Interim Management Statement

RNS Number : 9827V

Capital & Regional plc

11 November 2010

 

11 November 2010

Capital & Regional plc

Interim Management Statement

For the period from 30 June 2010 to 11 November 2010

Capital & Regional plc today announces its interim management statement for the period from 30 June 2010 to 11 November 2010.

Highlights

The key highlights are:

·     Focus on letting activity drives increase in occupancy, contracted income and valuations

·     Significant outperformance in The Mall's footfall in the first 9 months of the year

·     Completion of The Mall bond restructuring

·     Improved quality of portfolio resulting from six property sales across the funds for £245m

·     Capital distribution from The Junction of £42m - Group share £5.6m

·     Completion of investment in Garigal Asset Management GmbH

Hugh Scott-Barrett, Chief Executive, commented:

"Our focus has been on driving improvements in operational performance. Interest in space from retailers is holding up and is reflected in a number of lettings which have driven occupancy and income levels higher.

We are now beginning to see the expected increase in supply of investment opportunities. We are actively pursuing a number of situations which exploit our skills in managing complex assets and which we believe will deliver attractive returns.".

Operating and financial review

Tenant markets

The occupational market for the UK funds has continued to stabilise with occupancy levels steadily improving.

The key performance indicators on a like for like basis were as follows:

Occupancy	The Mall	The Junction	X-Leisure	Germany
30 June 2010	93.8%	94.7%	94.2%	98.5%
30 September 2010	94.5%	96.4%	94.4%	96.7%

Administrations	The Mall		The Junction		X-Leisure		Germany
	Units	Rent *	Units	Rent *	Units	Rent *	Units	Rent *
Q3 2010	5	£0.1m	0	£0m	3	£0.4m	0	€0m
	(0.1%)		(0%)		(0.9%)		(0%)

* figures in brackets show the percentage of the June rent roll entering administration

Occupancy across the three UK funds increased from 94.1% at 30 June 2010 to 94.8% at 30 September 2010, as a result of resilient tenant demand coupled with low levels of tenant administrations.  Occupancy in the German portfolio reflects the impact of the acceptance of a tenant surrender in one of our properties for a €6.3 million premium.  As part of our active asset management activities the property concerned is to be refurbished before re-letting.

There have been minimal administrations in the three UK funds since half year and, to date in Q4, there have been four units affected.  There have been no administrations in the German portfolio since half year.

Passing rent	The Mall	The Junction	X-Leisure	Germany
30 June 2010	£93.2m	£28.5m	£42.8m	€44.6m
30 September 2010	£93.1m	£29.2m	£42.7m	€43.8m

Passing rent, calculated for the three UK funds, has increased by 0.4% during Q3.  The figures on a contracted rent basis are shown in the table below and show an increase of 2.3% in the same period.  Contracted rent is defined as passing rent plus the initial rent payable by those tenants who are in a rent free period.

Contracted rent	The Mall	The Junction	X-Leisure
30 June 2010	£97.0m	£29.5m	£42.8m
30 September 2010	£99.7m	£30.3m	£43.0m

Across the three UK funds in Q3, rent reviews were settled in 35 units for new passing rent of £3.5 million at 4.6% above ERV; new lettings were agreed in 45 units for passing rent of £3.3 million at 5.0% below ERV; and lease renewals were agreed in six units for passing rent of £0.5 million at 10.8% below ERV once tenant incentives have expired. These passing rents exclude any turnover elements which will bring rents nearer to ERV.

Letting activity has been good since 30 June 2010 across all of the UK funds, particularly in The Mall with the letting of development space at Luton and Blackburn.  For example, The Mall has made lettings to Carphone Warehouse, Barclays, New Look and Marks & Spencer while The Junction has made lettings to Dixons, Gap, Peacocks and Pets at Home.

Rent collection rates (adjusted for monthly payment plans and tenants in administration) continue to be strong, with 97.1% of rent being paid within 30 days of the September quarter day, the same level as in June.

Footfall

The Mall's footfall has outperformed the national footfall index, with a 2.6% rise in shopper numbers over the nine months to September compared to a 0.6% rise in the index.

Property investment markets

We announced the September UK fund valuations on 13 October 2010, the key aspects of which were as follows:

	Value of properties £000	Underlying valuation change in quarter	Change in unit price (geared) in quarter	Net initial yield	Unit value at 30 September 2010
The Mall	1,074,000	2.6%	5.9%	7.06%	£0.3504
The Junction	472,110	1.1%	(17.6%)	5.90%	£0.3044
X-Leisure	546,700	0.1%	0.8%	7.08%	£0.2977

The change in unit price for The Junction includes the effect of a capital distribution of £42 million in September 2010.  The Group's share of this was £5.6 million.  Without this distribution the unit price would have decreased by 0.3%, the fall arising from the interest rate swap termination costs following the sale of the fund's retail park in Hull.  The German portfolio is not valued in Q3.

The Junction outperformed its IPD benchmark for Q3 by 0.3% with a total return of 2.6%.

During the first half of 2010 valuations improved as a result of yield compression.  However, during Q3 the primary factor behind the uplifts has been the increase in contracted rent.

The X-Leisure fund, which carries out monthly valuations, reported a property valuation as at 31 October 2010 of £519.5 million at a net initial yield of 7.0%, down 0.04% on a like-for-like basis from the September valuation.

Property disposals

As mentioned in the Interim Report a number of disposals have taken place at the fund level since half year:

·     In August 2010, The Mall completed the sale of its Falkirk, Gloucester, Romford and Southampton properties for £135.9 million at a net initial yield of 7.5%, compared to their half year valuations which totalled £128.1 million.

·     In September 2010, The Junction sold its Hull retail park for £81.9 million at a net initial yield of 7.0%, compared to its half year valuation of £80.3 million.

·     In October 2010, X-Leisure completed on the sale of its Fiveways Birmingham property for £27.0 million at a net initial yield of 9.0%, which was the same as its half year valuation.

Debt and bank covenants

All of the group, fund and joint venture loan facilities were in compliance with their covenants at 30 September 2010.  

There has been no drawdown on the central facility so far this year and as at 30 September 2010 the Group held cash of £26.7 million and Group debt had fallen to £70.9 million. 

As described in detail in the 2010 Interim Report, The Mall restructured its borrowing arrangements in July 2010 and since then its debt position has been further improved by the sale of Falkirk, Gloucester, Romford and Southampton, which allowed bonds totalling £129.4 million to be redeemed in October 2010 after swap break costs.  The total debt outstanding on the bonds following this redemption was £827.7 million.

In the other funds, The Junction repaid debt of £52.8 million with the proceeds of the sale of Hull leaving £289.2 million outstanding as at 30 September 2010, while X-Leisure repaid debt of £24.8 million with the proceeds of the sale of Birmingham leaving £214.9 million currently outstanding on the fund's central facility.

For further information:

Capital & Regional:
Hugh Scott-Barrett, Chief Executive	Tel:  [phone]
Charles Staveley, Group Finance Director	Tel:  [phone]
Maitland
Martin Leeburn / Emma Burdett	Tel:  [phone]

Notes to editors:

 About Capital & Regional plc

Capital & Regional is a specialist property company which specialises in exploiting asset management opportunities in town centre shopping centres and out of town retail parks. Capital & Regional founded The Mall and The Junction funds in conjunction with Aviva Fund Management. Capital & Regional acts as Property and Asset Manager for the Mall and Junction funds and holds 16.7% and 13.4% respectively of the funds.

Capital & Regional also has an 11.9% stake in the X-Leisure fund, which is managed by X-Leisure Limited in which Capital & Regional holds a 50% interest, and a 50% interest in a German property portfolio with AREA Property Partners which is managed by Garigal Asset Management GmbH, in which Capital & Regional holds a 30% interest.  Capital & Regional has a number of other joint ventures and wholly-owned properties.

For further information see www.capreg.com

Forward Looking Statements

This document contains certain statements that are neither reported financial results nor other historical information.  These statements are forward-looking in nature and are subject to risks and uncertainties.  Actual future results may differ materially from those expressed in or implied by these statements.  Many of these risks and uncertainties relate to factors that are beyond Capital & Regional's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Group's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Group operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis.  Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this document.  Capital & Regional does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document.  Information contained in this document relating to the Group should not be relied upon as a guide to future performance.

 

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