the times | Tuesday October 20 2020 2GM 39
Business
Ghost town may still
scare off investors
I
f Mark Allan had no faith in
London, both he and the
capital would be in big trouble.
The new Land Securities boss
runs a property business with
64 per cent of its assets in Britain’s
top city: £8.2 billion worth, four-
fifths in corona-empty offices.
So, he’s clearly talking his book
when he produces a strategy review
declaring: “London will continue to
be a magnet for global capital, talent
and tourism.” Try telling that to the
owners of pubs, shops or arts venues
grappling with a Tier 2 ghost town.
Just now, looking beyond the virus
can be tough.
Mr Allan, who joined in April
from St Modwen Properties, is paid
to do precisely that. And, on the face
of it, his new Landsec strategy is an
odd vote of confidence. It’s partly
built on selling some London office
sites to fund new developments
promising higher growth. The other
main bit of his revamp is to get out
of sectors where the group is
“subscale” — hotels, retail parks and
leisure complexes — which risks
turning into a fire sale. Still, you
can’t blame him for Landsec’s failure
to exit those businesses years ago.
And you can see why Numis
analysts called his five-year plan to
reshape the group’s £12.8 billion
portfolio “sensible”, even if “patience
is required”.
The shares rose 1 per cent to 532p
— or less than half Landsec’s £11.92
net asset value per share. So, in an
attempt to close the gap, Mr Allan is
getting much more active with the
portfolio than his predecessor Rob
Noel, who reined back on new
developments after the Brexit vote.
Part of the rejig involves selling
London offices. Yes, that could look
nuts right now. Most office workers
are toiling away at home, with
companies signalling a post-covid
structural change.
Yet Mr Allan sees buyers out
there for Landsec’s “quality” London
portfolio. Elsewhere, Canada’s
Brookfield has bought into British
Land, KKR’s bitten off a chunk of
Great Portland Estates and the boss
of the Ontario Municipal
Employees Retirement System has
told the Financial Times that he
wants to “buy more” real estate in
London. Last month, Houston’s
Hines paid £78 million for Landsec’s
7 Soho Square site. And Singapore’s
Suntec has just bought out the co-
owner of its Nova development in
Victoria for £430 million.
They’ve not been put off by
working from home. And, as Mr
Allan notes, Deloitte’s closure of
four UK offices hasn’t extended to
the capital. “People will need to
come into offices and when they do
they’ll come to London,” he says.
Selling a few Landsec offices at a
decent price would narrow the share
price discount, with the proceeds
recycled into new London offices or
“mixed use” urban sites with higher
growth prospects. Or that, at least,
is the theory.
True, much depends on the
execution. And there are risks Mr
Allan has misread the market or
can’t offload his “subscale” stuff at
an acceptable price. But at least
investors know what they’re in for.
And the sooner he’s proved right on
London the better.Super fly
W
hat a time to buy an
airline. And not any old
one either but Flybe: the
regional leveller-upper that went
bust in March with the loss of 2,300
jobs, only a year after being
acquired by Virgin, Stobart and the
New York hedge fund Cyrus Capital.
Ludicrously, the trio blamed
coronavirus rather than their own
myriad shortcomings, not least
failing to inject the promised
£135 million to “secure” Flybe’s
future or produce a viable business
plan. Instead, they badgered the
government for a £100 million
bailout.
Anyway, guess who’s buying
Flybe’s “business and assets” from
the administrator EY? None other
than Cyrus Capital. It’s hoping to
launch a “smaller” version of Flybe
early next year, though with what
isn’t immediately clear. For now, it’s
got no aircraft, all 65 of which were
returned to financiers and lessors.
Cyrus’s deal spans such things as the
brand, intellectual property and bits
of equipment.
How much it’s even paid for that
is undisclosed. And so much of the
deal is “confidential” that it’s hard
not to be suspicious. EY, which has
so far run up £12.1 million in fees,
had a tussle with the Civil Aviation
Authority to ensure Flybe kept its
operating licence. And the carrier’s
also hung on to airport slots, though
not the lucrative ones at Heathrow
over which it’s in dispute with the
British Airways-owner IAG.
So, what exactly comes with the
business? And should Cyrus really
be allowed to take off with Flybe
again? EY’s latest administrator’s
report highlights non-preferential
creditor claims “in the region of
£450 million to £500 million” and
possibly “materially higher”. Thank
Cyrus, in part, for that.Tears at Boohoo
W
ho’d audit Boohoo for
£225,000 a year? After the
Leicester sweatshop affair,
the reputational risks just aren’t
worth it. So, little wonder PWC is
putting its calculator down at the
fast fashion retailer that’s spent the
past four months looking much
more Nasty Gal than Pretty Little
Thing.
If last month’s report by Alison
Levitt QC was meant to draw a line
under things, it’s failed. The shares
have unravelled by more than £1
since then, down a fifth to 254p
yesterday on confirmation that
PWC was off. Yes, the auditor gave
an “unqualified opinion” on the
latest results. But Boohoo’s still got
to implement its supply chain clean-
up at home and abroad: one where a
£10 million spend doesn’t look
enough.
And the group’s governance
doesn’t help, with 12.5 per cent
owner and co-founder Mahmud
Kamani as executive chairman. He’s
yet to make a single comment on
the Leicester farrago. The implied
one from PWC is loud and clear.business commentary Alistair Osborne
with £4bn sell-off
Land Securities
Share priced rebased with the FTSE 100
20162017 201820192020
-60
-40
-20
0
20
40
Land Securities
FTSE 100
Five biggest properties by size*
Bluewater shopping centre,
Kent (30 per cent stake)St David’s Dewi Sant shopping
centre, Cardiff (50 per cent stake)New Street Square office campus,
City of LondonWhite Rose Centre, Leeds
Westgate shopping centre,
Oxford (50 per cent stake)1
2
3
4
5
*By square foot
Closing gap
in valuation
key to staving
off takeover
At the core of Land Securities’ new
strategy is a plan to close the yawning
gap between the stock market valua-
tion of the company and its reported
net asset value. The distance stretched
to 55 per cent at last night’s close, mak-
ing the group vulnerable to a takeover
approach as private equity firms circle
British listed companies.
Brookfield, the Canadian investment
group, has built up a 9.2 per cent stake in
British Land, a rival property company,
during the pandemic and last month
rumours swirled about Blackstone, a
US company, running the rulebook
over Land Securities.
Mark Allan, chief executive of Land
Securities, believes that selling some of
its London offices at book value will
prove the value of a large chunk of the
company’s balance sheet.
“We are very aware of the wide dis-
count that shares currently trade at,”
Mr Allan said. “I think that one of the
things that is telling us is that there are
other sources of capital out there which
value our underlying assets at a higher
level than equity markets do. That’s
what sits at the core of our asset recy-
cling strategy.” He expects that a re-
newed focus on increasing total returns
through new developments will “trans-
late to clear share price performance”.
Investors have been sold the long-
term strategy. However, they should
expect more pain in the short term, as
falling rents affect valuations. “We are
going to see a decent amount of pain
coming through in total return in the
next 12 to 24 months,” Robbie Duncan,
analyst at Numis Securities, said. “If
you sell down the quantum of London
offices... you’re going to increase the
near-term exposure to retail, to assets
which are due to go down in value.”
Private equity suitors will have to ask
themselves what they could do that Mr
Allan is not doing himself. While the
gap between net asset value and prop-
erty valuations makes the company
look cheap on paper, a further fall in
retail property valuations will erode
that discount.Louisa Clarence-Smith
Games geeks are hot on the high street
A retailer of comic books and board
games has announced plans to expand
its high street presence rapidly by
opening 100 shops within two years.
Geek Retreat said that the decision
would create roughly 600 jobs around
the country. The company, which
describes itself as a haven for “geek
culture”, employs 110 staff at 14 stores at
present.
It has recently opened sites in North-
wich and Chelmsford and said that its
next openings would be in Bourne-
mouth, Northampton and Liverpool.
The announcement is a small chink
of light in an otherwise gloomy land-
scape for the high street because of the
pandemic. On average more than 60
shops closed every day in the first half
of this year while 28 opened, accordingto figures published last week by the
Local Data Company and PWC.
The number of net store closures has
been growing each year over the past
decade. However, the 6,001 net clo-
sures in the first half of this year was a
record and a big rise from the 3,509 in
the first half of last year.
Data published yesterday by MBH
Corporation also shows that only one
in five small businesses expects to make
a profit this year.
Geek Retreat, however, has benefited
from its wide-ranging offering. As well
as merchandise, shops also sell refresh-
ments and host board game tourna-
ments. It said that it would continue to
host small gaming events with social
distancing in place, adding that it was
particularly keen to welcome custom-
ers with autism or mental health issues.
The company, which was founded in2013 in Glasgow by Stephen Walsh,
has ridden a wave of renewed interest in
the superhero genre. Between 2008
and 2019, Marvel Cinematic Universe,
which has made blockbusters such as
last year’s Avengers: Endgame, grossed
$22.5 billion. In the UK the toys and
hobby industry is now worth £8.2 bil-
lion and is predicted to grow by 3.1 per
cent annually over the next three years,
according to Statista.
There was a surge in demand for
board games and jigsaws during the
lockdown. Sales rose by 240 per cent in
the first week after the restrictions were
announced in March.
Peter Dobson, chief executive of
Geek Retreat, said: “The UK’s gaming
and hobby sector is a real success story
and Geek Retreat is a home for the
communities who are at the heart of
this phenomenon.”Tom Ball
Some rival landlords are sceptical
about whether his lack of
experience in retail and office
properties will serve the interests of
shareholders. He won’t be able to
switch out of retail property in
favour of logistics as he did at St
Modwen. It “isn’t practical on a
scale that matters” in a £12.8 billion
portfolio when logistics valuations
remain strong, Mike Prew, an
analyst at Jefferies, said.
Mr Allan has kept his investment
strategy vague so it can adapt to
changing trends. That could includeinvesting in cities including Leeds
and Manchester, which Mr Allan
said were aligned with the
government’s “levelling up” agenda.
“It’s the sensible approach we
would have expected,” Robbie
Duncan, an analyst at Numis, said.
“I think it could have been bolder.
They are not doing anything radical
in the retail business.” However, he
said investors had been given a
“clear road map” of the next five to
ten years and property companies
should follow his lead in focusing
more on total returns than income.