For over fifty years we have remained at the forefront of our industry. In 1944, when Harold Samuel, later to become Lord Samuel, acquired Land Securities Investment Trust, the company owned three houses in Kensington together with some government stocks. His strategy was to enter into partnership with many of the UK's local authorities and work with them to rebuild towns and cities after the war. His vision was enduring: by 1969, through a series of property and corporate acquisitions, we had become the largest UK quoted property company--a position we still hold today.
In leading the market, we continue to innovate by developing and implementing new strategies. We have focused our portfolio, acquired Trillium and continue to bring new skills and people into the group.
Unlike most of its competitors, Land Securities PLC has achieved and maintained its position as the United Kingdom'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.
The Birth of a Real Estate Empire: 1944-50
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 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 II.
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 he 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 that 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 generally were happy to provide mortgage finance, given the shortage of investment outlets other than gilts (high-grade securities) 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 illustrated 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 that 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 which could borrow up to the limit, and by taking over property companies that 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 definite views about the types of properties that 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 likely was 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.
Postwar Expansion: The 1950s
From the end of World War II until 1954, severe restrictions governed property development, prohibiting any development that 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. The company was able to do some development, however, 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 more than a year to find a single prestigious tenant; one that suited its requirements, the Bank of England, finally was found. This was a time of rapid growth for the company; its assets, which amounted to only £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' assets. Associated London Properties' assets included a number of office blocks let at prewar rents, with leases that were due to expire between 1958 and 1961, at which time they could be re-let for substantially higher rents. Although 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 able, therefore, to acquire the company at a price that 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' residential and factory assets and, more important, 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 that he had been unjustly treated by the press, and thereafter he kept as far out of the public eye as possible. By earning him a reputation as a skilled corporate predator, however, 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 also was able to obtain a stake in the lucrative provincial shop market from 1946 via Ravenseft, a subsidiary that 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 of the provincial markets he needed a partner, and he was able to attract Fred Maynard from the estate agents Healey & Baker. From 1949 to 1966 their company, under the new name Ravenseft Properties Ltd., was to invest £60 million in new shops comprising more than 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 obtained easily 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 that proved to be highly rewarding. It also attempted, unsuccessfully, to enter the Canadian property market in 1956, its failure being in large part 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 since avoided dealings in overseas property, even going so far as selling 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 percent 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 percent, virtually no higher than that which was available for gilt-edged stocks to government bonds.
By the late 1950s the credit squeeze made fundraising 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' 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' equity. Such deals, however, were to become standard over the next few years.
Shifting Strategies: Growth Through Acquisitions, 1964-89
The imposition of the "Brown Ban" on office development in and around London in November 1964 reduced the scope for Land Securities' expansion through further developments. Therefore, the company 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 Charles Clore, had a number of valuable assets, including the stake in the aforementioned Pan Am Building, and raised the value of Land Securities' 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' 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' portfolio, with 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 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 United Kingdom'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 percent of the portfolio was made up of offices, with shops accounting for 37 percent. During the mid-1980s, however, 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 buildings, 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 more than 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 in 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' success was the inherent strength of the portfolio, built up by its founder, Lord Samuel. He was credited with inventing the maxim, "There are three things you need in property, these are: location, location, and location."
The Changing Face of London Real Estate in the 1990s
Entering the new decade, Land Securities remained as firmly wedded to its business strategy as ever, and in 1990 the company was continuing to forge long-term rental agreements with its clients. Since many of these agreements were in place through the year 2000, Land Securities was able to maintain good profit margins throughout the decade, in spite of sharp declines in rental prices and the adverse effects of England's recession on the city's business environment. Although the economic slowdown kept many corporations from expanding during this period, thus cutting demand for office space, Land Securities remained active in expanding its portfolio during the early 1990s, spending more than £600 million on new properties from 1991 to 1994.
Land Securities also became involved with a number of new construction projects in the middle to late 1990s, many of them outside of London. In 1996 the company was busy developing two shopping centers in the city of Birmingham. One, Caxton Gate, was completed that same year, while a second shopping complex, backed by investment capital exceeding £250 million, was already in the works by May. At the same time, improvements to the transportation infrastructure in London, most notably the upgrading of commuter rail routes and the development of a central terminal for Channel Tunnel traffic, created a wave of new construction along the outskirts of the city and in the suburbs, a trend that prompted the company to look beyond the city center for new opportunities.
In the late 1990s, however, the real estate market shifted, and demand for prime rentals in central London once again rose. Anticipating that this trend would last for some time, Land Securities committed £650 million in 1998 to creating or refurbishing nearly 4.5 million square feet of property in the city. The following year, in response to the steady influx of businesses back into town, the company increased its development budget to £1.75 billion over the next five-year period. Land Securities also entered into negotiations with tenants and telecom companies in May 2000 to discuss the possibility of creating a telecommunications infrastructure for its central London properties.
There were other, more subtle shifts in the London real estate industry during this period, however, forcing the company to reevaluate its core strategy. The trend toward securing long-term leases was evolving gradually into a more tenant-friendly business strategy among the major London realtors. With many of the leases on Land Securities' primary properties set to expire, and with greater competition for tenants, the company's traditional philosophy--that the key to steady growth lay in the breadth of a realtor's holdings--was gradually making way to a more strictly profit-oriented mentality, with a focus on enhancing returns for investors. In response to this trend, Land Securities purchased Trillium, a property outsourcing group specializing in high-volume buying and selling of real estate, in November 2000. The move signaled a definitive, and crucial, break from tradition for Land Securities, who hoped to retain its dominant position in London real estate by paying close heed to the changing face of the market. Although the company was confronting a management crisis in the early 21st century, caused in part by this radical shift in business strategy, by 2002 it was clear that Land Securities had made a successful transition to remain competitive in the new investment-driven real estate climate.
Principal Subsidiaries: Land Securities Properties Limited; Ravenseft Properties Ltd.; The City of London Real Property Company Ltd.; Ravenside Investments Ltd.; Ravenseft Industrial Estates Ltd.; Land Securities Trillium Limited.
Principal Operating Units: Portfolio Management; Development; LS Trillium.
Principal Competitors: The British Land Company PLC; Canary Wharf Group plc; MEPC Limited.