“We have turned a corner,” said Landsec chief executive Mark Allan as he delivered positive numbers across the REIT’s £1.8bn retail portfolio.
In fact, things have rebounded so well, that the REIT is planning to invest some £600m in major retail as it seeks to boost holdings from 18% of its £10bn total portfolio, to something in the mid 20% range.
Major retail saw one of the smallest dips in valuation across Landsec’s portfolio in the 12 months ended 31 March, declining by 1.1%. This compared with a 6.9% dip in central London values and a 14% drop in the value of its mixed-use portfolio.
The REIT’s retail confidence is further boosted by its outperformance of the wider sector in terms of occupancy trends. While UK retail occupancy has, as a whole, sat mid-80% since 2021, with a slight downwards trend, across Landsec’s portfolio occupancy has risen from 90% to more than 95% today.
And customers are seemingly trending more towards its assets, with footfall up by 4% during the year under review, compared with a UK benchmark of 1%.
Well placed for growth
All of that, plus a 2% uplift on reletting and £37m of new deals at 6% above ERVs, has Landsec confident that the right retail is back and that it should be buying more of it.
Allan said the business was “well-placed” for growth” and that “having sold early when values were higher, we now have balance sheet capacity to invest at an attractive point in time”.
With more than £3bn of its planned £4bn of disposals now complete, the REIT is swinging back into acquisition mode and has around £1bn to spend on building out, improving and adding to its portfolio. Some £400m of that is set aside to bring forward London office developments but the rest, said Allan, would be focused on major retail.
So, £600m to expand – and improve – its retail footprint.
“Our focus for the rest of the year is now on acquisitions, as we aim to recycle the proceeds of our hotels disposal into additional opportunities in major retail,” said Allan.
“Alongside our two committed office developments in London, where the yield on the overall capex we are investing is high at 12%, this is our key focus for investment at the moment and where we plan to apply most of our existing balance sheet capacity too.
“Following a period of limited transaction activity in this sector, we are now seeing signs of activity levels around the work-out of broken ownership structures starting to pick up.”
“We know we can invest in a way that is going to increase our return on capital,” he added, explaining that the business had identified around 20 assets that it believes meet its investment criteria.
Shopping around
Those criteria include best-in-class provision and a really strong catchment area.
The REIT has been linked to a number of major retail acquisitions already this year, including Liverpool ONE and a slice of British Land’s Meadowhall. While no deal has yet been secured with any investor on Liverpool, BL has now sold its 50% stake in Meadowhall to its partner Norges Bank for £360m.
Several other large shopping centres, with strong catchments, have also been put up for sale in recent weeks, including a 50% stake in the 630,000 sq ft Princesshay estate in Exeter and the 768,000 sq ft Frenchgate in Doncaster.
Any acquisition at Exeter would see Landsec buy back into the mall, however, having swapped its ownership with Nuveen in 2014, for Glasgow’s Buchanan Galleries.
Investing in existing assets
The £600m will not just be spent on buying new malls, however, said Allan. It has already earmarked £100m of funds to improve and enhance its existing assets and is also considering where it can take full ownership of assets it holds in joint ventures.
In March 2023, it took 100% ownership of the 1.3m sq ft St David’s shopping centre in Cardiff, buying the debt secured against the half-share in the mall that had been owned by intu.
Landsec also has three other sizeable retail assets across its portfolio, which it does not own exclusively – the 660,000 sq ft Southside shopping centre in Wandsworth, SW18, which it owns with Invesco; the 779,000 sq ft Westgate in Oxford, which it owns with the Crown Estate; and a 49% slice of the 1.8m sq ft Bluewater in Kent.
While acquisitions are clearly on the table as Landsec calls the bottom of the market, it does still have a disposal strategy to complete.
There are some £400m of retail parks that the REIT still wants out of, a collection of small offices that are not in its core areas of Victoria, South Bank and the West End, plus some sub-scale out-of-town leisure. And it will not necessarily stop there, said Allan.
“We will continue to recycle,” he said, “but it will be steady and will fund reinvestment in our core portfolio.”
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