Land Securities' NAV hit but EPS likely to rise after completing bond tender

Land Securities has completed a £502m bond tender to extend its debt maturity and take advantage of low interest rates, which is expected to knock its net asset value but lift earnings per share.

Of the £317m A6 notes, £220m were tendered and accepted, with £283m of the £500m A11 notes.

None of the tenders related to the £320m A7 bonds, which carry the highest coupon, were accepted.

Land Securities' weighted average maturity of debt will be extended by 5.2 years, while its loan-to-value ratio increases by 1.2 percentage points.

Adjusted diluted NAV will be roughly £171m lower, if factoring in the upward shift in the sterling yield curve over the course of last week.

The saving from the annual net interest on the tendered bonds partially offset by the cost of the new issuance, will see a benefit to EPS of around £8.4m.

In order to finance the tender, the FTSE 100 company has issued a £500m 20-year bond with a coupon of 2.625% and a £500m 40-year bond with a coupon of 2.75%, and has also ‘termed out’ £325m of short-term debt at a cost of £6.3m.

Broker Numis said: "While we understand LAND’s desire to lock in such low interest rates with long maturity debt, we have a slight concern around the inflexibility of such long-dated bond debt in particular in the context of its 8.9yr weighted average unexpired lease term," which for retail is 8.5 years and for London is 9.3 years.

Factoring in the bond tender and new debt into previous estimates, Numis analysts downgrade NAV forecasts by 1.6% per year to 1,456p from 1,480p in the 2018 financial year, to 1,458p from 1,481p in 2019 and 1,387p from 1,409p in 2020.

At the same time, they upgraded EPS forecasts by 2% a time to 53.0p in FY18 from 51.9p, 55.2p in FY19 from 54.1p and 56.4p in FY20 from 55.3p.