There’s a thought provoking piece in FT Lex on the substitutability of British Land and Land Securities.
The macroeconomic risks that unite them overwhelm anything as trifling as their strategies…shares in the two big UK property developers move in near-total lockstep (for the statisticians, the correlation is 98 per cent). That is despite differences in strategic focus. British Land, which reported full-year results on Monday, looks to be more risk-seeking, and plans to put even more emphasis on the UK’s booming capital. Land Securities (which reports on Tuesday) looks more nervously upon London’s crane-filled skyline. British Land operates with higher gearing, with a ratio of debt to earnings before interest, tax, depreciation and amortisation of 11, compared with 7.5 at Land Securities.
It raises some issues about the ability of the executives to create outperformance in large pass-through vehicles. The former editor of Estates Gazette Peter Bill was sceptical of the large salaries paid to what are managers of, what are effectively, holding companies. Is this fair? Running these businesses is not exactly a passive role. Unlike securities, real estate assets require a lot of operational management. Also, a major business stream of Land Securities and British Land is the creation of new real estate assets through the development process – an entrepreneurial, highly knowledge intensive, specialist activity. Whilst they may not be managing lots of direct employees, they’re co-ordinating a huge number of specialist knowledge suppliers. There are interesting questions about the optimal range of activities that they’re engaged in and what their focus and size should be. Would there be any synergies in merging or even de-merging?