An 11% writedown in the valuation of the Bluewater shopping centre in Kent weighed on Landsec’s full-year results this week.
The asset’s fall in value made shopping centres by far the weakest performing part of Landsec’s portfolio, down 3% in value in the year to the end of March. The value of the wider portfolio fell by 0.7% to £14.1bn.
Chief financial officer Martin Greenslade said the dramatic fall in value for Bluewater was due to the lack of comparable information available to valuers.
Hermes’ sale of its 7.5% stake in the centre last year for less than the £167m asking price was also factored into their view, as was Lendlease’s failure to find a buyer for the 25% stake it put up for sale last year.
“They have taken both of those [facts] into account and said ‘we think in this market people require a slightly higher earnings yield – both initial and equivalent yield, so they have basically expanded the equivalent yield by 50 basis points,” said Greenslade.
The revised valuations of one of Landsec’s oldest properties – Portland House, SW1 – also hit the company’s valuation. The asset, which Greenslade called an “outlier” in its portfolio, was marked down by 12%.
“The lease is up in 2020 and we are just starting to look at what to do with it,” he said.
The fall in valuation had a negative impact on Landsec’s net asset value (NAV), which fell 1% year on year to £14.03 a share. The NAV was also affected to the tune of 59p a share by the refinancing of £1.5bn of bonds.
Greenslade said the hit to NAV was a price worth paying for the refinancing, which had reduced its cost of debt to 2.6%, more in line with current market rates, and lengthened its debt maturity to 13.1 years.
“Increasing the length of our debt is a very sound thing to do with current interest rate levels,” said Greenslade.
The refinancing also meant Landsec was well placed to take advantage of any investment opportunities during a market downturn, he added.
Landsec’s shares fell 1.93% following the release of its results on Tuesday, but Greenslade said he was not fazed by the performance of its shares, which continue to trade at a significant discount to NAV.
“We are a cyclical business and we have to recognise that at times the stock market won’t value our shares in the same way the underlying properties are valued,” he said.
In a note to investors, analysts at Liberum said: “We believe Landsec continues to be overly penalised for its lower-risk business positioning, which in the context of current discounts to NAV should be reflected in a relative premium.”