Interim Management Statement

RNS Number : 4173D

Capital & Regional plc

16 May 2012

 

16 May 2012

Capital & Regional plc

Interim Management Statement

For the period from 31 December 2011 to 15 May 2012

Capital & Regional plc, the specialist retail property company today announces its interim management statement for the period from 31 December 2011 to 15 May 2012.

Highlights

The key events during the period were:

·     Valuations of the combined UK funds broadly stable in Q1 and footfall in The Mall continues to be significantly ahead of its national benchmark.

·     15 new lettings in Q1 at 2.1% above ERV with key lettings in Q2 in The Mall to H&M in Luton and Beales in Maidstone.

·     Encouraging progress on asset management initiatives at Thurrock where work on site is starting and at Hemel Hempstead where planning permission has been received for redevelopment of the scheme and a number of pre-lets are in solicitors' hands.

·     Acquisition of additional units in The Mall, increasing the Group's interest to 20.15%.

·     Acquisition of 20% interest in Kingfisher Shopping Centre Redditch, with partners Oaktree Capital.

Hugh Scott-Barrett, Chief Executive, commented:

"Demand for well configured quality space is confirmed by lettings to H&M in Luton and the progress in re-letting all Peacocks units across the portfolio. Whilst the demanding environment for retailers will persist I am confident that our asset management skills will deliver similar initiatives in the future.

We continue to focus on our goal of becoming a specialist retail property company. Where full value can be realised non-core assets will be sold and proceeds recycled and levels of gearing will continue to be managed prudently. In particular, we continue to work at deleveraging The Mall to permit distributions to recommence."

Operating performance

There has been a steady stream of transactions completing across the portfolio in the first quarter which are supportive of ERV, despite an uptick in insolvencies.

Cash collection

Rent collection rates in the UK funds (adjusted for tenants in administration) continue to be strong, with 98.2% of rent being paid within 30 days of the due date an increase of 0.3% compared to December 2011.

Footfall

The Mall's footfall has outperformed the national footfall index, and is showing a year to date decrease of 0.3% in shopper numbers over the first 4 months of the year compared to a decline of 3.4% in its benchmark index, demonstrating the strong operational performance of the portfolio.

New lettings, renewals and rent reviews

There has been further progress on new lettings, lease renewals and rent reviews across the three UK funds during the first quarter of 2012.

·      New lettings were completed in 15 units for headline rent of £1.2 million at 2.1% above ERV;

·      Lease renewals were agreed in 7 units for contracted rent of £0.7 million above ERV; and

·      Rent reviews were settled in 29 units for new passing rent of £3.0 million, with an uplift to the previous passing rent of 5.5%.

Significant new lettings during the first quarter of 2012 were made in The Mall to Tiger Retail in Wood Green, and to Carphone Warehouse in Walthamstow.

Since 31 March 2012, there have been a further 12 lettings in The Mall and tenant interest is evident in all of the schemes. H&M have completed an agreement for lease at Luton, where they are not currently represented. This involves the amalgamation of five units to create a new 22,500 sq ft unit. This will transform poorly configured space into a valuable retailing location whilst strengthening the scheme as the prime retail destination within the town.

In Maidstone, the department store Beale's have taken the former TJ Hughes space on a flexible basis. This will bring increased vibrancy to the scheme and reduce the void costs being borne by The Mall. This deal has the potential to result in a permanent letting, but in the interim provides a window to explore all the asset management opportunities available.

In addition, there is a pipeline of letting opportunities. Terms are agreed for another significant fashion letting at Luton, two deals at Walthamstow and an extension to an anchor store at Blackburn. At Sutton Coldfield discussions are taking place for an upsize of an existing fashion retailer and at Uxbridge an amalgamation of units is being worked through with a major retailer to attract them into the scheme. A good offer has been received to take a 18,000 sq ft fashion store which could be created at Camberley.

In X- Leisure, lettings were made to Bella Italia in Aberdeen and Leeds and an extension to the McDonalds unit was completed at Great North Leisure Park in Finchley.

In Germany, five new lettings were made for €0.3 million. At Sinzheim, Real have extended their lease by five years to March 2018.

Details of further letting progress in relation to developments is provided later under "Asset management and development".

Rental income

(a) Passing rent

Passing rent fell in The Mall and X-Leisure but remained stable across the Junction and in the German portfolio during the first quarter.

Passing rent (like for like)	March 2012	March 2011	December 2011
	£m	£m	£m
The Mall	75.7	77.0	78.0
The Junction	17.4	17.0	17.4
X-Leisure	40.2	40.7	40.8
UK funds	133.3	134.8	136.2
	€m	€m	€m
Germany	46.1	46.0*	46.2

*March 2011 comparative  includes €2.1 million of income from the Schwabisch Hall acquisition made in December 2011

The decrease in The Mall's passing rent of £2.3 million is principally due to the administrations, but also from a reduction in seasonal income from temporary tenants of £0.5 million.

The decrease in X-Leisure's passing rent of £0.6 million reflects the forfeiture of three leases with Luminar Group which went into administration in 2011. As mentioned below, these units are now being re-let to a new operator with a target re-opening date in early Q3.

(b) Contracted rent

The Mall had a further £3.6 million of contracted rent at 31 March 2012 which is not included in the passing rent figures above.

The Junction had a further £1.2 million of contracted rent and X-Leisure had an additional £0.8 million contracted rent at 31 March 2012.

Occupancy levels

Occupancy (like for like)	March 2012	March 2011	December 2011
The Mall	95.8%	95.0%	97.2%
The Junction	94.2%	95.5%	96.4%
X-Leisure	94.0%	95.0%	96.1%
UK funds	95.1%	95.1%	96.8%
Germany	94.7%	95.6%	95.2%

Occupancy levels across the UK funds were stable year on year, but have fallen by 1.7% compared to the position at 31 December 2011.

In the Mall, occupancy has increased in comparison to March 2011. The termination of temporary seasonal tenancies accounted for 0.5% of the decrease in the first quarter and the balance resulted from lease expiries and the disclaiming of leases by liquidators.

In The Junction, a unit became vacant as a consequence of the termination of a temporary tenancy. Another two units were affected by insolvency, one is being assigned and agreement has been reached to re-let the other unit to a major retailer at the same rent. This letting is now in solicitors hands.

In X-Leisure, the fall in occupancy reflects the forfeiture of three leases with Luminar Group through court action against the administrator. Agreements for lease have been signed on all of these units with a new operator conditional upon the transfer of alcohol licences. These are scheduled to re-open early in Q3 following fitting out works.

Administrations

	The Mall	The Junction	X-Leisure	UK
Administrations (units)
3 months to 31 March 2012	31	2	-	33
Passing rent (£m)	3.4	0.3	-	3.7
Re-let units	9	-	-	9
Contracted rent on re-letting	0.7	-	-	0.7
Still trading (units)	8	1	-	9
Passing rent still trading (£m)	0.6	0.1	-	0.7

There were 33 administrations in the three UK funds during the first quarter of 2012 with a passing rent of £3.7 million of which £1.4 million (38%) is still being received.

The Mall was adversely affected by the administration of Peacocks, Bon Marche, La Senza and Game Group. In the case of the Peacocks / Bon Marche administrations seven of the nine units have been, or are in the process of being, re-let to the purchasers of the businesses, one has been assigned to Poundworld at passing rent and the remaining unit is under offer on attractive terms.

In The Junction, the single unit closed by administrators is already in legals to another retailer. In addition, the Best Buy unit at Thurrock ceased trading, but this lease has been assigned on the same terms to Kiddicare, a part of Morrisons.

To date, in the second quarter there have been a further 17 administrations in the UK funds, all arising in The Mall, with a passing rent of £1.5 million. Of this £1.4 million relates to the recent administration of Clinton Cards / Birthdays. We believe that the majority of Clintons' stores trade profitably, but it is too early to predict the outcome of the administration process.

There were three administrations in the German portfolio in the first quarter with passing rent of €0.2 million.

Asset management and development

At Thurrock, construction work is commencing to redevelop the former cinema at Lakeside Extra into three new retail units, with a target completion date in Q4 2012. One unit has been let to Smyths Toys and another to Poundland conditional upon a variation of the planning consent. Terms have also been Board approved, for the letting of the remaining unit of the redevelopment to a high profile retailer.

At Abbotsinch, terms have been agreed for the letting of 40,000 sq ft of the consented 53,000 sq ft.

At Hemel Hempstead, planning consent was granted in March for the redevelopment and rebranding of the scheme with the swimming complex and Luminar nightclubs being replaced by family orientated branded restaurants and an improved leisure offering. Pre-letting of the proposed new restaurants is progressing well and terms have been agreed with a specialist leisure operator for the new gym, ice rink and unique adventure play facility.

In X-Leisure, a surrender was taken of the Burger King lease at Parrs Wood in Manchester and the unit re-let to Bella Italia setting a new rental tone for the scheme. In Leeds, Aldi have signed an agreement for lease for a 15,000 sq ft food store conditional upon grant of planning consent.

At Xscape Milton Keynes planning consent has been granted to Xscape and Aspers Casinos a licence for a large casino within the scheme. This was won in competition against other locations within the town and will provide the venue with a significant additional offer over competing schemes.

Progress has continued on the Group's other development opportunities at Lincoln, Walthamstow and Great Northern.

Fund and property valuations

On 18 April 2012 we announced the first quarter UK fund property valuations. The Mall valuation decreased 2.0% principally as a result of the administrations referred to earlier. The Junction showed a marginal decline of 0.6% and X-Leisure increased by 1.5%. Further details are contained in the fund valuation announcement made on 18 April 2012.

The X-Leisure fund, which carries out monthly valuations, reported a property valuation as at 30 April 2012 which was unchanged from that at 31 March 2012.

Purchase of Mall units

On 27 January 2012, the Group purchased 18.7 million units in The Mall Fund at £0.30 per unit compared to a unit value of £0.42 per unit at 31 December 2011. The total consideration was £5.6 million and this increased the Group's holding in The Mall Fund to 20.15%.

Property disposals

There were no disposals in the UK during the period. In Germany, the properties at Kircheim, Phillipsthal and some land at Toenisvorst were sold in April 2012 for €1.0 million.

Property Acquisition

On 1 May the Group announced its acquisition of a 20% interest in The Kingfisher Shopping Centre in Redditch in partnership with funds managed by Oaktree Capital Management LP. The Kingfisher Centre was purchased for £130 million at an 8% net initial yield with affordable Zone A rents of between £65 to £75 per sq ft. Further details are contained in the announcement made on 1 May 2012.

The Group has been appointed as property and asset manager for this property and initial meetings with retailers following completion confirm the exciting asset management potential of the scheme.

Financing

The Group's £10.6 million investment in Redditch was funded through £7.0 million of cash and a drawdown of £3.6 million on the £58.0 million central credit facility.

The Mall repaid a further £8.7 million from its CMBS in April bringing the outstanding debt to £651 million.

In Germany, two loans totalling €21.4 million have been extended until at least September 2015.

- ENDS -

For further information:

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

Notes to editors:

About Capital & Regional plc

Capital & Regional is a specialist property company with a track record of developing 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 Investors. Capital & Regional acts as Property and Asset Manager for the Mall and Junction funds and holds 20.1% and 13.4% respectively of these funds.

Capital & Regional & AREA Property Partners each hold a 50% interest in a German retail property portfolio which is managed by Garigal Asset Management GmbH, in which Capital & Regional holds a 30% interest. 

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.

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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