Land Securities Sees $1.2 Billion Wiped From Property Values

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Land Securities Group Plc slashed the value of its properties by 945 million pounds ($1.2 billion) as the coronavirus pandemic forces thousands of stores to close.

The company, one of the U.K.’s largest real estate investment trusts, incurred most of the damage in retail assets that lost more than 20% outside London and about 17% in the capital, according to its half-year earnings statement Tuesday. So far it has collected 78% of the rent owed in September, but only half of monies owed by regional retail tenants.

The combination of the valuation fall and lower rent collection forced the company to an 835 million pound loss before tax.

“While today’s results clearly show the impact of the pandemic on our business, Landsec remains in a fundamentally strong position,” Chief Executive Officer Mark Allan said in the statement.

Commercial property landlords have been hit hard by the pandemic, as trophy office buildings in city centers remain deserted and online shopping becomes the norm amid renewed lockdowns. Land Securities’ shares had lost around half their value this year, before getting a more than 20% boost on Monday when news of successful Covid vaccine trials saw markets surge worldwide.

The company’s shares added further gains on Tuesday morning, climbing as much as 5.4%.

The prospect of a vaccine has “got to be good for peoples’ confidence in being in crowded places” and will be a significant boost for commercial property once it is rolled out, Allan said on a call with journalists Tuesday.

In contrast, the U.K. residential market is booming. Housebuilders have seen the pandemic boost demand for bigger homes with more outdoor space, assisted by government stimulus. Britain’s biggest homebuilder Persimmon Plc will pay shareholders an additional dividend thanks to strong sales, the company said Tuesday.

New Era

Allan last month set out a new strategy for Land Securities, that will see it ramp up asset sales, redevelop some retail properties and look at sites outside London. The company’s overall portfolio is now valued at 11.8 billion pounds, a 7.7% decline.

While the landlord’s office values only saw slight falls in the six months through September, it acknowledged that the pandemic would also have a lasting effect on that market.

“As we emerge from the pandemic, the way employers and people seek to use office space will change as greater levels of remote working become the norm,” the company said in the statement. “Many of the trends of recent years - the importance of sustainability, greater levels of flexibility, the role of the workplace in a health and wellbeing context - will accelerate.”

Still, the company has been positively surprised by the strength of investor demand for London offices with long leases, a trend it expects to capitalize on with increased disposals. There’s also an opportunity to take on more redevelopment projects as older buildings become obsolete more quickly, Allan said.

©2020 Bloomberg L.P.

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