London & Associated Properties PLC on Friday said its net asset value saw a moderate drop in the latest half year, as interest rate rises hurt operating performance.

The London-based investor in UK industrial and retail properties said its NAV at June 30 was 34.32 pence per share, down from 38.14p at December 31.

Shares in London & Associated Properties, or LAP, were down 4.8% at 10.00p on Friday morning in London.

During the first six months of 2023, revenue fell 41% to £28.3 million from £48.1 million for the same period in 2022.

LAP swung to a pretax loss of £2.5 million, compared with its £20.3 million profit the year before. It also swung to a loss per share of 3.52p from earnings of 5.03p.

Finance expenses rose 21% to £1.8 million from £1.5 million, while operating costs increased 9.4% to £28.7 million from £26.2 million.

‘The results for the six months to 30 June 2023 have been impacted very significantly by interest rate increases. Not only have the additional costs damaged operating performance, but negative sentiment has meant that the investment market for asset sales is becoming more uncertain,’ commented Chair and Chief Executive John Heller.

For LAP, the principle casualty of this difficult period was Orchard Square in Sheffield. The firm had instructed agents to market the property in May, in order to repay a loan from QSix Real Estate Finance LLP which is due to expire in September.

‘During this period we have sought to refinance the loan, but due to prevailing market conditions, this has not been possible without a significant equity contribution which we do not feel would be in shareholders’ interests,’ Heller said.

As of Friday, however, LAP said it could not confirm that any sales proceeds would be sufficient to repay the loan and return a surplus to LAP. Consequently it has ‘adopted a prudent approach’ and written Orchard Square down to the outstanding loan value of £12.7 million, from £14.8 million.

Heller said the write-down was a ‘disappointing outcome’, especially given Orchard Square’s strong operational performance this year. Operating income from the property remained stable at around £1.7 million per annum, and LAP said it ‘recently completed three significant lettings’ as well as ‘upgraded’ Orchard Square’s public areas.

‘We are, though, seeing rental growth in both our industrial and value-orientated retail properties, commented Heller. ’While we remain open to selling any properties where we think we can reinvest the proceeds into new assets with stronger growth potential, we remain happy with the cash generating potential of the current portfolio.‘

LAP did not declare a dividend for the half year, unchanged from 2022. However, it had declared a 4p final payout and an 8p special dividend for 2022, and said: ’Once our cash has been reinvested and property income has returned to previous levels, our dividend policy will reflect this.‘

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