The Investment Column: Land Securities a beached whale

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The Independent Online
Land Securities, Britain's biggest landlord, has ground to a halt. Not because it isn't doing all the right things but because it is so large that it can only ever be a proxy for a direct property market that is itself flat as a pancake.

Companies such as Chelsfield, Argent and Burford, with market values of between pounds 200m and pounds 500m are still sufficiently nimble to dip in and out of those areas of the market that are showing some growth and small enough to make a meaningful difference to their net worth with a handful of bold developments.

LandSecs, worth more than pounds 3bn, a quarter of the whole sector, does not have that luxury. It is so large that its current pounds 435m development programme, while doing exactly what it should be doing, is never going to do more than keep the supertanker headed in the right direction.

Full-year profits for the 12 months to March confirmed the gloomy outlook for the company.

Last year's paltry 0.2 per cent rise in rental income, by pounds 600,000 on a base of pounds 400m, is what the company must get used to in a low-inflation environment where technological changes are reducing the amount of space that organisations need to house staff.

At the pre-tax profit line, there was actually a fall, by 2.9 per cent, compared with an average rise of 7.5 per cent over the last 10 years, and earnings per share slipped 1.9 per cent to 33.9p, where they provide a worryingly slim cover for a 26p dividend, up an anaemic 4 per cent.

The most important measure for a property company is its net asset value and that slipped 2p to 691p. At that level the shares, which closed 5p higher at 648p, stand at a discount of about 13 per cent to forecasts of the company's net worth of between 740p and 760p by the end of the current year. That is about right given the support of a yield of 5 per cent.

The only reason to invest in Land Securities is if you believe that rents are about to take off, interest rates fall a lot further or the gap between property yields and the return from gilts narrows. None of those appears likely in the foreseeable future and there is much better value, even within the sector, to be had elsewhere.