The Land Securities share price fell around 1.5% this morning to wipe out a 0.6% gain from yesterday after the company, the UK’s biggest REIT and one of its oldest commercial landlords, posted a £1.4 billion annual loss. The company also warned of more impending retail collapses like those of high street fixtures Debenhams and Arcadia brands Top Man and Dorothy Perkins over coming months if shoppers don’t quickly return to bricks-and-mortar stores. It expects the return to the high street to take time.
Land Securities has significant exposure to bricks and mortar retail through stakes in shopping centres and malls including the Trinity Leeds and Bluewater centre in Kent. It has been encouraged by a good recovery in its tenants’ sales figures since lockdown measures started to be rolled back in April.
But despite the positive early trajectory of bricks-and-mortar retail sales over the past several weeks, Land Security expects a sting in the tail that will see more high street retailers fold after the withdrawal of government support later this year. Provisions have been set aside for lost rents totalling up to £150 million during the pandemic and in its aftermath. Over the last financial year, the company failed to collect around 38% of retail and leisure rents owed.
The “unprecedented level of provisions” is, said Land Securities, a cautious valuation of the possible impact of falls in its rental income, which could mean the real figure turns out to be less. A statement read:
“The near-term outlook for retail remains challenging, particularly for shopping centres. We are likely to see a sharp increase in insolvency processes . . . amongst occupiers as the government’s pandemic-related support tapers off and businesses that were struggling before the pandemic continue to do so afterwards.”
However, there is also optimism that “digital-first” companies like Peleton, which sells exercise bikes that come with screens that stream live exercise classes, are showing interest in adding physical retail spaces and will step in to replace traditional tenants who fail. The company also expects to take advantage of depressed retail property prices to make strong, long-term acquisitions.
Chief executive Mark Allen expects retail pain over coming months to be most felt in locations that rely on commuters for a significant part of their turnover due to continued or hybrid work-from-home patterns. He stated:
“We expect physical office occupancy to recover substantially across the second and third quarters of 2021,” he said. “However, with tourism likely to be constrained, future office working patterns still unclear and residual concern about the safety of public transport likely to persist for a while yet, it will take longer for central London footfall to recover fully.”
FTSE 100 member Land Securities, which now brands itself Landsec, dates back to 1944 when the company was founded by Harold Samuel. By the 1960s it had grown into one of the UK’s largest property groups thanks to a successful acquisition strategy that focused on Central London offices and retail space, which still accounts for 58% of its portfolio’s market value. However, it also now own regional retail parks, shopping centres, hotels and leisure venues.
Mr Allan has been with Landsec since April last year. It was a rough introduction with the company’s share price at decade-long lows following the stock market sell-off that followed the onset of the Covid-19 pandemic. He plans to sell off around £4 billion of assets, with London office space first for the chopping block, followed by retail parks, hotels and leisure venues where it is judged the company does not hold a clear competitive advantage.
The £1.4 billion pre-tax loss for the financial year to the end of March follows on from an £837 million loss the previous year and was the result of a £1.6 billion writedown in the value of its London office property and regional retail space holdings.
Despite a tough year a final dividend of 9p a share, taking the total for the year to 27p a share, has been proposed. If approved that will see a rise of the 23.2p total dividend a share paid out in 2020.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.