Plummeting valuations for Landsec’s retail and leisure assets have taken the REIT to a half-year loss of £835m.
Chief executive Mark Allan said the result showed the impact of the coronavirus pandemic on the company, but added that he is “confident the business is well placed to capitalise on opportunities as they emerge”, including offloading London offices in a “robust” investment market.
Revenue profit of £115m for the six months to 30 September was almost halved from a year ago, and the loss widened from £147m year-on-year. EPRA net tangible assets per share stood at 1,079p, down by 9.5%.
Landsec pinned the loss on falling valuations, which dropped by £945m, or 7.7%, across the portfolio to £11.8bn.
That fall was driven by regional shopping centres and shops (down by a fifth), London retail (down almost 17%), leisure (-15%) and hotels (-13%). No asset class posted a rise in valuations compared to a year ago.
The company pointed to a “strong financial position”, with £1.2bn of cash and funding lines on hand. Its loan-to-value ratio rose to 33.2%, up from 30.7% at the end of March, and the cost of debt increased to 2.1% from 1.8%.
Last month Allan set out the results of a strategic review across the company, which will see it sell £4bn of assets, optimise its London portfolio and refocus its retail assets.
“We believe there are reasons to be positive,” Allan said of the outlook. “The investment market for high-quality London office assets, such as those owned by Landsec, has remained robust throughout the pandemic and there is little sign of that interest waning.
“Coupled with the acquisition and development opportunities likely to emerge as a result of increased obsolescence of older office stock, as well as the long-term need for urban mixed use regeneration, there will be ample opportunity for Landsec to create significant value in the years ahead.”
Hopes for Pfizer’s Covid-19 vaccine candidate have provided another reason for optimism. Landsec has been one of the biggest beneficiaries of the news on the stock exchange – shares in the landlord soared by around a fifth to a five-month high of 643.4p at market close yesterday.
“There is still plenty of uncertainty around how and when [the vaccine] gets rolled out, but that sort of step is positive for people’s confidence in being in crowded places, public transport, shopping centres, offices, town centres – that has to be a significant positive,” said Allan. “It has got to be positive for sentiment on all fronts.”
Allan noted that before the second lockdown, occupancy across its office estate totalled around 15% on average across its office estate in October.
“The key thing in getting people back to city centres is moving away from the fear or concern around crowded places and commutes,” he said.
“Ultimately the vaccine will help deliver this most effectively, but we were beginning to see people getting more comfortable with Covid-secure environments and how they worked.
“We did our own tests within our Victoria headquarters and we were able to increase our Covid-secure capacity by 40% through introducing new furniture and layouts to the floorplate, and we will continue this work to ensure Covid-secure capacity in the event a vaccine or other longer-term solutions take longer to come through.”
Where retail and leisure is concerned, Allan called for more government support around longer trading hours after the latest lockdown, to help retailers recoup their losses.
He said: “It is a challenging position to navigate given there is an accumulated, unpaid amount of debt relating to the Covid period that will need to be agreed or reached in the fullness of time, but we can’t have that moratorium carrying on indefinitely. We need to see the moratorium come to an end, but it needs to end in a way that does not simply present a cliff-edge.
“There are some opportunities where landlord and retailer interests are well aligned. The potential for extended opening hours across stores after the second lockdown will allow more people into stores and shopping centres across a longer opening day, in a more Covid-secure way, as well as allowing for a greater period of trading hours, therefore recovering some of the trading lost during lockdown.
“That is one of the most obvious areas of alignment, and support could certainly be provided around something like that … practically in the near term.”
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