Property Shares Spooked by Land Securities and Pets at Home Accounts Attacked

Land Securities Group (LAND) published their annual results yesterday. I don’t hold the stock but what they said seems to have spooked the whole property sector.

The company is a large holder of both retail and office property. For retail property, only 38% of rents due were collected within 10 days of the due date in March. For offices it was better at 89% but that is still down from the prior year at the same time. What possibly really scared people was that the company said they estimated that only 10% of its office space was actually occupied. There has clearly been a big trend to move staff to working from home, particularly from central London locations.

If companies realise they can operate with much less office space, the demand longer term may drop unless the office space can be repurposed. Every cloud has a silver lining so perhaps this would be one way to solve the housing shortage in London – just convert the unused office space to apartments. Or perhaps convert it to “competitive socialising” venues as Ten Entertainment (TEG) described their bowling alleys in their results this morning.

Will people revert to working in the office if the epidemic is over? This is the key question because property investment is a long-term game so it would be rash to make decisions on investing in property on short-term demand. I suggest home working will only have limited appeal for both staff and management. Not many staff have space for a “office” at home and keeping kids and pets at bay while working is not easy. It also makes staff motivation and management more difficult. But if the virus epidemic continues for a long time then there will be many fewer people wanting to commute into central London. Offices may move to locations to which people can drive, as happened in the 1960s and 70s.

On the subject of pets, the company Pets at Home Group (PETS) came under attack yesterday from Bonitas Research. They published a report that suggests the accounts of PETS were distorted by incorrect disclosures of loans to joint ventures. You can find the report on the web.

I don’t currently hold PETS shares, but I used to do so. I sold in November 2019. One reason I sold, other than thinking the profit I had made was very adequate, was that the accounts were particularly difficult to understand. The multiple joint ventures (mostly veterinary practices) which seemed to lose money was one concern. Making forecasts of future earnings and cash flow was difficult as clearly the strategy was to take over many of those ventures or wind them up.

Whether the claims by Bonitas are correct (they go so far as to say that the company lied about undisclosed trading loans) I would not like to say as it would require more research than I have time to spend. PETS has yet to publish a response to these allegations, at the time of writing.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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