Land Securities in surprise move to hand back £500m to investors

Land Securities moved yesterday to avoid the kind of shareholder revolt that has hit its rival British Land, by giving £500m back to investors.

After being criticised for years for not using surplus capital efficiently, Land Securities, Britain's biggest property group, pledged to return £500m of unneeded funds to shareholders. Although welcomed by many investors, analysts said the move was odd, as the case for the return of excess cash was now less compelling than it had been in the past. The return also prompted a credit rating downgrade that will make future borrowings more expensive.

One analyst said: "This is a big surprise. They are trying to head off any trouble, looking at what's happening at British Land. They have said in the past that they need a very strong balance sheet to fund their Trillium operation."

British Land, chaired by John Ritblat, faces a rebellion led by Laxey Partners, a 2 per cent shareholder. The investor is demanding that British Land buy back its own shares ­ an idea dismissed by Mr Ritblat in the past ­ and is even proposing that directors be stripped of most of their responsibilities. The resolutions, which have sent shockwaves through the sleepy property sector, will be put before British Land's annual meeting in July.

There have been suggestions that Laxey Partners could equally turn its attention to Land Securities, which has been viewed as lacking in dynamism and not sufficiently gearing up its balance sheet. The property giant has also drawn criticism for not having in place a clear successor for its chief executive, Ian Henderson.

The company attracted plaudits for its acquisition in 2000 of Trillium, a property-outsourcing specialist. However, Trillium requires large amounts of capital to bid for long-term contracts.

Yesterday, Land Securities reported no growth in the worth of its £7.8bn portfolio in the year ended 31 March, as the value of its central London offices fell. The company described this performance as "pleasing", given "instability" in global economies and financial markets.

Mr Henderson said the planned return of capital was "modest tightening" of the balance sheet. "We still have masses of flexibility. We are just working the equity a bit harder," he said. Land Securities shares ended up 17p at 977p.