Land Securities (LSE: LAND) released positive news on 27 September and the share price looks set to continue its recovery.
The FTSE 100 Real Estate Investment Trust (REIT) updated the market on progress regarding its central London business. And things have been going better than we might expect, given the challenges of the past few years.
The share price has been on the rise in 2023, suggesting an improving operational trend in the underlying business.
Resilient customer demand
The company said that since the end of March, customer demand for its office space in London has “remained strong”. Over the first five months of its trading year, occupancy in the central London portfolio increased by 1%. It’s now just under 97%.
Around £17m of lettings have been recently signed or are in solicitors’ hands. And those deals are “on average” 3% ahead of estimated rental value (ERV), suggesting a firm market.
Chief executive Mark Allan said that over the past year the company has been positioning itself for interest rates being higher and for longer. And before the start of the current trading year, the business made disposals of assets worth £2.2bn.
The properties were “mature” and mostly single-let offices in the City. And Allan explained the move has given Landsec flexibility to respond to opportunities arising from a higher interest rate reality.
Customer demand is strong for the most sustainable, high-quality spaces in the best locations, Allan said.
Half of Landsec’s central London business is in Victoria, and the existing office portfolio there is now 100% let.
But there’s been strong recent progress in other parts of London as well. And because rents have been growing in the capital, Landsec has committed to its development of Thirty High, which was formerly called Portland House.
The company appears to be trading well in London. However, the overall portfolio is worth just over £10bn and includes retail, leisure and residential properties in other locations and cities. And the recent update doesn’t mention its business beyond the capital.
We’ll find out more about overall progress with the half-year results report due on 14 November.
Analysts are sceptical
However, it’s worth noting the positive-sounding tone of the company’s announcement contrasts with a note by brokerage company Jefferies released on the same day. Analysts there downgraded London property companies including Landsec because of shrinking office space utilisation and landlords’ loss of pricing power.
London’s “embattled” office market is in “rental recession” Jefferies declared. And I reckon investors should consider the potential risks of investing in Landsec shares now — including assessing other analysts’ opinions about the property market.
Meanwhile, the company has been rebuilding shareholder dividend payments since the pandemic. And with the share price near 592p, the forward-looking yield is forecast to be around 6.7% for the trading year to March 2025.
On balance, I think Land Securities is worth deeper research now with a view to adding the stock to a diversified, long-term portfolio of shares.
