Yesterday I went into detail as to why FTSE 100 business British Land faces an uncertain future. It is not just the rush of missed rent payments that it faces as the retail sector remains in lockdown. It’s the threat of prolonged pain as retailers across its shopping spaces suffer during the upcoming economic meltdown.
The pressure that this Footsie share and its index neighbour Land Securities Group (LSE: LAND) face was highlighted in comments by Andrew Goodacre, chief executive of the British Independent Retailers Association, to MPs. He says that a fifth of retailers he had spoken to won’t reopen their doors when lockdown measures are eased.
While a number of others said that they planned to eventually pull up the shutters and start trading again, Goodacre noted that “there is a huge caveat about the level of trade on whether they would continue to reopen”.
FTSE 100 firms under the cosh
Oasis Warehouse Ltd is one retail giant that definitely won’t be reopening its doors. The owner of the Warehouse and Oasis womenswear shops announced today that it had collapsed after calling in administrators at the top of the month. It’s one of many major operators that have gone to the wall in recent years as Brexit uncertainty has crushed consumer confidence. And it’s clearly not going to be the last.
Like British Land, Land Securities trades on a rock-bottom forward earnings multiple, in this case a reading of 13 times. It’s still not enough to encourage me to invest, though.
It’s not just that the coronavirus crisis and the subsequent economic meltdown threatens earnings in the short-to-medium term. The lockdown has muddied the longer-term profits outlook for the likes of Land Securities, too. Why? It has hastened the adoption of internet retailing for new users and embedded the habit among existing shoppers. It’s hammered the nail a little bit deeper into the coffin for physical retailers, then.
Office gossip
But Land Securities’s concerns extend far beyond the troubles of the UK retail sector. In fact, office space comprises 50% of the total value of its commercial properties versus 38% that its retail assets make-up. A painful dive across the entire domestic economy bodes ill for its ability to collect rents over the next couple of years, then.
Moreover, in the longer term, demand for its office space could begin to recede too. Rising e-commerce activity isn’t the only behavioural change to emerge from the Covid-19 crisis. The need for people to work remotely since March has hastened the trend towards home-working. This raises the prospect that Land Securities might struggle to fill its office spaces in the years ahead.
The Footsie company is facing a worsening trading outlook, then. And to make things worse it also has a net debt mountain of above £4bn to contend with, too. Land Securities’s share price has rebounded 30% from the 11-year lows around 500p hit in early April. But I fully expect it to resume its downtrend soon. I’d avoid this large cap at all costs.
