Landsec has shifted back into the black after a flurry of acquisitions and disposals and a stronger than expected economic recovery.
The REIT, which is in the process of taking over regeneration specialist U+I, has reported a 56.5% increase in EPRA earnings of £180m in the six months ended 30 September. This compares with £115m in the same period in 2020. The REIT turned a £835m loss in 2020 to a £275m profit for the first half of this year and a valuation deficit of £945m into a surplus of £81m. Landsec’s portfolio is valued at £11bn.
Rental income fell by 3.8% to £282m, caused by the disposal of assets that had previously provided some £12m of income. Net rental income increased by £63m over the six-month period, said the group.
Chief executive Mark Allan said: “We have used the last six months to drive our business forward, disposing of £250m of assets and progressing £616m of acquisitions that will accelerate our strategy and provide greater opportunities for growth.
“In focusing our strategy on shaping three distinct places – central London offices; major retail destinations; and mixed-use urban neighbourhoods – we are bringing renewed vigour to the business and creating value for all our stakeholders.”
He added: “Our actions over the last six months and throughout the pandemic have enabled us to significantly increase operational activity and we remain in a strong financial position. We look forward to demonstrating further progress over the coming months.”
Allan said that the firm’s central London office portfolio was proving resilient with ERVs across its central London offices up by 1.2% and average yields tightening by two basis points. He said he expected this resilience to continue with utilisation of offices by tenants increasing and now standing at around 55% of pre-Covid levels.
During the period under review, Landsec completed or agreed 26 lease events, providing some £27m of rent.
Demand for prime assets from investors was also strong, said Allan, which would see the REIT continue to target disposal of assets in its portfolio that have little further value-add potential.
“In the medium-term the proportion of our portfolio invested in central London is likely to fall from the current level of approximately 70% as disposal proceeds exceed the amount reinvested in central London acquisition and development activity. It will, however, continue to represent the significant majority of our portfolio,” he said.
In the retail sector, Landsec said that prime rents were around 40% lower than their peak, with values down by around 65%. While the financial impact had “unquestionably been painful”, said Allan, it had provided an opportunity to reset.
During the period the REIT has completed or agreed terms on some 181 lettings with rents on average some 3.3% above ERVs and reduced its vacancy rate from 8.8% to 7.5%.
Allan said that aside from the planned sale of its retail parks in the sort to medium term, he expected the overall proportion of Landsec’s portfolio invested in retail to remain at around 20%, but with a greater focus on destinations.
With a better-than-expected recovery in the UK economy, Landsec has started shifting its priority from disposals to acquisitions, as seen in its recent activity around U+I and the acquisition of a 75% stake in MediaCity.
“We now have a healthy pipeline of potential opportunities across each area of our business, and this is affording us excellent visibility of the potential returns achievable in each area together with the associated risks,” said Allan. “Adding this perspective to opportunities across our own portfolio means that we can be more decisive in our capital allocation, confident that we are enhancing prospective returns through the decisions we make.”
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