Antarctic Exploration And Retail Reassessed: Meet The New Boss Of Britain’s Biggest Property Company
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Last week, Landsec announced it had found a successor for one of the biggest jobs in UK real estate. St. Modwen Chief Executive Mark Allan is to take over as CEO at Landsec after the departure of current boss Rob Noel.
Allan was not the first name that sprang to mind when it came to running Landsec, principally because he has previously been in charge of much smaller companies. But the companies he has led have thrived.
He made his name at Unite, where he was chief executive for a decade before leaving for St. Modwen in 2016. He turned Unite into the biggest student accommodation owner in the UK as the asset class became mainstream. At St. Modwen, the company’s returns doubled those of its peers as he pivoted away from its legacy strategy.
At Landsec, which has a portfolio valued at £13.4B, his challenge will be of a different order. For decades, Landsec was comfortably the biggest listed property company in the UK, a byword for excellence in the sector with its holdings split between London offices and retail assets across the country. But last year, it was overtaken by Segro as the property company with the largest market capitalisation.
Like many diversified property companies, Landsec needs to persuade shareholders that it is still relevant and knows what people want from the buildings they use — and that it has a plan for a retail portfolio facing headwinds from tenant insolvencies. In the past five years, its shares have slowly ticked down, losing 27% of their value, in line with fellow retail and office giant British Land.
Here are six things you need to know about Allan, and the tasks on his to do list when he takes over at Landsec.
He’s Hardcore. South Pole Hardcore.
Lots of people in real estate undertake challenges for charity. Few do anything as extreme as Allan, who in 2013 trekked to the South Pole to raise money for charity and test his limits. This involved pulling sleds more than 60 miles across Antarctica in temperatures as low as negative 50 degrees Celsius, battling altitude sickness and burning 7,000 calories a day. See the below video featuring Allan for a taster.
“Two things hit me when we got out of the plane,” Allan told Property Week. “One was just how cold it was. You really had to keep moving. The second was that you are about 3,500 metres above sea level so the air is much thinner, you get a bit of a headache, you struggle for appetite. The altitude impact was more severe than I anticipated.”
At Unite, He Made Shareholders A Lot Of Money
During Allan’s decade at Unite, the company made a total return of 7.4% a year on average, putting it among the top 10 listed property companies in the UK for returns, according to Green Street Advisors. The UK average for the period was 3.4% a year. Landsec during that period made a return of about -0.3% a year.
He significantly reduced Unite’s leverage, a legacy of his time as a chief financial officer perhaps, and also took the strategic decision to focus on a smaller number of markets that housed only the UK’s top universities.
He Pivoted St. Modwen
During his three years at the head of St. Modwen, Allan also outperformed the market, with the company producing a total return from July 2016 to today of 76%, compared to an average for UK listed property companies of 32%. How did he do this? By pivoting.
“He has been very flexible,” Green Street analyst Rob Virdee said. “He moved the company away from retail and towards logistics, which is not easy. He has sold assets in a falling market and made the right capital allocation decisions.”
And herein perhaps lies the key to his appointment at Landsec.
How Do You Solve A Problem Like Retail?
What to do with the retail portfolio has been the key question at Landsec for more than a decade. In 2007, the company announced it was splitting into three separate companies focusing on London offices, shopping centres and retail parks, and property outsourcing.
In the end, the credit crunch spurred it to pull back from the decision and it just sold the outsourcing division, keeping the retail and office divisions together. Previous CEO Noel bought a stake in Bluewater and sold off some secondary retail assets to try and improve the quality of the retail portfolio. But it is still seeing retail values slide like everyone else: Its retail parks and shopping centres declined in value by an average of 10% in the six months between March and September.
Could it be time to look again at splitting the office and retail businesses?
“The retail exposure has been problematic for Landsec, and [Allan] has to come up with a solution for that,” Virdee said. “A new CEO coming in is often a chance to undertake a root and branch review of a company, and in Allan you have a candidate who is well-versed in making difficult capital allocation decisions. It is a tough time to sell retail and Landsec is by no means a forced seller, but this is a chance to be on the front foot, and often the first price is the best price.”
Time To Hit The Accelerator On Office Development?
One of Noel’s big calls when he was leading Landsex was to pull back on new speculative office developments in London in 2015, due to worries that the cycle had reached its peak. When the Brexit vote occurred in 2016, this looked like a savvy move, but since then, the leasing market has proved incredibly robust, with demand remaining solid and few people building.
The mistake has been corrected, and the company has readied 1M SF of new space for development in the City, Victoria and Paddington with a potential cost of £3B. One of Allan’s tasks will be deciding whether to commit to building some or all of these speculatively, to try and capture any demand that might be pent up and released if there is a positive outcome to Brexit negotiations.
He Should Have A Good Insight Into The People That Run The World
One of the criticisms levelled at real estate companies in the past few years is that the sector has been great at building schemes that work for lenders and investors, but not so great at creating schemes where people want to live, work and play.
At Unite, Allan spent 10 years in charge of a company where there were no 25-year leases, but instead, the portfolio had to be re-let to a new group of hundreds of thousands of occupiers at the start of each academic year. The product being let had to appeal to students, a demographic that was incredibly demanding and became more and more tech-savvy as the years went on: The iPhone was invented a year into his tenure. Landsec will be hoping it appointed a man who understands people as much as buildings and balance sheets.