Higher interest rates see Landsec swing into the red

Land Securities said on Tuesday that it swung to an annual loss after higher interest rates and the weaker economic backdrop hit the value of its properties.

The British landlord posted earnings of £393m in the 12 months to 31 March, a near 11% improvement on the previous year, after "enduring" customer demand saw both occupancy rates and rent strengthen. Gross rental income increased by £61m to £647m.

But pre-tax losses came in at £622m compared to a pre-tax profit of £875m a year previously, after its combined portfolio’s valuation fell 7.7% to £10.2bn. EPRA - European Public Real Estate Association - net assets per share fell 12% to 936p.

Mark Allan, chief executive, said: "Last year saw the most striking difference in performance between occupational markets and investment markets that I can remember.

"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."

Looking to the current year, Allan said he expected global economic and financial uncertainty to remain elevated, adding: "The transition from a decade of ultra-loose monetary policy to a materially higher rate environment was never going to be a smooth one."

Landsec, which owns a mixture of predominantly office and retail properties, forecast low to mid-single digit estimated rental value growth in London and major retail destinations in the current year. Assets which have limited scope to add value will be sold, with the firm expecting to sell more than it buys in the short term.

Shore Capital, which has a ‘sell’ rating on the stock, said: "The business continues to action its transitional strategy, moving from being a legacy London office and retail landlord towards mixed-use and urban regeneration.

"While we commend this strategy, it will take time to effect, with the business still generating over 50% of its rental income from low growth West End and City offices and shopping centres.

"The development pipeline looks attractive but will take several years to be delivered.

"We continue to forecast a flat outlook for EPRA NTA in 2024 and believe there are more compelling investment opportunities for capital allocation across the sector."