Interim Management Statement

RNS Number : 2803H

Capital & Regional plc

16 May 2014

 



16 May 2014

Capital & Regional plc

(the "Company" or the "Group")

Interim Management Statement

For the period from 31 December 2013 to 15 May 2014

CAPITAL & REGIONAL DELIVERS STRATEGIC AND OPERATIONAL PROGRESS

Well positioned for growth

Capital & Regional plc, the specialist retail property company, today announced its interim management statement for the period from 31 December 2013 to 15 May 2014.

Highlights

·     24 lettings and renewals completed in Q1, securing income of £1.6 million, with the lettings achieved at 2.1% above Estimated Rental Values ("ERV"); in excess of £2 million of further lettings and renewals expected in Q2

·     Encouraging YoY increase in footfall of 2.4% in the first four months, outperforming the benchmark index by 2.7%

·     Q1 Mall property valuations stable

·     Refurbishment works at Redditch's Kingfisher Shopping Centre Leisure Hub development and reconfiguration at The Waterside Centre Lincoln both now substantially complete

·     Continued momentum on disposal of non-core assets

·     Germany - exchange of contracts on the €47.9 million sale of Lübeck and encouraging interest received for a further portfolio which is being marketed in excess of €100 million.   

·     Sale of Hemel Hempstead completed in February 2014

·      £380 million refinance of The Mall Fund CMBS well advanced

Hugh Scott-Barrett, Chief Executive, commented:

"We have created a strong platform for growth as we continue to look to recycle our resources into UK shopping centres at a time when sentiment is improving in both the investment and tenant markets.

"Occupiers are now more confident in planning their portfolios, which is translating into strong lettings across our schemes nationwide. In the light of this improving market, we expect our broad-ranging asset management programme to deliver growth in capital values over the next quarter."

Operating performance

Fund property valuations

The Mall Fund's portfolio was valued as of 31 March 2014 as follows:

Fund	Valuation of properties	Underlying valuation change in period1	Change in unit value (geared) in period	Net Initial Yield	Unit value at 31-Mar-14	Unit value at 31-Dec-13	C&R percentage of fund
The Mall	£684,650,000	(0.2)%	(0.4)%	6.69%	£0.3732	£0.3748	29.3%

¹   The underlying valuation change shows the like-for-like increase in the value of the portfolio in the quarter as a percentage of the value of the portfolio at the beginning of the period net of capital expenditure during the period.

The unit value as of 31 March 2014 does not include income of approximately 0.5 pence per unit which is to be distributed in relation to Q1.

The Mall Fund shopping centre valuations have been stable over the quarter reflecting a small reduction in income over the three months to 31 March 2014 counterbalanced by nine basis points of yield compression.

Since 31 March 2014, there has been evidence of growing momentum in the improving investment market sentiment, which is expected to drive future valuations upwards when combined with our pipeline of new lettings and the impact of our capital investment plans.

New lettings, renewals and rent reviews

	3 months to 31 March 2014
Number of new lettings	14
Rent from new lettings (£m)	0.8
Comparison to ERV (%)1	2.1
Renewals settled	10
Revised rent (£m)	0.8
Comparison to ERV (%)	(1.5)
Rent reviews settled	15
Revised passing rent (£m)	1.6
Uplift to previous rent (%)	-
Comparison to ERV (%)	8.0

¹ For lettings which did not include a turnover rent

Leasing momentum has been healthy, as a result of improving sentiment in the tenant market. Occupiers are planning their portfolios with more confidence and this has translated into key lettings across The Mall Fund's portfolio in Q1.

We made good progress at The Mall Camberley with two new 10 year leases agreed with Select and Deichmann for a combined total space of 9,500 sq ft. Ernest Jones also completed a five year lease renewal on its 1,500 sq ft unit.

At The Mall Blackburn, Boots agreed a 10 year lease renewal for its 20,000 sq ft unit.

A new letting was signed with Treds for a 2,350 sq ft unit at the Kingfisher Shopping Centre in Redditch, improving the tenant mix in the fashion zone on Evesham Walk. In addition, Nando's opened its new restaurant and Real China completed its lease in the newly created Hub.

The Fragrance Store signed a 10 year lease renewal at the Waterside Centre in Lincoln, where the reconfiguration works on the scheme are now 85% complete.

Period since 31 March 2014

Letting and lease renewal activity has continued positively since 31 March 2014. Income totalling £1.2 million has either been contracted or is in solicitors' hands, and a total in excess of £2 million is expected during Q2.

At The Mall Blackburn, B&M Bargains have completed a five lease on a 19,000 sq ft unit and a mobile phone retailer has agreed terms to take a 1,800 sq ft unit also on a five year term.

Costa Coffee has exchanged an agreement for a lease to take a 2,000 sq ft unit and Primark has completed a 10 year lease renewal for its store at The Mall Camberley. Two further units totalling 2,150 sq ft have been let on five year terms to independent retailers.

An American diner and milkshake bar, has agreed to take a lease of one of the new restaurant units at the Kingfisher Shopping Centre in Redditch. Boots has also agreed terms for a five year lease renewal of its 1,350 sq ft optician store.

At the Waterside Shopping Centre in Lincoln, Jones the Bootmaker has taken a 10-year lease on a 2,000 sq ft unit and a cosmetics retailer is in legals to sign a 10-year lease on a 1,700 sq ft unit.

The Perfume Shop signed a new lease on a larger unit at The Mall Wood Green, whilst a mobile phone company has agreed to upsize to a 1,800 sq ft unit.

Footfall

The relevance and convenience of our schemes within their local communities, combined with the hard work of our specialist asset management teams, was reinforced by Capital & Regional's UK Shopping Centre's outperforming the benchmark footfall index by 2.7% for the year to date. Shopper numbers have increased by 2.4% over the first four months of the year compared with a decline of 0.3% in the benchmark index. Our investments in local marketing activity, websites, technology and Wi-Fi and a rebalancing of our tenant mix to include a greater leisure element will continue to draw customers to our centres to maintain and further improve footfall.

Occupancy levels

	31 March 2014	31 March 2013	31 December 2013
Retail occupancy (like for like)	%	%	%
UK Shopping Centres	95.4	95.4	96.3

There was no change in the level of occupancy during the first quarter, year-on-year. The reduction in occupancy since 31 December 2013 is primarily a result of a seasonal reduction in temporary occupancy.

Administrations

Reflecting overall trends across the UK, there were nine administrations in the Group's UK portfolio during the first quarter of 2014 compared to 13 during the same period last year, on a like-for-like basis. The level of passing rent affected in Q1 was £0.4 million which was £0.8 million lower than in Q1 2013.

UK Shopping Centres		3 months ended 31 March 2014	Year ended 30 December 2013
Administrations (units)		9	32
Passing rent (£m)		0.4	£2.0

There have been no further insolvencies in the UK Shopping centres during Q2.

There were no administrations in the German portfolio during the first quarter.

Rental income

Contracted rent (like for like)	March 2014	March 2013	December 2013
	£m	£m	£m
UK Shopping Centres	69.9	71.5	70.6
	€m	€m	€m
Germany	31.0	31.5	30.9

Capital & Regional's UK Shopping Centre business has seen a small reduction in contracted rent since December 2013. The reduction was primarily a result of the insolvencies that occurred during the first quarter of 2014 and the seasonal reduction in income from temporary tenants. Importantly, these factors were countered by a strong letting performance that is continuing to accelerate in the second quarter.

The German portfolio remained stable during the quarter to 31 March 2014. However the sale of Lübeck will result in a reduction of €3.4 million in the level of contracted rent.

Asset management and development

Construction work is well advanced at the Waterside Centre in Lincoln for the creation of the two units totalling 52,000 sq ft that are due to be handed over to H&M and Next at the end of June 2014. As this project advances, the improvements to the scheme will become more evident and this is expected to result in good lettings in the remaining development units.

At the Kingfisher Shopping Centre in Redditch, work on the Hub leisure project is close to completion. As mentioned above, Nando's is now open and trading ahead of expectations, while Real China has completed a lease of one of the other restaurant units and an American diner operator is in advanced legals and expected to exchange shortly. The remaining restaurant unit is being considered by a number of well-known restaurant brands.

The Group has now started the next phase of its asset management strategy, with the commencement of a £2.4 million project to refurbish the core area of the scheme around Evesham Walk and Worcester Square. This project will transform the appearance of the scheme and the retail space in these locations.

The Vodafone shop front has been upgraded at The Mall Walthamstow, as part of a scheme-wide project to refurbish the shop fronts and upgrade the flooring. In parallel, we are continuing with plans to create a new anchor store utilising part of the car park and working up our development plans to extend the scheme.

Disposals

The Group completed the sale of its last remaining leisure asset in the UK, Leisure World in Hemel Hempstead for £8.5 million, in February as outlined in our Annual report.

In Germany, the contract for the sale of Lübeck by the Group's joint venture became unconditional on 9 May 2014 with completion expected imminently. The Group's share of the net sale proceeds after repayment of the joint venture debt is estimated to be £4 million. This will be distributed back to the Group and will be recycled into the UK Shopping Centre business.

The sale of a smaller vacant German property at Kreuztal has been completed for €1.3 million. The marketing of a further tranche of seven assets with an aggregate valuation in excess of €100 million as at 31 December 2013 is also progressing well and has attracted encouraging interest from a wide range of domestic and international investors.

Financing

As indicated in our 2013 Final Results announcement the refinancing of The Mall Fund's £380 million CMBS is a significant priority. We have received terms from a number of debt funders interested in this opportunity and good progress has been made towards completing this refinancing.

The Group has firepower to make further accretive investments in the UK Shopping Centre business with cash of £19.1 million as at 31 March 2014 and no drawings outstanding on its £25 million revolving credit facility.

- ENDS -

For further information:

Capital & Regional:
Hugh Scott-Barrett, Chief Executive	Tel:  [phone]
Charles Staveley, Group Finance Director	Tel:  [phone]
FTI Consulting	Tel: [phone]
Stephanie Highett Richard Sunderland Will Henderson Aleka Bhutiani	Email: [e-mail]

 

Notes to editors:

About Capital & Regional plc

Capital & Regional is a specialist property company with a strong track record of delivering value enhancing retail and leisure asset management opportunities across a £1.2 billion portfolio, primarily in town centre shopping centres.

Capital & Regional founded The Mall in conjunction with Aviva Investors. Capital & Regional acts as Property and Asset Manager for the Mall and holds 29.3% of this fund.

Capital & Regional & Ares Management 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 has a number of other joint ventures.  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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