LandSec Scoops Up Rival for $1B

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LONDON-Land Securities has agreed to a takeover of quoted rival Tops Estates in a debt-for-equity deal valued at euro 759 million ($981.5 million).

The acquisition is expected to be earnings neutral in the first year and increase earnings “within about a year,” says Francis Salway, chief executive of Land Securities. Currently rental prices on about 30% of the properties are lower than current rental values, so as the company increases the rents, earnings will be enhanced, Salway says. The deal will increase the retail share of Land Securities’ property portfolio to 60%, he adds.

The move to increase its presence in retail doesn’t indicate that Land Securities is cooling on the office market, Salway stresses. “The transaction is about attractive retail property assets–it’s not a call as between sectors.”

Property values in the retail sectors have been rising, Salway says, due to higher rents and also yield compression, the effect of which is that investors are prepared to pay more for property.

The rationale for the deal is to pick up some good quality retail properties, Salway says. “In effect it’s like capital recycling within our property business.” After buying Tops Estates, Land Securities will have increased its number of retail estates to 28 from 18. In particular, the Clayton Square Shopping Centre consolidates Land Securities’ position in Liverpool; Tops Estates’ sites in Corby provide a longer-term development opportunity; and its properties in Leeds provide Land Securities with an entry into one of the top-10 city centre retail markets in the UK.

Land Securities says it will also continue to deliver the asset management programs already initiated at Tops Estates’ sites in Stafford, Harrogate, Worcester and Shepherd’s Bush. An analyst says the deal “makes sense” as it fits Land Securities’ recent expansion in retail. “It obviously has ideas for the shopping centers, [and] this makes it a more dominant retail player,” the analyst says. But this transaction is “more about longer-term capital growth,” than about boosting earnings per share, he says.