Valuation hit for Landsec

Shopping centre portfolio marked down by 11.7%

Landsec saw half a billion pounds slashed from its portfolio valuation at 31 March 2019 as its valuers slashed ERVs and hiked yields on its retail assets. Shopping centres were marked down 11.7% as retailer failures led to rental values falling by 5.7% with equivalent yields moving out by 24 basis points. The difficult climate for retailers also impacted the value of Landsec’s retail parks, which reduced by 15.5% as a result of a 4.9% rental value decline and a 71 basis points outward movement in equivalent yields.

In the 12 months to March 2019 Landsec said retail voids had increased from 2.7 to 3.7% with units in administration increasing from 0.7 to 0.8%. Footfall in regional shopping centres and outlets was down 2.4% but still outperformed the ShopperTrak benchmark which was down 2.8%. Like-for-like sales were down 0.9%, while the BRC national benchmark was down 2.1%.

Retail accounts for 35% of Landsec’s portfolio and chief exec Robert Noel said: “These are challenging times for retailers. The rise of online retail and cost challenges for the industry have brought store closures and lease restructures, often under company voluntary arrangements. We are not immune from market challenges but the impact has been softened by having re-positioned our portfolio in recent years towards destinations which provide a great experience and away from the high street, secondary shopping centres and retail parks. Our destinations play a core role in retailers’ multi-channel strategies, drawing visitors with a mix of brand experience, product, food, drink and cinema.”

Reflecting this, Landsec disclosed that plans were being drawn up to redevelop its London shopping centres in Shepherd’s Bush, Finchley Road and Lewisham. Mixed-use proposals with a large residential component are likely to emerge.

Looking ahead, Noel concluded: “We see no near-term improvement in retail market conditions, with CVA activity set to continue. Rental values are likely to decline further in shopping centres and retail parks, though we expect continued rental growth in outlets and select leisure destinations. Consumers will continue to be attracted to destinations that provide a broad range of brands and experiences.”

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