Landsec to hold back re-investments in challenging economic climate

By Aby Jose Koilparambil

(Reuters) -British property group Land Securities will slow the pace of its re-investment plans due to challenging economic conditions, after the company reported a first-half loss as rising borrowing costs hit the real estate sector.

Aggressive interest rate increases to tame high inflation and deepening recession worries are seen dampening a tentative recovery in the British commercial property sector from pandemic lows.

Also, a string of unfunded tax cuts in Britain's mini-budget in September led to a rout of government bonds, pushing borrowing costs higher for lenders and causing turmoil in the property market.

Landsec, Britain's top commercial property landlord, said its pace of re-investment would slow down over the next year or so because of the challenging economic climate.

"Our intention really would be to continue to be disposing of assets but to be holding back a little bit and reinvesting those proceeds until we see those more attractive opportunities," said Chief Executive Mark Allan in a call with reporters.

"We believe that this value adjustment will likely continue a little while from here, the exact extent of that repricing depends on where interest rates settle over time," the CEO said.

The company said it has sold off properties worth about 2 billion pounds ($2.36 billion) over the last two years, half the amount of its six-year divestment plan of 4 billion pounds.

Landsec, which now has a 10.9 billion pound ($12.90 billion) portfolio comprising retail, leisure, workspace and residential assets, said the overall value of its properties dropped 2.9% as at Sept. 30 from the end of March, while value of its key office portfolio fell 4.4%.

Economic pressures facing consumers could also lead to some slowness over the coming months in its recovering retail portfolio, it said.

"Lower investment market liquidity may also limit further capital recycling (by Landsec) from sub-scale and ‘dry assets’ in the near term," analysts at Liberum said in a note.

The FTSE 100 company's loss before tax came in at 192 million pounds for the six months ended Sept. 30, compared with a profit of 275 million pounds a year earlier.

($1 = 0.8468 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Subhranshu Sahu and Jane Merriman)