Land Securities Group PLC ("Landsec") has announced the completion of the sale of its entire hotel portfolio to Real Estate funds managed by Ares Management alongside operating partner EQ Group for a cash consideration of £400m. This aligns with Landsec's strategy to release capital from sectors where the company lacks scale and focus resources on areas where it has a competitive advantage. The hotel portfolio, comprising 21 assets, is fully let to AccorInvest and generated a net income of £28.4m over the last reported financial year. The income is 100% turnover-linked with a lease contract expiring in 2091 and 12-yearly tenant-only break options, limiting Landsec's ability to influence performance or add further value to the assets.
Of the total consideration, £350m has been received on completion, with the remaining £50m payable within 24 months. Landsec will receive 6% interest p.a. on this outstanding balance, which is ahead of the company's marginal cost of borrowing. The net proceeds of the sale will initially be used to repay debt. Additionally, Landsec has completed the disposal of £217m of other non-core assets since the end of September, including retail outlets, a retail park, leisure assets, and a local shopping centre in London. These transactions bring Landsec's total disposals since September 2023 to £617m, compared to £46m of acquisitions during the same period.
The resulting £572m of net disposals would reduce Landsec's 34.4% LTV as of September 2023 by over 3ppt on a pro-forma basis. In the short term, the substantial amount of disposals will reduce the company's annualized earnings by approximately 4%, ahead of the planned reinvestment of these disposal proceeds. Mark Allan, Chief Executive of Landsec, stated, "The sale of our hotel portfolio and other non-core assets will further strengthen our balance sheet and leave us well placed to take advantage of opportunities in the market as they arise."
With the pro-forma net debt being £1bn lower than it was in March 2022, Landsec has substantial headroom to invest at an attractive point in the cycle. This strategic move reflects Landsec's focus on areas where it has a genuine competitive advantage, aiming to strengthen its balance sheet and capitalize on market opportunities. Landsec is one of the largest real estate companies in Europe, with a portfolio of retail, leisure, workspace, and residential hubs, shaping a better future by leading the industry on environmental and social sustainability while delivering value for shareholders, great experiences for guests, and positive change for communities.