Landsec preps for recovery after bruising year, to exit UK retail parks ops
Landsec is “poised for recovery” after the toughest of trading years, the UK property giant said in its annual results statement Tuesday, in what’s been a bruising 12 months to 31 March. And that recovery won’t include its retail park portfolio, which is to be sold.
Backed by a strategy that positions it for long-term growth, the business is now “entering the recovery phase”, CEO Mark Allan pronounced as he hailed both the government’s action to support the economy and the “impressive” speed of the ongoing vaccination programme. “As a result, there is the real prospect of a strong consumption led recovery across the remainder of 2021 and 2022”, Allan added.
But that recovery will come at a cost as the company continues to reduce its net debt that currently stands at £3.5 billion. Landsec has earmarked around £4bn of assets for disposal over the next few years, which will focus on “high quality but defensive prime central London assets” and, in due course, “assets in subscale sectors where we have little or no competitive advantage… including retail parks”.
Landsec is hoping the next 12 months will be nothing like the last. "Our results for the year to March 2021 clearly reflect the challenges caused by both the pandemic and the associated restrictions”, he reflected. That resulted in a swathe of red ink across its balance sheet with revenues down 39.4% to £251 million and a pre-tax loss of £1.39 billion, wider than a loss of £837 million in the 2020 year.
Like-for-like net rental income fell £165m, or 30.4%, with its portfolio value falling 13.7% to £10.8 billion. Over the year, the value of its regional shopping centres fell on average 38.2% to £1 billion, taking the decline from the peak to approximately 60%. But the business “remains in a strong financial position”.
Allan added: “We have a clear strategy focused on four priorities, to reshape the portfolio and reposition Landsec for growth which includes “optimising” its Central London portfolio and "reimagining retail… by redefining how we do retail in a multi-channel world, driving successful outcomes for all”.
In that bid to reimagine retail, the pandemic has “materially accelerated structural trends that were already under way in retail and, for most of the sector, it is clear that online is now the primary growth channel and will remain so”.
But he added: “This does not signal the end for retail property. Instead, it means that its role must change in an omnichannel world to offer something sufficiently compelling - either to be complementary to online or to offer something that cannot be easily replicated online. It is this reality that underpins our 'Reimagine retail' vision".
Allan also pointed to a ”strong performance in England since restrictions on non-essential retail began to lift on 12 April. Shopping centre sales are up 5% versus 2019, and outlets up 14% versus that same year.
Landsec also said over 50 retail brands have agreed new leases or opened new stores during the year, “demonstrating physical stores in the right locations remain a key element to brand partner strategies”.
And any downside? “However, with tourism likely to be constrained, future office working patterns still unclear and residual concern about the safety of public transport are likely to persist for a while yet, it will take longer for central London footfall to recover fully”.
He also admitted the near-term outlook for retail “remains challenging, particularly for shopping centres”.
“We are likely to see a sharp increase in insolvency processes (such as CVAs, business restructurings or administrations) among occupiers as the Government's pandemic-related support tapers off and businesses that were struggling before the pandemic continue to do so afterwards.
“As this happens, it will accelerate the fall in passing rents towards our forecast sustainable rent levels, increasingly reflected in valuations already. It will also open up opportunities for new brands and different propositions, including digitally native ones, to take space instead and help improve longer-term prospects”.
He added: ”Like many people, I was encouraged to see the relish with which people returned to experience in-person shopping as the easing of lockdown measures began in April, and early indicators are that this excitement is driving a strong return to our retail assets”.
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