Land Secs says retail rent reviews are 'stuck in neutral'

Full year profits tumbled at real estate investment trust Land Securities as growth in property values stalled in the second half of its financial year.

Adjusted diluted net asset value (NAV) per share at the end of March 2012 stood at 863p, up 4.5% on the NAV per share of 826p a year earlier.

Profit before tax more than halved to £515.7m in the year to March 31st from £1,227.3m the year before, with valuation increases of £190.9m this time round dwarfed by increases last year of £908.8m.

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Revenue profit, which includes the pre-tax results of the group's joint ventures but excludes capital and other one-off items, climbed 9.0% to £299.4m from £274.7m.

Adjusted diluted earnings per share rose 8.5% to 38.5p from 35.5p the year before, and were marginally ahead of market forecasts of 38.2p.

The full-year dividend was slightly below expectations of 29.0p, however, at 29.0p; that was 2.8% higher than the previous year's pay-out of 28.2p.

The group delivered an ungeared total property return of 7.7%, compared to 6.3% for the IPD [Investment Property Databank] Quarterly Universe.

This return comprised an income yield of 5.0%, surplus of net proceeds from sales of 4.3% and a valuation surplus on the combined portfolio of 2.0%.

The group makes great play of the benefits of its focus on the nation's capital, and, indeed, the total property return of its London portfolio was above the group's total return at 9.2%, but performance was below that of the IPD sector benchmark by 2.5 percentage points. The retail portfolio total property return was 5.8%, which outperformed its IPD sector benchmark by 2.4 percentage points.

Many parts of the retail sector are having a hard time, partly as a result of competition from online competitors, but Land Securities noted that the lines between bricks and mortar retailers and online operators are becoming blurred, with the group seeing opportunities in the year to help others integrate the online world into physical stores. The group also developed initiatives with online businesses such as Amazon and Ocado.

However, the group confessed that rent reviews, historically one of the group's engines of growth, are "currently stuck in neutral".

"We believe the structural shift in retail will continue, with the strongest retailers finding more opportunities for expansion and weaker traders falling further behind. The same is true for locations and property assets. In addition, growth in leisure and Internet sales - together with the rapid emergence of mobile technology being employed by consumers - will further separate the winners and losers in this sector. We will continue to refine our portfolio to ensure it meets the changing needs of successful retailers," pledged Robert Noel in his first full-year results statement as Chief Executive Officer.

"The outlook remains uncertain but we will continue to use the competitive advantage offered by our financial resources to deliver on our plans and exploit opportunities as they arise," Noel said.

JH