British property investment trust Land Securities, known as Landsec, has booked a nearly £200m loss over the past six months as interest rates sting.
It follows a £275m profit in the same period last year, as the company retreats out of London.
Landsec, one of the largest office leasers in London, has cut the capital’s share of its portfolio by nearly 40 per cent since the start of the year as it seeks to auction off £4bn worth of its assets.
The London-listed company, whose portfolio is still mostly weighted in the West End and the City, has continued to invest in the city while it undergoes its asset sale plan.
Around £55m is being injected into two office schemes in London, as the company seeks to take advantage of a “very supply-constrained market in 2025”, according to chief executive Mark Allan, who appeared bullish on the trust’s outlook despite rising interest rates and inflation.
“The material increase in bond yields since March has started to put upward pressure on property yields, principally for those assets where yields were lowest,” he said. “In the sectors we are in, this principally affected London offices, vindicating our decision to sell £1.8bn of mature assets over the past two years.”
Global economic and financial market conditions will “likely have a lasting impact on asset values”, said Allan, adding that “the psychology of investing in any financial asset means markets always overshoot, to the upside or downside, rather than smoothly revert to a new fair value”.
Shares fell more than two per cent to 611p per share by early afternoon, adding more weight to a downward trend into the red.
Landsec’s stock price has plunged more than 20 per cent since the start of the year.
Analysts at broker Peel Hunt said the Landsec stock is increasingly appealing to the “patient investor” as yields grow.
The company, which also invests in retail spaces, has sold £1.8bn worth of offices in the two years since it launched its turnaround strategy, including £1bn sold this year.
It forms part of plans to sell £4bn worth of assets over six years – an ambition which was inked in 2020.
“The strategy we launched two years ago was underpinned by two key principles of sustainable value creation: focusing our resources on where we have genuine competitive advantage, and preserving our strong balance sheet,” Allan explained.
“At the time, interest rates and property yields were very low, so asset values in many sectors looked expensive. Acting on this, we sold nearly £2bn of mature, low yielding assets while focusing new investment exclusively on opportunities where we saw clear value, or situations which offered long term optionality.”