Tough times ahead for Land Securities - a Brexit proxy?

Wednesday, 29th May 2019 10:04 - by Shant

These are challenging times for Land Securities, having to negotiate the Brexit chaos which has been exacerbated by the upcoming resignation of the Prime Minister and potentially putting a hard line, 'No Deal' Brexiteer in the top spot.   Investing in and managing commercial property amid such uncertainty is headache enough, but with online sales proliferating to the detriment of the traditional high street retailer, struggling businesses have naturally put downward pressure on rental incomes and as reported earlier this month, net asset values of their retail parks and shopping centres have dropped some 12-15% due to declining footfall.  

Looking at some of the national consumer spending figures, retail sales have been holding up well as households seem to be shrugging off the uncertainty.  However, the likes of Amazon have been wiping the floor (excuse the pun) with property-based retail and Land will clearly have to adjust their portfolio in order to navigate these sweeping changes in consumer behaviour.  Chief Financial Officer Martin Greenslade has admitted that the company will at some point exit the retail park market, though the timing of this shift is dependant on (market) conditions.   35% of this section of the portfolio is based outside London, where the bulk of the losses have been suffered - close to 70% of rental income -  with the capital holding up and generating little over 7% in net rental income.  

It seems, however, that office space (and valuation) will continue - and is continuing - to support the portfolio, but here, Land will be highly dependant on the Brexit negotiations, if they are indeed to continue.  The future of financial services in the UK is wholly reliant on maintaining a positive relationship with the continent, and recent developments have injected fresh fears on where this is headed.   A Boris Johnson led government is likely to put further pressure in the share price given his widely acknowledged stance on how the UK should proceed with the EU talks, having reiterated his view that Britain should leave the EU at the end of October, with or without a deal.  Similar views are held by some of his counterparts in the Tory candidacy, including Dominic Raab and Andrea Leadom, so the odds are stacked against a softer Brexit as looked to be the case earlier this year.  

As such, Land Securities will act as a proxy for the Brexit process, and at present, prices are trying to base out around £8.25-30, having reached highs around £9.40 earlier this year.   At the start of 2018, prices were above £10.00, but to put this into perspective, long term highs just before the financial crisis reached just over £14.50 in 2006, before the ultimate sell-off saw the price slump to just under £2.50.  In this context, choppy times ahead do not augur well for any property business in the UK and will require stability and moderation in UK politics at the very least. 

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.