Creating strong foundations
What we did
The Land Securities' portfolio has a good variety of properties in terms of lot size and income profile and that does appeal to a variety of investors, I think that was shown in all the successful sales we undertook during 2009.
We sold the Bull Ring in mid 2009 and that was really a result of us just having a one third share in the Bull Ring, we were in a partnership there and it doesn't fit in with our business plan of managing the assets intensively and building our relationships with the retailers, we had no direct contact with the retailers at the Bull Ring. So we had a - several hundred millions of pounds tied up behind someone else's management and that was the reason we really decided to exit that property.
Recycling capital is a real focus for us, we need to use our capital as efficiently as possible.
From the sales we will either reinvest the capital in new investment acquisitions or new development opportunities and they will all be opportunities where we think we will get better returns from investing in those situations than we would've done from holding onto the assets.
We are continually reviewing the portfolio for changes to properties and increased risk of underperformance. There may be opportunities where we identify further sales, that will be part of our capital recycling strategy where we can exit potentially underperforming assets and reinvest the proceeds in assets or developments with a higher return potential.
Reducing debt has significantly strengthened the balance sheet and it's increased our capacity to fund exciting new opportunities, and not only that, repaying debt has underscored our reputation because we delivered on the commitment on a promise we made to the market.
A rating or a credit rating is an independent assessment of our credit strength, it's an assessment of our ability to pay interest and to repay sums that we've borrowed. Having a high credit rating is incredibly important, investors like stability and keeping our credit rating, our double A rating, gives us access to broader debt markets and cheaper funds.
Having debt maturing in a very short period of time increases risk and companies should have a spread of debt maturities, it allows them to better plan their cash flows and reduces re-financing risk.
The company's debt duration has increased from nine years at the end of March 09 to eleven point eight years at March 2010, and that was a huge team effort. The property part of the business were able to sell lots of assets which allowed us to pay down short-term bank debt and at the same time the treasury team put in place a three hundred and sixty million pound innovative and long dated bond against a government building; Queen Anne's Gate. Because it was government sponsored, it achieved a triple A rating.
I think we're well placed against our peer group, we have a great credit rating, great investor relationships and significant debt capacity to take advantage of opportunities which will surely come our way.
Where we are
Well, we're in an amazing position where we're – our developments are of a sufficient scale and size and quality that we are transforming whole parts of London. Our stock is in the right areas, it's in the West End, it's in the City, and that is something that's been built up over a number of years, there have been a lot of thought about targeting particular areas where we believe there is potential and there is growth. Secondly, it's then about how you transform the somewhat tired stock into these magical schemes that we now see today.
In the West End, we believe we need to hit the market in 2012/2013 and we are programming our developments to be fitting within that programme. Development is about getting timing right, we have a very good track record of having got timing right, so a scheme like Park House where we started the demolition twelve months ago, we're now in 2010, but you've seen the size of the site to be ready for thirteen, we have to get going now. And it's the same with our other schemes in Victoria where we've started Selbourne House and we've started Welling Town House, it's exactly the same reasons.
We need to be ready to go before anybody else, to capture demand that we predict will be there at the time. We will be the first to be ready with our space as and when occupiers have a need to relocate.
Our job is to understand where our customers are coming from and one of the things that we're doing is that we're bringing new architects, we are pushing our architects, we're helping them work with us to create schemes that are not only viable but actually buildings that people want to be in, want to walk past and want to spend time in.
And it's about a care about what the consumer wants, what the local neighbour wants, how this will impact on the local traders, how this might impact on a local school and it's putting all of that together so that what we deliver actually has a benefit for not only us but the people who are touched by our developments.
The main things I look at, is firstly trying to understand consumer behaviour, how they act, how they engage, how they shop, impact of internet and impact of different channels of distribution, and once I kind of get an understanding of that and work with that, I then look towards the retailers to try and understand their vision, their mission, what they're trying to achieve because at the end of the day we build developments to attract retailers, to attract consumers. The greater level of understanding we have of both of those gives us a competitive edge.
Clear Let Lease is, as I said, engagement with retailers, understanding their challenges and issues and trying to find common ground. Firstly, when we identified the number of needs that retailers had we were able to accommodate over ninety eight percent of those within our new lease.
We've also simplified it so it's easy to look at, anybody can read it, it's in plain English, you don't need another bunch of lawyers to understand it.
You know, when you bring a number of customers to a place, everybody is vying for that pound or that spend from that customer and the better performers will succeed. But what we've tried to do through Brand Empire is certainly by differentiating the mix, bring more of those customers, so giving everybody a greater opportunity.
If we're going to differentiate our schemes, if we're going to enhance the customer experience, we need new retailers into the market. The concept is all about facilitating their entry, incubating them as a brand and giving them a level of scale where they will then come in and take that brand over themselves and move it on to a different level.
The great thing for customers visiting our centres will be – is giving them that chance, giving them access to international brands that traditionally wouldn't have been in that marketplace, and I think that's the greatest benefit that we can provide them.
I think what we've done is a very good starting point, but by no means is it the end, I think what we've done through Brand Empire and through Clear Let Lease has been a slight lit – I would call a minor revolution, yeah, in the sense of what we've done in the market.
I said my task is to provide our retailers with a commercial and profitable solution that delivers a long-term sustainable benefit to their business, if I get that right I've equally provided the same for our business.
Where we're going
Well, key to thinking about designing buildings is not just about designing the buildings themselves, it's about designing the spaces around the buildings as well and what's key to make a successful space and here we, you know, outside we have this lovely square that's been created by these buildings.
So by planting the space, by introducing trees, by having green roofs and green walls, we create a much nicer environment for people to be in.
The approach on New Street Square and the sustainability really started right at the beginning when we had the first ideas that we were going to redevelop the site. There was a lot of thinking about the future potential of how these buildings could be used, and the flexibility and adaptability was part of the design.
We've taken that thinking forward and used in other buildings, but we've now started to link different types of ground source energy.
The design of a building is – is very important, you know, it has to sit properly in the context of the area that it's in and we've built in some very sensitive locations and there was some very historic towns and cities in the UK where we've got some retail developments. And an example in the City of London you've probably got the world most recognisable landmark in St Paul's Cathedral and we have a – a building very, very close to that and therefore it was very important that the design really fitted in with this environment and didn't detract in any way from St Paul's as a location and – and as an icon of the UK, it provides sort of like ten percent of the City's retail space in that one location.
It's about the approach and the core ethos of the company to do better, to actually be the leader in the sector, to actually go forward with a view to create excellence in what we do and to create excellent buildings because excellent buildings create value and create an attraction for people that they want to be in them and that's key to Land Securities going forward, we want a sustainable portfolio, we're going to be a successful company, we'll be a sustainable company and that's important for the future.
Shoppers traditionally and still want convenience and accessibility and out-oftown shopping, it's still about having the right kind of car park, accessibility, which all sounds very basic, but the basics are hugely important because it is about destination shopping.
However, what we're increasingly seeing is the consumer wanting a slightly more sophisticated shop out-of-town and you can see it here in Poole where we've improved the landscaping, public art, we've introduced new retailers to the park, so as well as the traditional DIY operators, which are still hugely important to the out-of-town market, we've introduced people like John Lewis in our portfolio, we're also introducing a lot more catering, other amenities, such as toilets and banking facilities to extend the dwell time on the park, but still not take away from the basic fact of convenience and accessibility.
Well, there's been an increasing trend from retailers over the past few years to have smaller floor plates, they're worried about occupational costs, rent, rates, service charge, they're trying to get more efficient in terms of the gross to net ratios, basically get more out of their store.
Retailers are also driven by environmental demands, the consumers increasingly want to see even higher standards of environmental and ethical behaviour, the retailer has to respond to that, but also has to balance the consumer demand for even cheaper goods. So we've got to work with them to try and make the property as efficient and environmentally as friendly as possible.
We've always worked well with John Lewis, it took us six months from agreeing the deal to getting the store open, which involved completely stripping the unit back to its frame, rebuilding it and seeing it fitted out.
By understanding John Lewis and other customers' requirements, it flows through straight into our bottom line, by being discreet and understanding their requirements, we can do more deals with them, we can get stores opened quicker, which means the rent comes in quicker and that goes straight into our bottom line.