Landsec has warned of more business failures and higher vacancy rates in its portfolio as the effects of the coronavirus are felt, after a year in which plummeting retail values saw its annual loss widen.
The REIT reported a loss of £837m for the year ending 31 March, compared to a loss of £123m a year earlier.
Its management team pinned the fall on a near 9% drop in the value of its portfolio to £12.8bn. The sharpest decline came in its retail assets, which fell by a fifth driven by regional retail assets and retail parks.
The valuation fall has also pushed Landsec’s loan-to-value ratio to 30.7%. “However, our balance sheet remains strong and our £1.2bn of cash and available facilities gives us plenty of capacity to withstand a reduction in cash flow from rents and progress our development programme,” the company said.
Announcing the results, chief executive Mark Allan, who took the post last month, said he had arrived at “an extraordinary time” as the company and wider industry grapples with the coronavirus pandemic.
“The speed and scale of the impact of Covid-19 on business and the economy are unprecedented and profound long-term consequences will play out long after the government lockdown has lifted,” he added. “Some of the long-term economic and societal trends which were already disrupting the property industry are likely to accelerate, new ones are sure to emerge and major issues such as climate change will remain as significant as ever. How we choose to respond to this unique and fluid combination of challenges will define Landsec for years to come.”
Revenue profit was down by more than 6% year-on-year at £414m, including provisions made for rent in 2020/2021. EPRA net tangible assets per share fell by 11.6% to 1,192p. The company has cancelled its third interim dividend and is not recommending a final dividend.
Having collected an average of 63% of rent due in March and April within 10 days of it falling due, Allan warned that the situation would get tougher.
“June rent collection rates are likely to be worse than March given that most of the negative economic impact from Covid-19 has fallen in the second quarter, notwithstanding the commendable scale and intent of the government’s economic response,” he said.
“The pace of subsequent recovery from hereon will vary by sector. Ongoing social distancing measures will affect certain sectors much more than others, all businesses will need time to work with their global supply chains and workforces to resume trading as normal and heightened levels of caution amongst the general public are likely to affect behaviour for many months to come.
“While it is too early to predict outcomes with any certainty, it seems prudent to plan for more business failures and higher vacancy rates across our portfolio, in particular leisure and retail, and we don’t expect to see the economy recover to pre-Covid-19 levels before 2022 at the earliest.”
However, Allan recommitted Landsec to its broader environmental, social and governance goals, adding: “In the face of the considerable near-term impact of Covid-19, it can be easy to lose sight of the very significant threat posed by climate change.”
“We are prepared to be bold in our thinking as we navigate both the challenges and opportunities arising in the long term from changing market trends and will not lose sight of our wider sustainability objectives,” Allan said. “We will continue to lead the sector on major issues such as climate change and remain committed to acting as a force for good in the communities in which we operate.”
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