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UK’s largest property business splits amongst commercial sector turbulence

15 November 2007
The stability and returns of the property market are being severely hit by the credit crisis, and Land Securities, the UK’s largest Real Estate Investment Trust, yesterday announced plans of a split.

Not since the market crash of the 1990s has the commercial property sector experienced such bad performance, revealing returns for October of -1.5 per cent, alarmingly close to the May 1990 low of -1.8 per cent.

Land Securities will divide into three separate companies, which some say is an attempt to improve its falling share prices which have fallen by about a third since the beginning of 2007. It has been hit along with the rest of the property market which has experienced slumps of as much as 50 per cent since January as investors have become increasingly cautious.

Pessimism surrounding property prices continues to grow – in the Royal Institute of Chartered Surveyor’s Housing Market Survey, published on Monday, it said that more chartered surveyors are reporting a fall in property value rather than a rise. RICS spokesman Ian Perry said that “The housing market is seeing the awaited slowdown that many had been expecting, with modest falls reported across most UK regions.”

Land Securities, which has a portfolio of more than £14billion, maintains that returns for shareholders were at the core of their decision to divide the firm, and that it was not a response to its falling share price, which closed down even after the announcement of its plan to split.

Commenting on the new structure, Francis Salway, Chief Executive of Land Securities said: “We have three strong businesses, all performing extremely well. However, our Board is committed to remaining at the forefront of an evolving property sector and recognised the need to test our current business structure.

“We have considered the issues carefully with a focus on the long-term. We have concluded that the development of these businesses and the interests of shareholders are best served by a demerger into three separate, specialised businesses, each of which will be of a scale to be at the forefront of their sectors.”

Experts predict that Land Securities’ decision will spark a knock on affect of strategic reviews in conglomerate real estate groups.

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