Land Securities shares fell on Friday after the Real Estate Investment Trust said it would wipe around £625m off the value of its property portfolio as it contends with higher interest rates.
Despite the write-down, the company revealed positive trends across central London rents, which may have helped limit Friday’s share price losses.
Land Securities shares were down 1.6% at the time of writing.
“Real estate specialist, Land Securities Group, has reported a pre-tax loss of £341m as it writes down the value of its property portfolio. There has been a negative step change in market conditions and investor sentiment, which has led to a significant valuation deficit,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.
“For all the challenges, the group sees brighter spots on the horizon. The group’s said property valuations should move up from here, but this won’t be enough to boost earnings per share above last year’s levels”
The company has been hit hard by the higher interest rate environment over the past year but with the outlook for rates now more stable, the company may be past the worst of it. Land Securities said they were encouraged by improving investor sentiment around property which they attribute to the outlook for rates.
That said, trends in working from home may continue to drag on valuations of their West London office portfolio.
“High rates and inflation have been Landsec’s worst enemy in recent times and this is demonstrated by another hefty loss for the year, albeit a smaller one than expected,” said Adam Vettese, analyst at investment platform eToro.
“This is in addition to the burden of the pandemic hangover threatening to decimate office rent due to the increase of hybrid working. The firm has had to battle these challenges by optimising their portfolio, disposing non-performing assets such as their hotel portfolio which managed to give the coffers a £400m boost.
“The firm will be hoping that this week’s softer than expected inflation print in the US gets us one step closer to kicking off rate cuts which can’t come soon enough as refinancing of cheaper debt acquired pre-2022 remains a hurdle to overcome.”
