Landsec is standing by its conviction on retail, saying it will become a net buyer in the second half of its financial year.
The REIT, which this morning published its financial results for the six months ended 30 September, said that while it had been a net seller in H1, it expected to “expand our high-quality retail portfolio in the second half of the year”.
Earlier this year the REIT said it had £600m to spend on expanding its retail portfolio and that its focus for the year was on acquisitions, particularly in major retail.
However, its results today show that of the £690m of investment and divestment activity over the six months since March, some £464m has been on sales, with £128m invested into developments and just £140m spent on acquisitions, including a £120m investment to buy an additional 17.5% stake in Bluewater and £15m buying a block opposite its Buchanan Galleries shopping centre in Glasgow.
The group has bid for a number of assets during the period, however, including Edinburgh St James, but failed to be selected as the winning bidder.
Chief executive Mark Allan said: “In terms of capital allocation, we still see the most attractive risk-adjusted returns in major retail, where income returns are in the high single digits and rents are growing. Capital values are roughly half of their replacement cost, so new supply is non-existent.”
He added: “All this offers the potential for double-digit ungeared IRRs and following the acquisition of an additional £120m stake in Bluewater in June, we are confident in deploying further capital at accretive returns in the second half.”
Revenue across the business during the first six months of the year fell from £412m to £383m, while the group moved from a loss of £193m to a profit of £243m.
Profit growth was driven by a 2.1% increase in ERVs and 0.9% increase in the value of its portfolio.
Across its central London portfolio net rental income was up by 5.5% on a like-for-like basis, with occupancy reaching 97.9%. New lettings have been signed at 3% above ERVs, with relettings up by 7% on previous rents.
Landsec’s major retail assets delivered 3.1% like-for-like growth in net income with like-for-like occupancy up by 70bps to 96%. Some £26m of lettings signed or in solicitors’ hands have been agreed at rents 7% above ERV and 4% ahead of previous rents for relettings and renewals.
Allan said: “Our operational outperformance continues, with further growth in occupancy and positive rental uplifts across our retail and London portfolio, which is translating into accelerated income growth.”
He added: “Property values have stabilised, with growth in rental values driving a modest increase in capital values, resulting in a positive total return on equity. We expect these trends to persist, as customer demand for our best-in-class space remains robust and investment market activity has started to pick up.
“We have continued to reposition our portfolio towards higher-return opportunities and are confident of deploying further capital towards this in the second half. Having managed our balance sheet well as markets corrected, we are now well placed to deliver growth and attractive returns.”
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