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LAND - Land Securities News Story

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Last Trade - 11/11/19

Sector
Financials
Size
Large Cap
Market Cap £6.54bn
Enterprise Value £10.31bn
Revenue £757.0m
Position in Universe 141st / 1848

Fitch Assigns Land Securities Short-Term IDR 'F1'

Fri 6th September, 2019 11:11am
(The following statement was released by the rating agency)


Fitch Ratings-London-September 06: 

Fitch Ratings has assigned Land Securities plc (LandSec) a Short-Term Issuer 
Default Rating (IDR) of 'F1'. This rating is applied to Land Securities plc's 
GBP1.25 billion Euro commercial paper (ECP) programme. The rated entity is a 
direct subsidiary of the UK focused REIT Land Securities Group PLC. The rating 
reflects LandSec's underlying credit strength, a strong liquidity profile, and 
access to over 100% liquidity back-up (cash and committed authorised credit 
facilities (ACFs)) relative to anticipated outstanding obligations under the 
company's GBP1.25 billion unsecured ECP programme and other short-term debt. 

Land Securities PLC; Short Term Issuer Default Rating; New Rating; F1

----senior unsecured; Short Term Rating; New Rating; F1

------GBP 1.25 bln CP Programme ; Short Term Rating; New Rating; F1

Key Rating Drivers

Diversified Portfolio: LandSec owns a GBP13.8 billion portfolio, comprising 
London offices (48%), retail (43%), leisure (6%) and hotels (3%). The balanced 
portfolio has favourable features such as a long lease maturity profile and high 
occupancy rates, reflecting quality UK assets. Whereas other UK REITs also hold 
City, Mid-Town and West End office assets, LandSec's West End portfolio is more 
focused around Victoria, SW1, and increasingly includes tech and creative 
industry tenants alongside legacy UK government offices.Decline in Retail Asset 
Values: In line with UK peers', the valuation of LandSec's retail portfolio 
declined steeply to GBP5.2 billion at year-end March 2019 (FY19). The valuation 
of its retail parks declined 15.5% year-on-year and its regional shopping 
centres fell 13.2%. UK retailers will continue to suffer from a Brexit-related 
consumer downturn, currency depreciation squeezing retailers' profits, staff and 
occupancy cost increases and e-commerce penetration exposing retailers' 
bricks-and-mortar overcapacity. Exposure to Retail CVAs Limited: Retailers' 
company voluntary arrangements (CVAs) have reduced rents and subdued rental 
growth prospects, thereby affecting retail asset values. LandSec's direct 
exposure to loss of rent (before any re-letting) because of CVAs and 
administrations has been low at 2.3% of FY19 group rent.Increasing Focus on 
London: LandSec's appetite continues to grow for properties in London, where 
around 65% of the total portfolio is located and the entire GBP3 billion 
(largely uncommitted) mixed use/residential development pipeline is concentrated 
(including Southbank), of which two-thirds is office. Largely Speculatively-let 
Development Programme: With the exception of 21 Moorfields, which is fully 
pre-let, the remainder of LandSec's development programme is speculative. Fitch 
has calculated that if the on-site development programme, consisting of offices 
21 Moorfields,105 Sumner Street, Nova East and One Sherwood Street were to be 
built-out totally unlet (or no rent immediately flowing), this would increase 
FY19 net debt/EBITDA to 8.4x from its current level of 7.1x. The total cost to 
completion of these projects is around GBP700 million. Analytical Approach: Land 
Securities Capital Markets plc's CMBS secured debt is rated 'AAsf' and 
notched-up from an underlying corporate assessment to reflect the benefit of the 
secured debt's covenanted funding structure, its collateral including the 
control afforded to these creditors under certain regimes, and other 
non-corporate features. The CMBS rating acknowledges the lack of securitisation 
mechanisms, which prevents Fitch from applying a pure CMBS rating approach. 
Fitch's corporate assessment of the group now uses LandSec's consolidated 
figures as only a small amount of assets and activities are outside the Capital 
Markets plc's structure and cashflows. Significant Financial Flexibility: 
Despite the potential restrictive nature of the group's covenanted secured 
financing structure, LandSec continues to exhibit lower leverage (FY19: net 
debt/EBITDA 7.1x, loan-to-value (LTV) 28%, net interest cover 4.8x) and to enjoy 
significant financial flexibility. At this stage in the cycle, Fitch believes it 
unlikely that LandSec will use this financial flexibility to bid for other 
property companies but will rather use these resources to acquire assets or to 
self-fund its development programme. Headroom between Covenants: Short-dated CP 
is issued by Land Securities plc as an unsecured debt obligation and does not 
benefit from the collateral pledged under the Land Securities Capital Markets 
plc financing. Land Securities plc can draw on its secured ACFs to repay 
maturing CP. Under the ECP dealership agreement no further CP can be issued 
above 55% LTV. The secured ACFs' main back-stop mechanism is an LTV ratio of 
80%, leaving significant headroom (and long lead-time) between these two LTV 
covenanted thresholds. Therefore, it is more likely that if LandSec's financial 
profile deteriorates, maturing short-term CP would be repaid from drawings under 
the committed ACFs. Fitch's Short-Term Rating does not include recovery upon 
default and is a default risk-driven rating. Under Fitch's Short-Term Rating 
Criteria dated 2 May 2019, Land Securities plc's Short-Term IDR is associated 
with its Long-Term IDR. Under our criteria a corporate's Long-Term IDR of 'A-' 
or 'BBB+' can be mapped to a Short-Term IDR of 'F1'.

Derivation Summary

LandSec's portfolio of Central London offices and retail properties across the 
UK is similar to that of The British Land Company plc (A-/Stable). Both 
companies own or manage domestic assets exceeding GBP10billion, placing them 
among the largest investment companies in the UK. Compared with other European 
real estate operators, LandSec is less geographically diverse than 
Unibail-Rodamco SE (A-/Negative), Atrium European Real Estate Limited (BBB-/RWN) 
and NEPI Rockcastle plc (BBB/Stable). However, the concentration of LandSec's 
assets in prime areas of London - which feature high demand from investors and 
tenants, and strong tenants - paired with some geographical and asset 
diversification provided by the group's retail, hotel and leisure portfolios - 
support a very strong business profile.LandSec's Short-Term IDR meets our 
guidelines for an 'F1' relative to the group's undisclosed Long-Term IDR. Under 
Fitch Navigator's Financial Profile factors, LandSec fulfils the Financial 
Flexibility factor at a minimum 'a' mid-point, Financial Structure at or above 
'bbb' and the Operating Environment factor of at least 'a-'. Under our 
Short-Term Rating Criteria, a material weakening in Fitch's assessment of 
LandSec's Financial Flexibility, and Financial Structure or Operating 
Environment conditions, could result in a lower Short-Term IDR.

Key Assumptions

- Limited growth in cash rental income, based on contracted rents and taking 
into account rent-free periods- Capex of around GBP700 million from FY20 to 
FY23, including developments- No major acquisitions or disposals

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating 
Action- Material tenant, rental and geographic diversification of the portfolio 
with financial metrics being maintainedDevelopments that May, Individually or 
Collectively, Lead to Negative Rating Action- Liquidity score below 1.25x (FY19: 
2.7x)- Net interest cover ratio below 2.5x on a sustained basis- Negative change 
to leverage including net debt/EBITDA above 8.0x and LTV above 40% on a 
sustained basis

Liquidity and Debt Structure

Strong Liquidity: At FYE19 LandSec's liquidity comprised GBP14 million in 
available cash, excluding GBP36 million of restricted cash, and GBP2,490 million 
undrawn committed lines. The average weighted maturity of the group's total debt 
is long at 12.3 years, with an average cost of debt of 2.7%.CP Back-Up Liquidity 
Lines: The ECP dealership agreement requires a minimum 100% undrawn ACF headroom 
(FYE19: undrawn facilities GBP2.490 billion). Assuming that the outstanding 
FYE19-issued short-term ECP of around GBP950 million is repaid by ACFs, undrawn 
facilities would be GBP1,540 million. From this resultant liquidity headroom, 
LandSec itself also requires 1.1x cover of all committed capex by cash and 
undrawn bank lines, whereas the actual coverage is over three-fold.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit 
relevance is a score of 3. ESG issues are credit-neutral or have only a minimal 
credit impact on the entity, either due to their nature or to the way in which 
they are being managed by the entity.For more information on our ESG Relevance 
Scores, visit www.fitchratings.com/esg.

Contacts: 

Primary Rating Analyst

Diego Della Maggiore, 

Director

+44 20 3530 1797

Fitch Ratings Ltd

30 North Colonnade, Canary Wharf 

London E14 5GN

Secondary Rating Analyst

Shiv Kapoor, CFA

Senior Analyst

+44 20 3530 1509

Committee Chairperson

Bram Cartmell, 

Senior Director

+44 20 3530 1874

 

Media Relations: Adrian Simpson, London, Tel: +44 20 3530 1010, Email: 
adrian.simpson@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Corporate Rating Criteria (pub. 19 Feb 2019)

https://www.fitchratings.com/site/re/10062582

Corporates Notching and Recovery Ratings Criteria (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10024585

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10088421

Solicitation Status 

https://www.fitchratings.com/site/pr/10088421#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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