible programme with optionality to stop

Had expected to commit another £700m of TDC by March - now deferred

Unspent committed development capex now only £340m

Main commitment of £273m at 21 Moorfields which is pre-let

• Completion date currently up to 2 months later due toCovid-19
• Already +3 months due to tenant changes but does not impact rent start date

CGI of 21 Moorfields, EC2

Landsec

25

Development

Progressing with optionality

Lucent, Nova East and Sumner Street

• All building to grade
• Optionality over further commitment
• Continuing under current safety requirements

Portland House offices vacant as planned

• Stripping out and developing design

Lavington Street and Red Lion Court

• Pursuing planning applications

CGI of Lucent, W1		CGI of Nova East, SW1

CGI of Sumner Street, SE1		CGI of Portland House, SW1

CGI of Lavington Street, SE1		Red Lion Court, SE1

Landsec

26

A business with strength and resilience

Before the world changed…

Office portfolio is full with strong occupier profile

Fitted and Myo ahead of business plans

Shopping centres were outperforming the market

Good progress re-purposing our retail assets

in city locations

1.0m sq ft of development on site

Cardinal Place, SW1

Landsec

27

A business with strength and resilience

Looking ahead

Office portfolio has resilient buildings and customer base

Ability to adapt to changing occupier needs

Partnering with customers to find solutions

Accelerating work to re-purpose retail

Progressing the development programme whilst maintaining optionality

Getting 24m sq ft of real estate open and in use

Mark Allan

Chief Executive

Landsec

29

Covid-19

Facing a mixed but significant impact across the portfolio from a position of strength

CGI of 21 Moorfields, EC2

Office

Resilient with a powerful combination of secure income

Strong customer base and adaptable estate

Bluewater, Kent		Westgate, Oxford

Retail		Specialist

Quality portfolio outperforming sales	Higher exposure to leisure,
and footfall benchmarks coming	F&B and hotels
into the crisis
Committed to working collaboratively	Partnership approach
with our customers and partners
Established an £80m rent support fund
Balance between protecting income
and supporting our customers

Landsec

30

Our short-term focus

Working collaboratively towards the new normal

Our portfolio will be affected by ongoing social distancing restrictions

Working collaboratively with customers to find solutions, provide support and protect our income

June collection rates expected to be lower

than March

Retail and Specialist valuations to weaken further with Office performance more nuanced

Use the flexibility within our development

programme to adapt our approach appropriately

Developing three potential recovery scenarios to guide decision making

CGI of Nova East, SW1

Landsec

31

Longer-term

Responding proactively to long-term impacts

Retail

Pre-existing structural trends may now be accelerated to less than a year

Planning for more business failures, higher vacancy rates and downward pressure on rents

Office

Accelerated trend towards flexible working and healthier, more adaptable workplaces

Higher occupational densities may slow

or reverse

Critical to anticipate the long-term outcomes and act on their opportunities

CGI of Portland House, SW1

Landsec

32

Summary

Considering our long-term strategic direction

Positioning the business to benefit from long-term trends whilst building on heritage and existing Landsec capabilities

Expect to share outcomes of this work later in the year

Our collaborative approach to working with our customers and significant support to our charities and communities

Leading the way in our commitment to be net zero by 2030

Approaching the future from a position of
strength and resilience in our high-quality
portfolio, the depth of capability in our people
and our significant financial capacity	Cardinal Place, SW1