Retail a bright spot as loss-making Landsec endures tough economy

By

Nigel TAYLOR

Published
May 17, 2023

Land Securities (Landsec) has swung to an annual loss, as surging interest rates and broader economic woes weighed on the valuation of its portfolio. And the UK’s biggest property company, which operates Bluewater in Kent and now fully owns St Davids in Cardiff, among others, admitted Tuesday it was likely to sell more assets than make purchases.

But it’s progressing reasonably well in terms of letting space in its prime retail properties.

Signs of a toughening market were there six months ago when the business swung to loss. But at the time it said it was still “well-placed in a challenging market” due to “strong strategic and operational momentum”.

Fast forward to the full year and the UK property sector is reeling under the impact of the mini budget last September, which led to a rout of government bonds and pushed borrowing costs higher, while the recent US banking turmoil and the Credit Suisse crisis have led to tougher lending conditions worldwide.

So Landsec, which has a £10.2 billion ($12.87 billion) property portfolio, 7.7% down on a year ago, saw losses before tax come in at £622 million for the year ended 31 March versus a profit of £875 million last year.

On the plus side in retail, it continued to deliver strong leasing momentum via its "differentiated brand-focused platform, capitalising on [the] ’flight to prime' and upsizing of key brands, with £38 million of letting signed or in solicitors' hands on average 9% ahead of ERV, and occupancy up 110bps to 94.3%”.

It recorded 6.9% annual sales growth, with like-for-like sales 4.4% above 2019/20 levels, as normalising consumer behaviour and improved profitability is driving growing investment in stores by brands.

But CEO Mark Allan said: “Last year saw the most striking difference in performance between occupational markets and investment markets that I can remember.”

And that led to “rapidly rising interest rates [that] lead to a sharp slowdown in transaction activity and falling asset values.” Ouch.

Allan added: “Our strategy is based on two clear and simple principles: focus our resources where we have sustainable competitive advantage and maintain a strong balance sheet. We have done both and, as a result, were able to navigate the challenges of the past 12 months very effectively.” 

He added: “Our competitive advantages remain the high quality of our portfolio, the strength of our customer relationships and our ability to unlock complex opportunities. Looking forward, we expect the combination of a 'higher for longer' interest rate environment and the continuing concentration of customer demand on the very best space to result in exciting opportunities and continued positive rental growth for Landsec. Those competitive advantages will be more important than ever.”