Landsec targets UK shopping centre bargains

Landsec is in the market for shopping centres, as one the UK’s largest commercial landlords calls the bottom of a sector that has been among the hardest hit by coronavirus.

Malls are “back on the agenda”, Mark Allan, chief executive, said on Tuesday.

Allan is hoping a new strategy can turn round fortunes at the FTSE 100 company he took over in April 2020, which posted a pre-tax loss of £1.39bn for the year to March 31 on Tuesday, compounding losses of £837m for the previous 12 months.

UK malls have endured a bruising year, shedding about two-fifths of their value. Tenants have been unable to pay rent as a result of lockdown restrictions and the forced migration of shoppers online has accelerated the decline of a sector mired in difficulties even before the pandemic.

Shopping centre landlord Intu collapsed last year, with the pandemic providing the fatal blow for a company that had struggled with a ballooning debt pile. Shares in Hammerson, now the largest UK-listed specialist mall owner, are trading at just over 10 per cent of their 2015 value.

Landsec’s own shopping centres, which include the Westgate centre in Oxford and Bluewater in Kent, lost 38 per cent of their value in the year to March 31. Malls comprise about a tenth of Landsec’s estate, the bulk of which is made up of London offices.

But Allan believes there is now value to be found in the battered retail sector. “Prime shopping centre values are down 60 per cent from peak, rents are down almost 40 per cent . . . approaching the level at which we think they are almost sustainable,” he said.

The value of the company’s portfolio fell by more than £1.6bn to £10.8bn as coronavirus left many of its tenants unable to pay rent and sowed uncertainty about the future of shops and offices.

Allan is tasked with plotting a course out of the crisis. A strategy unveiled in October committed the company to selling off roughly £4bn worth of assets on which it can no longer add value.

Since the new strategy announcement, Landsec has sold London offices worth more than £600m and expects at least a similar amount of sales this year.

Investing some of those proceeds into shopping centres could boost Landsec’s revenue and make the company “a very significant dividend payer”, according to Colm Lauder, an analyst at Goodbody.

But Lauder warned that shopping centre rents could fall a further 15 per cent to 20 per cent, making any investment risky. “The income streams are really competitive, if you take a view [rents] are not going to collapse,” he said.

According to Allan, coronavirus has unleashed five years of pain on shopping centre values and rents in the space of 12 months. “With the scale of change that’s happened on those retail assets we now think the balance of risk and reward has changed,” he said.

Shares in Landsec fell 1 per cent in morning trading on Tuesday.


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