15 November 2022
If you are covering LandSec’s results this morning, please see the following comment from Oli Creasey, equity research analyst at Quilter Cheviot:
"LandSec are one of the first property companies to report on the current cycle, with today’s HY report dated September 30th. The company’s results are split into two categories: things that can be controlled, and things that can’t.
"The controllables are very much under control – rents grew +8% in the six month period on a like-for-like basis, and management have been proactive in aligning the property portfolio to the current environment. Properties have been sold at prices that were sometimes below prior valuations, but likely ahead of where those values might fall to and 21 Moorfields, the new Deutsche Bank office is a good example: sold for just over £800m, 9% below the Mar-22 valuation, but values in the subsector have fallen further since. The result is that, even as the NAV is falling, the company’s debt is well under control, dropping 300bps to a very secure 31%.
"However, the company management have no control over yields, and we are now seeing property valuations starting to crack across the board. LandSec is invested in both London office, mixed use urban site and retail assets, and there has been outward yield shift of around 25-30bps across most of the subsectors. While the yield shift has been fairly uniform, the impact has not, and nowhere is this more apparent than the London office sectors, where West End values fell -4%, but City property fell -10%. Likewise, retail park valuations have fallen -5%, but shopping centres are marginally up as the sector is still in recovery mode following Covid.
"The upshot is a company that looks resilient, but arguably needs to be. With values falling across the board, the company’s NAV has fallen -5%, and is likely to fall further at subsequent reporting dates if interest rates continue to rise. All eyes will now be on the other REITs about to follow suit, not all of which are starting from such a strong position."
