Landsec has made a pretax loss of £622m after a year marked by strong lettings but falling values.
Chief executive Mark Allan said: “Last year saw the most striking difference in performance between occupational markets and investment markets that I can remember.”
In its final results for the year ending 31 March, the REIT recorded an EPRA profit of £393m outweighed by a capital loss of more than £1bn.
Allan explained: “In investment markets, rapidly rising interest rates led to a sharp slowdown in transaction activity and falling asset values as valuation yields rose, whereas from a customer perspective, strong demand for Landsec’s best-in-class space drove consistently strong leasing, rising occupancy levels and growing rents across all parts of our portfolio.”
Landsec’s loss is a £1.5bn drop from 2022’s £875m profit, reflecting a 14.8% fall in the value of the combined portfolio to £10.2bn from £12bn last year. This was in part due to sales, but adjusted for disposals over the period, some £848m of that fall was due to a 7.7% softening of values, led by City offices, which dropped 15.4% and West End offices, which fell by 8%.
Landsec sold £1.4bn of assets over the year, including the £809m disposal of 21 Moorfields, EC2, in September.
Landsec said: “We have now sold £2.2bn of the circa £2.5bn London offices we earmarked in 2020, at an average yield of 4.4% and a 4% discount to book value. This means our London assets are now 74% in the West End and Southwark, with City exposure down from 39% to 26% over the year. We are planning further disposals this year, yet we expect future disposal activity to be more balanced towards our subscale sectors.”
The REIT recorded a £144m loss on the disposals.
However, operational performance was in marked contrast to the falling values, with EPRA earnings up 10.7% to £393m, partly due to an £22m increase in surrender premiums received.
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.”
Rents were up across the portfolio, with gross rental income rising £61m to £647m. Net rental income increased by £51m to £561m, giving a gross-to-net margin of 86.7%, which Landsec said it expected to improve once its three new Myo locations were established.
Net debt was reduced from £4.1bn to £3.28bn, leaving net assets of just over £7bn, a £910m fall on last year, but LTV of 31.7% down from last year’s 34.4%. Net asset value per share stands at 945p, down from last year’s 1,070p.
“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.”
As previously announced, Landsec chair Cressida Hogg will step down today, to be replaced in the role by Sir Ian Cheshire.
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