Landsec, the UK Reit, has described the UK property market as it presented full year results on Friday, painting a picture of the beginning of an end to the quiet period for fresh investing.
In a long and detailed statement, CEO Mark Allan outlined progress since unveiling the company’s new strategy in late 2020.
In the outlook section, Allan said the company was now capturing positive leasing reversion, and had re-investment capital to that could total £1 bn (€1.1 bn) following disposals, though the quantum and timing is yet to be determined.
Landsec has a current portfolio worth £10 bn, and has sold £3.1 bn of £4 bn of unwanted assets it earmarked for disposal last year, including the jettisoning of its hotel portfolio to Ares Management.
Allan said: ‘We are now through the vast majority of our disposal programme. As such, our focus for the rest of the year is now on acquisitions, as we aim to recycle the proceeds of our hotels disposal into additional opportunities in major retail.’
‘In London and mixed-use, our own investment in new development commitments is likely to be funded principally through future disposals of mature or standalone assets, alongside other, complementary sources of capital.’
He then went on to say, in terms of opportunities, the ‘right’ major retail destinations currently offered attractive high single-digit income returns with income now starting to grow, as seen across its portfolio.
Alongside two committed office developments in London, where the yield on the overall capex is high at around 12%, retail is its key focus for investment at the moment, he said.
‘This is where we plan to apply most of our existing balance sheet capacity too. Following a period of limited transaction activity in this sector, we are now seeing signs of activity levels around the work-out of broken ownership structures starting to pick up. Further capital recycling out of our residual retail parks will add to our investment capacity in this space and, overall, this is expected to enhance our income growth and return on equity.’
Macro
He also said the ‘relative stabilisation’ of long-term rates was a 'clear positive' reflecting the 'historically attractive pricing of good quality income in London and major retail'.
‘We are starting to see interest emerge from investors who have not been active in these markets for some time. As such, we expect activity levels to pick up from here. The refinancing of cheap debt issued before 2022 remains a challenge for parts of the sector, yet absent any further macro shocks, we think the value of high-quality assets has largely bottomed out and will start to grow in the foreseeable future as rents rise.’
Since late 2020 it has sold 40 standalone assets, including 21 hotels. Around 80% of its portfolio is in 12 key locations with significant ‘scarcity value’ which it expects to drive superior income returns and growth. The company has reinvested principally in its development in Victoria, at Piccadilly Lights and in Southwark in London, and by buying out JV partners in its retail destinations at Bluewater and in Cardiff.
