Rights Issue presentation. 19 February 2009

Transcription

1 Rights Issue presentation 19 February 2009

2 Disclaimer THIS DOCUMENT IS STRICTLY CONFIDENTIAL AND IS BEING PROVIDED TO YOU SOLELY FOR YOUR INFORMATION AND FOR USE AT A PRESENTATION TO BE HELD IN CONNECTION WITH THE PROPOSED RIGHTS ISSUE BY THE COMPANY AND MAY NOT BE REPRODUCED IN ANY FORM OR FURTHER DISTRIBUTED TO ANY OTHER PERSON OR PUBLISHED IN WHOLE OR IN PART, FOR ANY PURPOSE. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF APPLICABLE SECURITIES LAWS. THIS DOCUMENT IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION IN AND MAY NOT BE TAKEN OR TRANSMITTED INTO THE UNITED STATES OF AMERICA, CANADA, JAPAN, AUSTRALIA OR SOUTH AFRICA AND MAY NOT BE COPIED, FORWARDED, DISTRIBUTED OR TRANSMITTED IN OR INTO THE UNITED STATES OF AMERICA, CANADA, JAPAN, AUSTRALIA OR SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD BE UNLAWFUL. THE DISTRIBUTION OF THIS DOCUMENT IN ANY OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE ANY SUCH RESTRICTIONS. ANY FAILURE TO COMPLY WITH SUCH RESTRICTIONS MAY CONSTITUTE A VIOLATION OF THE LAWS OF THE UNITED STATES, CANADA, JAPAN, AUSTRALIA OR ANY OTHER SUCH JURISDICTION. BY ACCEPTING THIS DOCUMENT, YOU AGREE TO BE BOUND BY THESE RESTRICTIONS. This document has been prepared by Land Securities Group plc ( LSG plc or the Company ) whose registered office is at 5 Strand, London, WC2N 5AF. LSG plc is registered in England and Wales with registered no This document comprises the written material/slides for a presentation concerning an issue of new ordinary shares (the Securities ) by LSG plc (the Rights Issue ). This document is an advertisement and not a prospectus and investors should not purchase or subscribe for any shares referred to in this document except on the basis of information in the prospectus to be published by the Company in due course in connection with the admission of the Securities (whether nil paid or fully paid) to the Official List of the Financial Services Authority and to trading on London Stock Exchange PLC s main market for listed securities (the Prospectus ). Copies of the Prospectus will, following publication, be available on the Company s website at The information contained in this document is provided for general information and is not comprehensive and has not been prepared for any other purpose. It is not intended to constitute an offer, inducement, invitation or commitment to purchase, subscribe to, provide or sell any Securities, services or products or to provide any recommendations for financial, securities, investment or other advice or to take any decision. You are encouraged to seek individual advice from your personal, financial, legal, tax and other advisers before making any investment or financial decisions subscribing for or purchasing any Securities. Any decision to subscribe for or purchase any Securities should be made solely on the basis of information contained in the Prospectus (including any supplement thereto) relating to the Rights Issue, including the risk factors. Citigroup Global Markets Limited, Citigroup Global Markets U.K. Equity Limited, JPMorgan Cazenove Limited, J.P. Morgan Securities Ltd and UBS Limited (the Banks ) are acting exclusively for LSG plc and no one else in connection with the Rights Issue and the listing of the Securities and will not be responsible to anyone other than LSG plc for providing the protections afforded to their respective clients for providing advice in connection with the Rights Issue, the listing of the Securities or the contents of the Prospectus. Apart from the responsibilities and liabilities, if any, which may be imposed on any of the Banks by FSMA or the regulatory regime established thereunder, none of the Banks accept any responsibility whatsoever and make no representation or warranty, express or implied, for the contents of this document including its accuracy, completeness or verification or for any other statement made or purported to be made by any of them, or on behalf of them, in connection with the Company, the Securities or the Rights Issue and nothing in this document or at this presentation shall be relied upon as a promise or representation in this respect, whether as to the past or the future. Each of the Banks accordingly disclaims all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above) which any of them might otherwise have in respect of this document or any such statement. Neither LSG plc nor any of its directors, officers or employees or advisers makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this document. Nothing contained herein should be relied upon as a promise or representation as to the future. None of LSG plc, its respective members, directors, officers, employees, agents or representatives nor any other person accepts any obligation or responsibility to advise any person of changes in the information set forth herein after the date hereof. To the extent permitted by law, none of LSG plc, its respective members, directors, officers, employees, agents or representatives nor any other person accepts any liability whatsoever for any losses howsoever arising from any use of or reliance on this document or otherwise arising in connection therewith. LSG plc is not acting as your adviser or fiduciary in relation to the subject matter of this document or any transaction. This document and any materials distributed in connection with this document may include forward-looking statements. These forward-looking statements are statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, the Company s results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which the Company operates. By their nature, forward-looking statements involve risks and uncertainties, including the risks and uncertainties to be set out in the Prospectus, because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and its actual results of operations, financial condition, liquidity, prospects, growth, strategies and the development of the industries in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this document. The Company does not undertake any obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise after the date of this document. This document is being communicated (a) in the UK only to (i) persons who have professional experience in matters relating to investments who fall within the definition of investment professionals under Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the Financial Promotion Order ) and/or (ii) high net worth companies which fall within Article 49 of the Financial Promotion Order (b) to persons outside the UK only where permitted by applicable laws (all such persons being referred to as relevant persons ). This document is only being communicated to relevant persons and other persons should not rely on or act upon this document or any of its contents. The Securities have not been and will not be registered under the Securities Act of 1933, as amended (the Securities Act ), the securities laws of any state or any other jurisdiction of the United States, nor is such registration contemplated. Consequently, they may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of securities in the United States. The Securities have not been and will not be registered under the applicable securities laws of Canada, Japan, Australia or South Africa and, subject to certain exemptions, may not be offered or sold in, or for the account or benefit of any national, resident or citizen of, Canada, Japan, Australia or South Africa. Page 2

3 Francis Salway Group Chief Executive

4 Land Securities UK s largest REIT with a successful track record on total shareholder return Diversified company with best in class teams in the two largest sectors of the UK commercial property market, London offices and retail: focus on expertise / knowledge of respective markets to maximise returns breadth of opportunities secured debt structure gives both flexibility and a low cost of finance low tenant specific risk (Government represents 9.0% of income) capital allocated for investment and development activity to maximise returns for Group Limited current development exposure Pipeline of future development opportunities Page 4

5 Land Securities TSR relative performance To 31 December 2008 Years vs. other property majors* vs. Real Estate Ranking vs property majors* % +8.1% % +8.9% % +18.5% % +31.4% % % 1 Source: Datastream *The property majors are Land Securities, British Land, Hammerson, Liberty (other than over 20 years) and SEGRO Page 5

6 Summary Equity capital raising of 785m gross on a 5 for every 8 existing shares at 270pps The rights issue will deliver: An appropriate balance sheet in terms of the mix of equity and debt capital Protection against the downside risk of further significant falls in property values An ability to access debt capital markets in the future Positioning of the business to exploit market opportunities Dividend to be reset to allow a progressive future dividend policy Page 6

7 The market

8 UK property over the long-term All property capital growth, % all property capital growth, % % -13.8% % -27.1% Source: Scott ( ), IPD Annual Index ( ), IPD Monthly Index (2008) The fall in capital values in 2008 was the largest on record Page 8

9 Speed of downturn Capital growth decline early 1990s and current fall compared October 1989 to April Page 9 Month 18 Peak Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Month 15 Month 16 Month 17 all property capital growth, % June 2007 to December 2008 Source: IPD Monthly Index In 18 months, all property values have fallen twice as far in the current downturn as in the early 1990s downturn

10 Property yields versus swap rates All property initial yield and 5-year swap rate, % 10 8 Gap 5 year swap rate Initial yield Dec-93 Jun-94 Dec-94 Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 yield, % Source: IPD Monthly Index, Reuters The current funding gap, at 3.9%, is the highest in the last 15 years and over 5 times the 15 year average (0.7%) Page 10

11 Management actions

12 Actions taken to mitigate impact of current downturn London offices development programme predominantly built and let by peak of cycle Unlet offices in London development programme represent only 4% of total London office portfolio 3,435m of disposals since 1 April 2007: Property asset disposals: 2,015m Net transfer of assets into the TIP fund: 976m Disposal of Trillium: 444m Start dates for future developments deferred (eg 20 Fenchurch Street, EC3; Buchanan Galleries, Glasgow; and Ebbsfleet Valley, Kent) 1.7bn of new debt facilities completed and 0.8bn of debt facilities extended since 1 April 2007 (including Land Securities share of debt in joint ventures) Access to bank facilities secured through drawing of facilities ( 1.1bn) in late January 2009 Page 12

13 Alternatives to a rights issue Possible alternatives to a rights issue have been reviewed but are considered less effective: a) Additional property sales As LTV ratios rise, additional property sales have a diminishing impact on LTV ratios Property values can fall more quickly than the pace at which properties can be sold in a weak market with limited liquidity Risk of becoming a distressed seller with weaker prices achieved and greater earnings dilution b) Elimination of all medium term future development projects No immediate impact as the schemes have already been deferred Eliminates upside opportunities Page 13

14 Interim portfolio valuation at 31 January 2009

15 Revaluation of investment portfolio at 31 January 2009 Valuation (total portfolio) at 31 January 2009 m Valuation deficit (total portfolio) 4 months to 31 January 2009 % Rental value change (like-for-like portfolio) 4 months to 31 January 2009 % Shopping centres and shops Shopping centres 2, Central London shops 1, Other in-town shops , Retail warehouses Retail parks 1, Other (including foodstores) , Total retail 5, London offices West End 1, City Mid-town Inner London Total London offices 4, Rest of UK Total offices 4, Other Total 9, Page 15

16 Like for like portfolio analysis Net nominal equivalent yield Valuer s net initial yield Voids by ERV 31 January 2009 % 30 September 2008 % 31 January 2009 % 30 September 2008 % 31 January 2009 % 30 September 2008 % Shopping centres and shops Shopping centres Central London shops Other in-town shops Retail warehouses Retail parks Other (including foodstores) Total retail London offices West End City Mid-town Inner London Total London offices Rest of UK Total offices Other Like for like portfolio Page 16

17 Martin Greenslade Group Finance Director

18 Summary financial data 30 September January January 2009 post rights issue Adjusted diluted NAV per share - pre rights issue 1552p 943p (2) - post rights issue 1247 (3) 758 (3) 680 (2) Group LTV (1) 45.3% 56.2% (4) 48.6% (5) (1) Includes Group s notional share of joint ventures net debt and excludes the bond exchange de-recognition adjustment. (2) Pro forma as at 30 September 2008 adjusted only for 31 January 2009 revaluation and Trillium sale (ignoring other capital movements, income and dividend payments) (3) After adjustment for bonus factor in rights issue (4) Actual as at 31 January (5) Actual as at 31 January 2009 adjusted for rights issue. Note: unaudited information Page 18

19 Security Group debt structure LTV % ICR x Operating environment key points Tier Few operational restrictions Tier Liquidity facility required for senior interest payments Initial Tier Final Tier 3 >80 <1.2 Default >100 <1.0 Existing secured facilities draw stopped Debt to be amortised Disposal proceeds locked up for limited purposes (including development capex) Property manager appointed at <1.25x ICR (recommendation, not binding) Block on dividends from the Security Group No developments allowable > 50m Property manager recommendations to be followed in all material respects Administrative receiver could be appointed purely to sell assets (>85% LTV) Default which allows the secured creditors to instruct the Trustee to enforce security and if appropriate accelerate Page 19

20 Security Group LTV and ICR ratios LTV % ICR x At 30 September Notional (1) at IMS announcement 20 January 2009 (based on September 2008 valuation) Notional (1) at 31 January 2009 after drawing of bank facilities (based on September 2008 valuation) 49.1 n/a Notional (1) at 31 January 2009 (based on 31 January 2009 valuation) (2) (1) Next formal LTV / ICR calculation does not occur until 31 March 2009 (2) Collateral value 7,717.8m (based on 31 January 2009 valuation); debt 5,968.5m Notional Security Group LTV based on 31 January 2009 valuation if cash reinjected: 63.8% Page 20

21 Managing the Security Group debt structure Benefits Flexible structure allowing property acquisitions, disposals and developments Track record of debt raising at narrow margins (i.e. low cost) No financial covenant default provisions below 100% LTV / above 1.0x ICR Strategy Short term to manage through current extreme circumstances and avoid moving above 80% LTV, when dividend distributions from Security Group are blocked Medium term to move back to <65% LTV ratio, giving access to broader debt markets Page 21

22 Sizing of rights issue and use of proceeds

23 Size of rights issue The rights issue is sized at 785m to be appropriate in a range of scenarios: If 45-50% peak to trough fall in values 785m should enable the Security Group LTV ratio to be restored below 65% and allow access to debt markets If 55-60% peak to trough fall in values 785m should enable the company to meet its commitments (including debt maturities) and also to inject cash into the Security Group to keep below Final Tier 3 (80% LTV) The sizing of the rights issue assumes that the company will continue to achieve asset sales to meet committed capital expenditure on developments Page 23

24 Use of proceeds During the period of ongoing volatility of property values, proceeds initially held as cash outside the Security Group structure to ensure certainty of access to the funds If further significant falls in property values, some of the proceeds progressively allocated to the Security Group to ensure the LTV ratio remains below 80% (Final Tier 3) As property values stabilise, proceeds used to reduce Security Group LTV below 65% by paying down debt in the Security Group or acquiring assets for injection into the Security Group Strengthened financial position assists with refinancing of 2010/11 debt maturities The proceeds, and any new debt raised, then applied to opportunities Page 24

25 What the rights issue gives us through the cycle Risk Balance sheet resilience Restores the equity capital base of the company Minimises the risk of sharp erosion of equity shareholder value Opportunity Deploying capital in areas of competitive advantage Generally: provides the flexibility to manage the turning point of the cycle to exploit opportunities London: capex for development in West End Retail: acquiring distressed assets with potential for income and capital growth through re-leasing Page 25

26 Opportunity I Timing the London office development cycle completions 2.25 million sq ft completed 1.5 million sq ft West End developments Development Ungeared IRRs Development Cardinal Place, SW1 22.6% Bankside 2&3, SE1 44.5% New Street Square, EC4 43.5% One Wood Street, EC1 32.5% Queen Anne s Gate, SW1 18.2% Park House, W1 Selborne House, SW1 Victoria Transport Interchange, SW1 310,000 sq ft 275,000 sq ft 895,000 sq ft 1,480,000 sq ft Early mover advantage to generate high returns Page 26

27 Opportunity II Acquisition of lease-up opportunities in the retail sector Vacancy rates potentially to rise to 10-15% in some shopping centres Loss of income exacerbated by empty rates and service charge shortfall multiplier effect of circa x1.5 Re-leasing from 85% to 95% occupancy gives significant growth in net income: +19% Land Securities shopping centres outperformance relative to IPD Shopping Centres 5 years to March 2008: +1.4% p.a. Page 27

28 Dividend

29 Dividend repositioned Dividend to be re-set at a sustainable level from Q4 08/09 Final dividend for 2008/09 financial year expected to be 7pps (28pps annualised), post rights issue Quarterly dividend payments for 2009/10 financial year expected to be at same level Dividend payout expected to reduce from 307 million to 212 million on an annualised basis Outlook for earnings and cashflow impacted by: Dilution on sale of Trillium Tenant insolvencies Lower renewal rates on lease expiries Action already taken to reduce headcount by over 10% and total internal cost base by 10% (circa 9 million per annum) Dividend analysis recognises: the impact of portfolio capex on underlying cash flow reflects the potential impact of the downturn on income later in the cycle Dividend at a level which is robust and offers future growth potential Page 29

30 Summary Prudent management of an exceptional cycle to protect and enhance shareholder value The rights issue will deliver: An appropriate balance sheet in terms of the mix of equity and debt capital Protection against the downside risk of extreme falls in property values An ability to access debt capital markets in the future Positioning of the business to exploit market opportunities Page 30

31 Details of the proposal Rights Issue Proceeds raised (net of expenses) Timetable 755.7m Shareholder meeting 9 March Basis 5 for 8 basis at 270p per share Ex-rights date (trading at nil-paid starts) 10 March Total number of shares post issue 756.0m Rights issue closes 24 March TERP (1) 443p Dealings in new shares commences 25 March Issue price discount to TERP 39.1% (1) Theoretical ex-rights price Page 31

32 Important notice This document contains certain forward-looking statements, including statements about current beliefs and expectations. In particular, the words expect, anticipate, estimate, may, should, plans, intends, will, believe and similar expressions (or in each case their negative and other variations or comparable terminology) can be used to identify forwardlooking statements. These statements are based on expectations of external conditions and events, current business strategy, plans and the other objectives of management for future operations, and estimates and projections of Land Securities financial performance. These expectations may prove to be erroneous. Forward-looking statements involve known and unknown risks and uncertainties and speak only as of the date they are made. Investors are hereby cautioned that certain important factors could cause actual results, outcomes, performance or achievements of Land Securities or industry results to differ materially from those expressed or implied in forward-looking statements. These factors include, but are not limited to, those described in Part II (Risk Factors) of the prospectus to be published by Land Securities on 19 February Save as required by the FSA, the London Stock Exchange or applicable law, including, without limitation, the Prospectus Rules, the Listing Rules or the Disclosure and Transparency Rules, Land Securities undertakes no obligation to release publicly the results of any revisions to any forward looking statements in this document that may occur due to any change in the Board s expectations or to reflect events or circumstances after the date of this document. Page 32

33 Contacts Edward Thacker Investor Relations Manager Tel: +44 (0) Fax: +44 (0) Web: Abby Guthkelch Investor Relations Executive Tel: +44 (0) Fax: +44 (0) Web: LAND SECURITIES GROUP PLC, 5 STRAND, LONDON WC2N 5AF Page 33