Landsec results reveal UK offices 'resilient', but tough times ahead

UK REIT Landsec's full results for the year ending 31 March flag a difficult year for the firm, although management commentary suggests that even worse is yet to come. 

Figures for the group, which owns and manages commercial property across the UK comprising offices (50%), retail (38%), and leisure and hotel assets (12%), illustrate how varied the pandemic's effects have been across asset classes.

Last month Landsec said that the rapid spread of coronavirus has resulted in ‘a huge shift’ in the use of its buildings, and the new numbers underline the weak spots in its portfolio.

'The sectoral differentiation is striking,' said Colm Lauder, real estate analyst at Goodbody. 'The office sector, which makes up 50% of Landsec’s portfolio, saw robust capital growth of 1.9% and rental growth performance of 4.6% was recorded in FY20. The portfolio was dragged down by the retail (38%) and leisure (12%) components with retail values falling 10-28% depending on the type and location, further highlighting the challenge facing pure-play retail landlords like Hammerson.

'Leisure and hotel values were down 11%. Approximately one third of these declines are attributed to Covid-19, the remainder are from market declines over the prior 12 months. It is expected that offices will continue to be more resilient than the retail and leisure sectors in the coming months.'

Overall, net asset value (NAV) declined by 11.9% to 1,182p (€13.41) as the portfolio value saw an 8.8% like-for-like valuation drop. As previously announced, no final dividend was declared and the outlook for the next quarter is poor due to Covid-19.

'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,' said the annual report.

On the balance sheet, LTV increased to 30.7% (compared to 27.1% in 2019) mainly due to the valuation decline, and an increase in net debt by £200 mln to £3.9 bn. Cash and available facilities of £1.2 bn are available, 'providing some headroom for the periods ahead', according to Goodbody.

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