Landsec, the UK real estate investment trust with a £10 billion portfolio, said it was lifting its earnings guidance as it provided its first update since announcing a major change in strategy in February.
The UK REIT, which has set out in the last year to reduce its exposure to offices and non-core assets through a major sales programme while focusing on major retail centres and residential, today said it is confident of investing a further £1 billion across its top bet – retail – in the next two to three years. It added that it is increasingly focused on bringing in third-party capital to invest alongside the business at its office developments.
Reporting half-year results for the period ending 30 September, Mark Allan, chief executive, said it had launched the new strategy to answer the two key questions all REITs in the UK need to ask when there is higher inflation and higher costs of capital. "That is: can the fundamentals support above inflation rental growth? Our results are answering that with high quality real estate driving outperformance. The other is does the business model and financing allow for rental growth to flow through to earnings growth? We are answering that. The question is are you allocating capital in a way to promote EPS growth rather than total returns? We are demonstrating progress on these questions today."
Allan said the REIT is on track or ahead of plan on the nine objectives it has. "We are capturing growing reversion in our retail and office portfolio; we are reducing overhead costs below £65 million. We released £300 million from pre-development assets and expect to hit half of our three-year target for this in year one.
"We have pledged to invest £1 billon in retail in the near term, and there are some interesting opportunities on the horizon and we are confident in making this investment. We want to release £2 billion in years two to five from office sales. We are accelerating these disposals and with £295 million of sales completed we are ahead of progress.
"Over a longer period we are progressing on establishing a £2 billion resi platform and we are making progress here. We are scaling back office-led development and there will be no more capital deployed to new development in the next 12-18 months."
Allan said Landsec was therefore raising guidance from the original 2 to 4% to the top end of that range. "We are upgrading our earnings potential to 4 and 4.5% growth per annum by full year 2030. That is an attractive total return for an equity investor."
Allan said net rental income was up 5.2% to £284 million while the dividend was up 2.2%. He said offices use, as measured at its offices, had seen an 11% increase over the period compared with last year, with its best-in-class locations outperforming TfL traffic data. "It is a very stable office occupier environment."
Allan highlighted the REIT's Victoria estate, saying it was 100% occupied with the most recent lettings at its Cardinal Place office secured at over £100 per square foot .
In terms of the Budget, Allan said the Chancellor needed to introduce a package that reassures the bond markets. "It is crucial the government maintains that confidence as all capital markets price themselves relative to that. "
The International Financial Reporting Standards profit before tax was £98 million. Landsec said there had been a substantial capital recycling of £644 million of assets generating no or limited returns resulting in a £67 million loss on sale, and a slightly lower European Public Real estate Association net tangible asset per share at minus 1.3%. The group loan to value is at 38.9%.
Landsec said like-for-like net rental income for full year 2026 is expected to grow 4-5%, up from an initial 3-4% guidance.
Operationally, Landsec said the 5.2% like-for-like net rental income growth came because "customer demand for our best-in-class offices and retail remains strong", with 10% rental uplifts on relettings and renewals highlighting growing reversion. It increased EPRA occupancy by 40 basis points on a like for like basis to 97.7%, the highest level in almost a decade, it said.
Office like-for-like income grew 6.8% the REIT said as "customer demand remains focused on high-quality space".
It is set to complete £866 million of developments in the next six to nine months. It sold £295 million of offices in the period "well ahead of schedule", as it says investment market activity continues to pick up gradually, creating opportunity to accelerate capital recycling in an "earnings accretive way".
The office portfolio valuation is down 1%, as receipt of income at QAM – the Ministry of Justice offices sold to Arora for hotel redevelopment – is ahead of sale and the impact of the five-yearly business rates review at Piccadilly Lights reduced valuation by 0.8%.
Retail-led like-for-like income was up 5%. The REIT is targeting investment in retail with opportunities coming to market to invest a "further £1 billion in accretive growth over the next 1-3 years". The retail portfolio valuation was up 2.3%, reflecting strong leasing and continued growth in income.
It said it is prioritising new investment in the sector in the next 12 to 18 months given the attractive income and income growth. It does not expect to commit meaningful capital to new development over that, as committed development reduces to £0.2 billion by mid-2026 and will remain well below the current £1.1 billion thereafter.
On residential, it said is positive momentum in preparing for the "medium-term residential-led opportunity". It secured detailed planning consent for the first 879 homes at Mayfield, Manchester and outline/detailed consents for 2,800 homes at Lewisham, London. The REIT said it is in active engagement with public sector partners as policy measures become more supportive to returns. It reititerated the opportunity to build a £2 billion-plus platform with higher income growth and lower cyclicality in the medium term.