Land Securities profits soar as it says it will convert to a Reit

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Land Securities, the property group behind the Bullring in Birmingham and the Piccadilly Lights, revealed annual profits of £2.4bn yesterday.

It also announced that it is almost certain to convert the company into a Real Estate Investment Trust (Reit) when the Government approves the new vehicles. By switching their assets into a Reit, companies will no longer have to pay corporation or capital gains tax, a potentially massive saving.

Investment trusts also tend to attract strong interest from retail savers - a potential boost to the share price.

Its chairman Peter Birch said: "Our view at present is that we are ideally positioned to benefit from this status."

The legislation is due to be passed in July, with Land Securities likely to confirm its intentions in August. It will cost 2 per cent of the value of the company's properties to convert to a Reit - about £270m in Land Securities' case, meaning it will take several years for the tax break to pay off.

The 80 per cent rise in profit was partly down to a revaluation of the group's property portfolio over the course of the year. The shopping centres, retail warehouses and London offices owned by Land Securities are all valued at significantly higher levels than they were 12 months ago.

Revenue profit, which strips out exceptional gains and is perhaps a better measure of the company's success, was up 8 per cent to £391m. Earnings per share jumped 57 per cent to 358p.

The shares have been strong performers lately but were hammered yesterday along with the rest of the market, falling 82p to 1,753p.

The chief executive Francis Salway said the group was unlikely to be an aggressive buyer of property in the coming year. The company described recent levels of growth in property values as "unprecedented" and said such gains cannot be sustained in the long run.

The London office market, which was weak in 2002 and 2003, is now coming back pretty strongly, Mr Salway added.

Land Securities has interests in 30 shopping centres including a one-third ownership of the Bullring, which has been spruced up in recent years.

The company expects rental income from the shopping parks and supermarkets to rise, although this will be offset by less money from the Department for Work and Pensions, its biggest property-outsourcing customer.

JP Morgan said yesterday that it retains its positive stance on the company and thinks the shares could go to £23 by June 2007. Unexpected rises in interest rates are seen as the biggest threat to the business.