Busy London helps Landsec’s hot property portfolio perform

Landsec, the London-centric property giant, said Friday that the business continues to outperform, boosted by rising occupancy and positive rental uplifts in the capital. And of course, the continuing return of workers into its offices post-pandemic (up 18% over the past year) has helped boost retail demand too.

Commenting on its results for the year ended 31 March, chief executive Mark Allan highlighted that the year’s “robust” performance “demonstrates the importance of owning and operating the best-in-class real estate”, which includes Bluewater in Kent and Trinity Leeds.

With around 80% of its portfolio now invested in 12 places “with significant scarcity value”, Allen added the “competitive advantages in shaping and curating these places mean we expect like-for-like rents to continue to grow”.

Despite two years of rising interest rates, the stabilisation in rates and evidence of continued “rental growth is starting to attract increased investor interest for the best assets”, he added, noting that around 60% of its portfolio already showed stable values in the second half and overall yields were largely stable in the final quarter, “pointing to a positive outlook for our overall return on equity”.

And after a period of proactive capital recycling, most recently with over £600 million of non-core assets sold in the past seven months, “we have meaningful capacity to invest in high quality assets that add to our best-in-class portfolio at what we believe to be an attractive point in the cycle.”

So all’s good with its yearly performance and outlook. But how does that translate into the former’s numbers?

Retail net income growth was a up 6.9% versus a year ago, with Landsec noting a focus from brands on “fewer, bigger, better stores”, as its locations reported a 4.1% annual increase in sales growth.

However, having written down the value of its City of London office portfolio by almost 14% last year, it still reported a pre-tax loss of £341 million, although this was down from a loss of £622 million a year ago. Earnings fell from £393m last year to £371m, though this largely came from the first half of the year, as the value of its portfolio dropped 6% in the first six months.

Its portfolio of London properties is now increasingly concentrated, with 72% now in the West End, up from 48% three years ago, helping increase retail footfall in the important area. It said customer demand for its high-quality product “has remained robust despite the unsettled political/economic backdrop, concerns about hybrid working and cost of living pressures for consumers”.

Landsec said that clear focus on ‘fewer, bigger, better’ stores, was witnessed via leading brands such as Inditex and H&M having announced significant investments in their best stores, “even though they often continue to close the tail ends of their portfolio”, it noted.

“Supported by the fact that for many key brands, including JD, Zara, Boots and Next, sales growth in our centres is outperforming their overall sales growth, this explains the strong demand for our space”.

Across its retail portfolio, total sales grew 4.1% and like-for-like sales were up 1.5%. Footfall increased 3.9% and is now at around 93% of pre-pandemic levels.

“In retail, our £1.8 billion portfolio of nine major destinations has seen occupancy rise to 95.4% and we have started to drive positive reversionary uplifts on lettings and renewals. As a result, our like-for-like net rental income increased by 2.8% last year and, following a period of interest rate-driven asset repricing, the valuation of [around] 60% of our portfolio was effectively stable in the second half of last year. As a result, Landsec is well-placed for growth”.