UK property firm Land Securities – owner of the award-winning Blythe Valley Business Park in Solihull – yesterday beat forecasts with an 11 per cent rise in first-half net asset value.
The company also forecast a 30 per cent dividend boost when it converts to a low-tax investment trust next year.
Europe's largest listed property firm said the outlook remained positive, although the current property market rally might not be sustainable as the retail sector remains fragile and fears are mounting the office market is overheating.
"Prospects for growth in rental values for London offices remain attractive for at least the next two years and retail sales figures have been stronger in 2006 than 2005, although retailers are still experiencing pressure on their cost bases," the company said in a statement.
It confirmed its plan to convert into real estate investment trust (REIT) status in January 2007 and will hold a shareholder meeting in December to seek approval for the change, which will allow it to pay little tax as long as profits are mainly paid out in dividends.
"We anticipate distributing the tax saved to shareholders in the form of an increased dividend which, over a full year, is expected to represent around a 30 per cent increase," it said.
The company raised interim dividend payment by 4.7 per cent to 19 pence a share, which Daniel Horwood, a KBC Peel Hunt analyst, said was a little disappointing.
Land Securities, which has #14.4 billion in portfolios, said adjusted diluted net asset value – a key performance measure for property firms – rose to 2,121p per share at the end of September from 1,912p at the end of March.
The result, which was buoyed by valuation gains in London offices and shopping centres, compared with a mean forecast of 2,088p by five analysts polled by the company.
Total investment portfolio return was ten per cent, beating 8.9 per cent measured by the Investment Property Databank's quarterly benchmark. UK property firms are enjoying strong growth as buoyant financial markets boost London office demand and push rents higher, helping offset relatively weak performance from retail sector.
Land Securities, which owns 30 shopping centres and 31 retail parks, said market conditions continued to remain difficult and retailers were seeking greater incentives such as rent free periods and capital contributions as a result of fragile consumer confidence and rising costs.
The company, which said in September that its plans for a 37-storey building in London, nicknamed the "Walkie Talkie", were set to be approved, added that its development pipeline remained strong.
"Development has been key to our performance over the last 18 months. The fact that we have substantial development pipeline is extremely positive," said chief executive Francis Salway. Land Securities also said it was "considering a number of opportunities" in the commercial property sector, but played down expectations of any sharp increase in consolidation among UK major players.
"We think consolidation will continue, but not at an extreme level," said finance director Martin Greenslade.
"With most quoted UK property companies valued at over #500 million or more there are limited choices for any potential bidders.
"There has always been a degree of consolidation among property companies; five years ago we saw a proportion go from public to private ownership. Now we're seeing another phase driven by the high proportion of money that is being allocated to the global real estate sector, both private and public, and the more tax efficient structure of the UK property sector now that REITs have become a reality."
Shares closed up 11p at 2176p.