Land Securities Plc Business Information, Profile, and History
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History of Land Securities Plc
Unlike most of its competitors, Land Securities has achieved and maintained its position as the U.K.'s largest property company by concentrating on the home market rather than expanding overseas. Apart from an unsuccessful venture into the Canadian market, via its subsidiary Ravenseft Properties Ltd. in the 1950s, no attempts have been made to expand abroad. Rapid growth since the 1940s has been based on specialization in the highest quality London offices and, through Ravenseft, the redevelopment of provincial shopping centers. Diversification into industrial property and retail warehouses has made an increasing contribution to growth.
Land Securities originated in 1944, when in the spring of that year Harold Samuel bought a tiny property company, Land Securities Investment Trust Ltd., (originally incorporated in 1905 as Land Securities Assets Co. Ltd.), with assets of three houses and government securities valued at about £19,000. By March 1952 assets had rocketed to £11.1 million due to Samuel's skillful property market dealing.
Harold Samuel was born in 1912. After leaving school in 1929 he began work as an articled pupil--and apprentice--in the estate agency firm of Johnston Evans & Co., in London. A childhood acquaintance was Louis Freedman, whose provincial shop development activities were to complement Samuel's London office acquisitions and developments following World War 11.
One of the most talented of all property tycoons, Harold Samuel understood the ways in which flaws and imperfections in the property market could be exploited, and introduced many of the techniques that were to make fortunes for the new breed of property developers in the early postwar years. One of the factors behind his remarkable success as a property entrepreneur was his use of borrowed funds to expand holdings, a technique which he put to good effect in the unsophisticated property market of the 1940s. In his book The Property Boom, Oliver Marriott recounts how the fledgling Land Securities was able to obtain its first properties without committing too much of its own capital. Properties in Hatch End were bought in 1944 for £15,213; £9,477 being paid by bank loan, while other properties were bought at Neasden for £4,847; £3,335 being raised by mortgaging. Insurance companies were generally happy to provide mortgage finance, given the shortage of investment outlets other than gilts in the late 1940s. Interest rates were low, due to the Attlee government's cheap money policy, while a shortage of new properties, fostered by government building controls and materials shortages, ensured that rising property prices more than covered interest payments. The early accounts for Land Securities illustrate the importance of borrowed funds; in March 1948 the company's equity stood at £70,000, while mortgages and loans amounted to £1.3 million.
Another area in which Samuel showed considerable skill involved circumventing or taking advantage of the complex legal framework which regulated the property market in the early postwar years. Until 1947, borrowing was limited to £10,000 unless permission to exceed this sum was given by a government body known as the Capital Issues Committee. For some years after 1947 money could not be borrowed without the consent of this body. Samuel overcame these problems by establishing subsidiaries, each of that could borrow up to the limit, and by taking over property companies which already had agreed borrowings.
He also took advantage of a lucrative provision of the Town and Country Planning Act of 1947, under which a block of flats that had been requisitioned for office use could remain as office property without the payment of any development charge. He acquired a number of former flats that could now be used as offices; often their owners did not know of this provision and he obtained them at very attractive prices. Yet another of Samuel's innovations was his early institution of the full repairing and insuring lease which, by placing responsibility for repairs and insurance with the tenant, lowered property management costs.
Harold Samuel had very definite views about the types of properties which were likely to prove the most profitable long-term investments. He concentrated almost exclusively on London offices with first class specifications and locations. If a new property did not come up to his standards it was often refurbished to bring it up to the highest quality. This often entailed heavy expenditure and a temporary loss of income, but resulted in higher rents and property values in the long run.
From the end of World War II until 1954, very severe restrictions governed property development, prohibiting any development which was not granted a government building license. As a result Land Securities dealt chiefly in the purchase, rather than development, of properties, concentrating on the west end of London. However, the company was able to do some development prior to the removal of controls by taking on projects in the one area for which licenses could be obtained, offices for government occupation. Samuel preferred government and other large tenants because of the security of their tenure and the fact that they could take on an entire building, thereby lowering management costs. In the case of one building, Regent Arcade House, Land Securities waited for over a year in order to find a single prestigious tenant; one was finally found which suited its requirements, the Bank of England. This was a time of rapid growth for the company; its assets, which only amounted to £19,321 in 1944, had grown to £11 million by 1952.
A number of early takeovers increased assets and drew public attention to Samuel's entrepreneurial skills. These takeovers included United City Property Trust in 1948 and the much more important acquisition of Associated London Properties (ALP) for £2.1 million in 1951, which almost doubled the book value of Land Securities's assets. Associated London Properties' assets included a number of office blocks let at prewar rents, with leases which were due to expire between 1958 and 1961, at which time they could be re-let for substantially higher rents. While ALP's directors were well aware of the value of these properties; they were unable to raise dividends since this value would not be reflected in increased income until the leases expired. Samuel was therefore able to acquire the company at a price which reflected its current, rather than potential, income value. He also received other benefits from the acquisition. Cash was raised from the sale of Associated London Properties's residential and factory assets and, more importantly, the remaining assets included a large number of properties with no mortgage commitments, which could be used to raise further mortgage finance.
Two years later, Land Securities launched another takeover bid, this time for the Savoy Group. The bid sparked controversy and ended in failure, but had some positive results. It was wrongly claimed that Samuel intended to convert the Savoy Group's hotels into offices and the resulting hostile press reaction contributed to the failure of the bid. This adverse publicity left Samuel feeling he had been unjustly treated by the press, and thereafter he kept as far out of the public eye as possible. However, by earning him a reputation as a skilled corporate predator, this episode enhanced his reputation in the City and made it easier for Land Securities to raise development finance on attractive terms.
In the ten years after 1954, when building license restrictions were lifted, Land Securities greatly expanded development activities, becoming one of the most prominent developers in London. The property market experienced a boom as the demand for property raced ahead of supply, which had been held back by wartime bombing and postwar shortages and development controls. Its rapidly expanding development program allowed the company to take full advantage of the large profit margins that were available to developers during these boom years, resulting in rising profits and rapid growth.
While Samuel concentrated on the London office market, Land Securities was also able to obtain a stake in the lucrative provincial shop market from 1946 via Ravenseft, a subsidiary which became fully owned in 1955. Ravenseft was set up by Louis Freedman and Frederick Maynard. Both Freedman and Maynard had begun their careers in estate agency in London during the 1930s. Here they learned, along with many others who were to become successful developers in the postwar years, the art of property dealing.
With the help of Samuel, who provided valuable contacts, Freedman set up Ravensfield Investment Trust Ltd., as it was then called, in 1946. Ravensfield's strategy was to operate in the provincial markets, where competition was less fierce than in London. By 1949 Freedman realized that to cover all the provincial markets he needed a partner, and was able to attract Fred Maynard from the estate agents Healey & Baker. From 1949 to 1966 their company, under the new name of Ravenseft Properties Ltd. was to invest £60 million in new shops comprising over 400 developments in 150 U.K. towns and cities. It pioneered the redevelopment of bombed-out town and city centers in cooperation with the municipal authorities. A virtual lack of competition in these markets and the prestige value of its association with Land Securities were important factors behind Ravenseft's rapid early growth. The very nature of the type of developments that Ravenseft had chosen to undertake also contributed to success. Building licenses were easily obtained for this type of development, and as the local authorities were eager to see such projects go ahead they were prepared to use their powers of compulsory purchase to acquire the necessary land.
Once the supply of blitzed city sites began to run down, Ravenseft turned to the "New Towns," which were then largely at the planning stage. It took the gamble that these towns would become successful commercial centers, a gamble which proved to be highly rewarding. It also attempted, unsuccessfully, to enter the Canadian property market in 1956, its failure being largely due to its unwillingness to take on a Canadian partner with detailed knowledge of the local market. Ravenseft pulled out of Canada in 1962 and Land Securities has subsequently avoided dealings in overseas property, even going so far as to sell a stake in the valuable Pan Am building in New York when subsequently taking over the stake's owner, City Centre Properties Ltd., in 1968. In 1955, when Samuel bought up the remaining 50% of Ravenseft's shares, the deal valued the company at £2.1 million.
During 1955, Samuel also consolidated Land Securities' debts and capital structure. Due to the high regard in which the company was held by the City at this time he was able to issue £20 million of debentures which were taken up by Legal & General, Norwich Union, and the church commissioners, with an interest rate of only 4.5%, virtually no higher than that which was available for gilt-edged stocks to government bonds.
By the late 1950s the credit squeeze made fund raising much more difficult for property developers, as the Bank of England instructed the banking sector to reduce lending. These restrictions shifted the balance of power in favor of the financial institutions when making funding agreements with developers. The institutions began to ask for a percentage of the profits from developments, while being careful not to take on too much of the risk. In the spring of 1959, Legal & General and Land Securities entered into the industry's first convertible debenture agreement. A total of £6 million was to be lent to Land Securities for expansion, on the security of a debenture. What made this deal unusual was that £1 million of this was convertible into Land Securities's ordinary shares at a price equivalent to 22 shillings 6 pence per share. Legal & General thereby secured a stake in any profits that might result from the funding. The arrangement drew a negative reaction from the press, as it led to a dilution of Land Securities's equity. However, such deals were to become standard over the next few years.
The imposition of the "Brown Ban" on office development in and around London in November 1964 reduced the scope for Land Securities's expansion through further developments. The company therefore turned to takeovers as a source of growth. In the late 1960s, two very important takeover bids were launched. The first of these involved the acquisition of City Centre Properties Ltd. in 1968. City Centre, the former vehicle of one of the United Kingdom's most famous property developers, Jack Cotton, and latterly Clarles Clore, had a number of valuable assets, including the stake in the Pan Am Building mentioned above, and raised the value of Land Securities's assets to £325 million. In April 1969 another successful takeover bid was launched, for The City of London Real Property Company Ltd. (CLRP), one of the U.K.'s oldest and most prestigious property companies. Established in 1864, it had concentrated its activities on City of London office property and owned what was probably the highest quality property portfolio of any institution. This acquisition swelled Land Securities's portfolio to more than £600 million and made Harold Samuel the largest property owner in the world. In 1971, Westminster Trust Ltd. was added to Land Securities's portfolio, its £20 million of assets including New Scotland Yard.
By the early 1970s, Land Securities was regarded by many commentators as a sleeping giant. In fact it had one of the largest development programs of all U.K. property companies. Land Securities was, however, more skeptical than most that the property boom would go on forever and did not borrow beyond its current ability to repay its debts, unlike many of its competitors. It emerged from the 1974 property crash in better shape than many of its rivals, although not completely unscathed, as is shown by its share value, which had topped a price of 279 pence in 1973 and fell to 100 pence in 1974.
In the late 1970s, Land Securities made some adjustments. Property and land were sold, development projects were curtailed, and funds were raised by rights issues rather than borrowing, in order to avoid debts at a time of high interest rates. During these years, a time of rising prices for development land as institutional investment forced property prices up, Land Securities concentrated on developing its own property portfolio by redevelopment, refurbishment, and lease reconstruction, rather than buying land at what it considered to be expensive prices.
In 1983, the value of the company's property assets topped £2 billion. Unlike many of the U.K.'s other large property companies, Land Securities still refrained from overseas expansion, concentrating instead on improving its U.K. portfolio. Assets were concentrated in the most conventional types of investment property; in 1985 60% of the portfolio was made up of offices; shops accounting for 37%. However, during the mid-1980s the company began to develop and acquire a number of out-of-town retail warehouses and food superstores. By 1988, after four years of activity, it had acquired a potential area of four million square feet of these types of building, spread over 50 locations throughout the country. Land Securities undertook some shop developments during the 1980s, but still concentrated activities in the central London office sector. During the summer of 1984, developments in progress included over one million square feet of central London offices.
Harold Samuel died on August 28, 1987, having remained chairman of Land Securities until his death. In 1963 he had been the first developer to receive a knighthood, and had been made a life peer in 1972. P.J. Hunt, the company's managing director, became both chairman and managing director. During 1987 Land Securities became the United Kingdom's first property company with more than £3 billion of assets. The rise in asset value was matched by an increase in borrowing which rose from £231 million in March 1985 to £837 million in May 1987. New borrowing was arranged entirely on a long-term basis at a fixed rate of interest. Rising interest rates at the end of the decade therefore had little effect on development finance.
A key factor behind Land Securities's success is the inherent strength of the portfolio, built up by its founder, Lord Samuel. He is credited with inventing the maxim "There are three things you need in property, these are: location, location, and location."
Principal Subsidiaries: Ravenseft Properties Ltd.; The City of London Real Property Company Ltd.; Ravenside Investments Ltd.; Ravenseft Industrial Estates Ltd..
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