Intu mixes optimism with pessimism, times are tough but top malls are strong
The enormous challenges facing the UK shopping centres sector were made very clear on Wednesday as malls giant Intu Properties reported a less-than-stellar performance and said it would look at disposing of some assets in order to cut its debt.
But it mixed both pessimism and optimism in its report, bemoaning the Brexit effect on consumer confidence while also highlighting its focus on its most successful properties and how the best destination malls in the UK should continue to prosper.
The company owns many of the UK's key retail destinations (Merry Hill, Trafford Centre, Victoria Centre, Metrocentre, Lakeside and more) and also has a growing presence in Spain.
Its 2018 performance was hurt by the fact that a number of retailers were struggling leading to store closure plans. And of course, the on-off plan to merge with larger peer Hammerson and the on-off takeover approach by some of its largest shareholder also took its toll.
And it seems to be downbeat on some aspects of future UK retail for now. “We consider substantial sales in the UK as challenging until a political resolution on the Brexit issue is achieved,” Intu said.
It had no concrete info on its asset disposal plans but added that it has received a number of unsolicited offers in Spain, which it is currently looking at.
So what were the exact details of last year’s performance? Net rental income for the year fell to £450.5 million from £460 million a year earlier and this year’s figure should be down between 1% and 2%. Underlying earnings fell to £193.1 million from £201 million.
Not that it was all bad. In the last 12 months, like-for-like net rental income rose for the fourth consecutive year (although only by 0.6%), it enjoyed 97% occupancy and signed 248 new long-term leases.
CEO David Fischel called its performance “resilient” and said this “demonstrates how our centres differentiate themselves as winning destinations for retailers with their variety and excitement. We own and manage many of the best shopping centres, in some of the strongest locations.”
But there’s no denying that however well run a shopping centre is, property valuations are falling and property values for the year fell by 13.3% with a total revaluation deficit of £1,405 million.
Yet the company is still in a reasonably strong position. Fischel added: “Although sentiment in the retail sector is at an all-time low, the reality is that around 400 million shoppers visit our centres each year. As some 85% of all retail transactions still touch a physical store, demand from major retailers continues to be positive for our centres.”
New tenants in the year included Abercrombie & Fitch, Uniqlo, Bershka, and Monki, with established retailers such as Next, Primark, Zara and River Island all upsizing. Its tenants invested a record £144 million in their stores over the year, “a clear indication that these retailers see great physical space as a key part of a successful multichannel strategy,” Fischel said.
The on-going turnaround plans at retailers such as New Look and House of Fraser affected Intu last year, but not as much as they could have done. “As we operate in many of the top UK retail destinations where retailers want to maintain their best stores, we have been relatively unaffected,” Fischel said.
“The administrations and CVAs relate to around 6% of our passing rent. The majority of these (72%) have had minimal impact, with the retailers keeping their best performing stores in our portfolio open on the existing rent. Of the remainder, 9% are trading on discounted rents, 14% have closed and 5% have been re-let.”
The company also said it’s closely monitoring market trends and that looking at mall trends in the US offers some hope for the future.
It said significant retailer failures over the last 18 months still showed prime malls continuing to prosper while weaker malls suffered. “With the UK typically running some two years behind the US in terms of market trends, we would expect to see similar patterns emerge as the prime malls take market share from weaker locations,” it said.
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