Landsec is preparing to pick up cut-price prime shopping centres as their values continue to plummet.
Chief executive Mark Allan said “upside potential” in such assets is growing as values fall and that the sector is now “on the agenda in a way that it won’t have been in the previous few years”.
The value of Landsec’s own regional shopping malls, which include Bluewater in Kent, fell by 38.2% to £1bn in the year to 31 March. Allan said mall values are down by more than 60% from their peak, with rents declining by close to 40%. Yields of mid- to high-7% have created potential for “a good risk-adjusted return”.
“Rental levels are now approaching the level we believe is sustainable, where occupiers can be comfortable about store level profitability with a sensible level of rent, rates and service charge,” said Allan. “The balance of risk and reward is changing.”
Although newly acquired shopping centres would likely need “some level of repurposing”, Allan said that Landsec would look to keep retail as their dominant use.
“Retail will offer some regeneration potential, but the shift in our position on retail values is about buying retail as retail, rather than to knock it down and turn it into something else,” he added. “There isn’t a long list of people with the capital or capability to look at those opportunities. We think these could be interesting opportunities for Landsec in the year or two ahead.”
Retailer CVAs and restructurings will affect the speed of any correction in rents and values. Allan said Landsec would “continue to protect our interests and challenge where necessary”, if it felt that landlords were being “unfairly targeted as a class of creditors” through proposed restructurings. Landsec is among a cohort of landlords losing court battles against their tenants in recent weeks, after unsuccessfully challenging Virgin Active and New Look on their respective rescue plans.
The FTSE 100 REIT will fund any acquisitions from a £4bn disposal programme set out in October. Proceeds will also be reinvested in value-add opportunities in central London and mixed-use, multi-phase regeneration schemes, five of which are suburban shopping centres.
Allan expects these areas of focus will help the company turn around its financial fortunes. The REIT made a £1.4bn pretax loss over the past year, deepening year-on-year from an £837m loss, while its overall portfolio value dropped by 13.7% to £10.8bn. It offloaded around £640m in central London offices since its strategy revamp in October, boosted by the £552m sale of 1 and 2 New Ludgate, EC4. The company said more disposals are “likely over the course of the next financial year”.
To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews
