Interim Management Statement

RNS Number : 7922G

Capital & Regional plc

18 May 2011

 

18 May 2011

Capital & Regional plc

Interim Management Statement

For the period from 31 December 2010 to 17 May 2011

Capital & Regional plc, the specialist property company today announces its interim management statement for the period from 31 December 2010 to 17 May 2011.

Highlights

The key highlights are:

·     Continued positive momentum on new lettings, lease renewals and rent reviews across all three UK funds at rents at or above ERV

·     Growth in net valued rental income in The Mall and The Junction and continued growth in the three UK fund property valuations during the first quarter

·     The Mall and X-leisure outperformed their IPD index for the first quarter and on a rolling 12 month basis

·     Outperformance against the national index for The Mall's footfall in the first four months of the year reflecting the well positioned nature of the portfolio

·     Strong retailer demand for space at The Waterside Shopping Centre in Lincoln

·     Capital distribution from The Junction Fund in April of £25 million - Group share £3.4 million

Hugh Scott-Barrett, Chief Executive, commented:

"Capital & Regional has delivered a robust operating performance in the first quarter of 2011.  Letting activity has gathered further momentum and the growth in underlying income has underpinned a further increase in property values across the UK fund portfolio.

I am delighted that good progress is being made in executing the asset management plan in Lincoln. This shows that our retailer led approach to acquisitions has the potential to create value for our shareholders in the medium term.

The challenging climate for our retail clients is set to continue. However, selective demand for space from value and fashion retailers in our shopping centres will continue to underpin income and support valuations in the second quarter."

Operating performance

The occupational performance of the three UK funds has been resilient in the first quarter given the challenging market conditions facing our retail tenants.

New lettings, renewals and rent reviews

There has been positive momentum on new lettings, lease renewals and rent reviews across the three UK funds during the first quarter, with estimated rental values ('ERV') remaining stable quarter on quarter:

·     New lettings were completed in 18 units for contracted rent of £1.3 million at 2.6% above ERV;

·     Lease renewals were agreed in 18 units for contracted rent of £0.5 million at ERV. Of these, 11 units contained turnover rent top ups; and

·     Rent reviews were settled in 44 units for new passing rent of £4.8 million, with an uplift to the previous passing rent of 6.0%.

During April 2011, there were six new lettings in The Mall for contracted rent of £0.8 million all at or above ERV. At the end of April there remains an encouraging pipeline of new letting opportunities for both The Mall and The Junction. Market conditions will drive the pace of letting activity, which may slow if the current challenging conditions persist.

Particular highlights include Sutton Coldfield where Sports Direct have taken 14,000 sq ft of  formerly unused first floor space for a new upsized store within the town, whilst Jones The Bootmaker have taken a new 4,000 sq ft store, marking their introduction to Sutton Coldfield.  In Wood Green, after fifteen months of successful trading, Primark have taken an additional two units totalling 4,700 sq ft, at rents in excess of ERV, thus extending their store to approximately 80,000 sq ft.  The letting underlies the strength of trading at Wood Green. In Uxbridge, we have secured an unconditional letting to Metrobank on a key 5,100 sq ft entrance unit.  This will be part of the first phase of the bank's introduction to London.  In Middlesbrough we have secured a letting to 99p stores involving a merger of four previously vacant units to create a single 8,200 sq ft unit.  The letting will reinvigorate a quiet part of the Mall whilst significantly reducing void costs.

Other key Mall lettings include Select in Walthamstow, Vision Express in Maidstone, JD Sports in Blackburn and Costa Coffee in Luton, whilst The Junction has made a significant letting to Boots at Thurrock.

In the three months since acquisition we have made good progress on delivering the business plan at The Waterside Shopping Centre in Lincoln. We are pursuing a strategy to satisfy retailer demand by creating two new large format units together with enlarging other units. Associated with these works, the mall environment and sight lines will be improved. We are currently in advanced negotiations with three leading fashion retailers to occupy the major space, and subject to successful conclusion of these discussions, we anticipate starting work in the fourth quarter of this year.

Rent collection rates (adjusted for tenants in administration) continue to be strong, with 97.8% of rent being paid within 30 days the due date, the same level as for December 2010.

Occupancy levels

Occupancy (like for like)	March 2010	December 2010	March 2011
The Mall	93.7%	95.9%	94.5%
The Junction	94.1%	96.9%	96.9%
X-Leisure	94.4%	95.3%	95.1%
UK funds	94.0%	95.9%	95.0%
Germany	98.1%	96.7%	95.9%

Occupancy across the three UK funds decreased from 95.9% at the year end to 95.0% at 31 March 2011 primarily due to the seasonal reduction in temporary lettings and a small number of administrations in The Mall.  The Mall occupancy of 94.5% at 31 March 2011 compares favourably to the occupancy of 93.7% at 31 March 2010 on a like for like basis.

Occupancy in the German portfolio decreased from 96.7% at year end to 95.9% at 31 March 2011 due to a lease break being exercised.

Administrations

	The Mall	The Junction	X-Leisure	UK
Administrations (units)	20	2	2	24
Passing rent (£m)	0.8	0.1	0.1	1.0
Re-let or still trading (units)	11	2	-	13
Passing rent still trading (£m)	0.5	0.1	-	0.6

There were 24 administrations in the three UK funds during the quarter with a passing rent of £1.0 million of which £0.6 million (60%) is still being received.  There have been no administrations in the German portfolio since year end.

Footfall

The Mall's footfall has outperformed the national footfall index, with an increase of 0.4% in shopper numbers over the first 19 weeks of the year compared to a decline of 0.8% in the national index reflecting the well positioned nature of the portfolio and growing evidence that people are shopping locally due to higher fuel costs.

Rental income

(a) Net valued rental income

There has been growth in net valued rental income during the first quarter, with an increase in The Mall of 0.8% from new lettings and lease renewals, and an increase inThe Junction of 3.1% from new letting activity, principally at the Maidstone and Thurrock retail parks. Net valued rental income for X-Leisure remained stable during the first quarter.

(b) Passing rent

Passing rent has increased by 0.1% across the UK funds and 0.7% in the German portfolio during the first quarter.

Passing rent (like for like)	September 2010	December 2010	March 2011
	£m	£m	£m
The Mall	86.4	88.0	87.5
The Junction	25.2	25.1	25.7
X-Leisure	40.0	40.7	40.7
UK funds	151.6	153.8	153.9
	€m	€m	€m
Germany	43.8	43.6	43.9

The fall in the Mall's passing rent of £0.5 million is due to the seasonal fall in income from temporary tenants and administrations, partially offset by additional income derived from new lettings. The increase in passing rent for the Junction of £0.7 million is due to the expiry of rent free periods and letting activity.

The increase in passing rent for the German portfolio of €0.3 million is due to rent indexation offset by a lease break being exercised at the start of the year. The German portfolio continues to generate a strong operating cash return for the first quarter.

(c) Contracted rent

The Mall had a further £5.7 million of contracted rent at 31 March 2011 which is not included in the passing rent figures above. The Junction had an additional £1.4 million of contracted rent and X-Leisure had an additional £0.2 million contracted rent.  During April 2011 new lettings in The Mall increased contracted rent by a further £0.8 million.

Financial review

Fund valuations

On 18 April 2011 we announced the first quarter UK fund valuations which were:

Fund	Valuation of    properties	Underlying valuation change in period	Change in unit value (geared) in period	Net initial yield	Unit value at 31 March 2011	Unit value at 31 December 2010	C&R percentage of fund
The Mall Fund	£1,090,750,000	1.0%	4.6%	6.93%	£0.4286	£0.4100	16.7%
The Junction Fund	£433,516,000	3.2%	9.4%	5.68%	£0.3342	£0.3053	13.4%
X-Leisure Fund	£540,700,000	2.4%	5.1%	6.84%	£0.3245	£0.3087	11.9%

There has been positive growth in the underlying valuations and unit values for all three funds during the quarter. The valuation growth has been driven by net valued rental income uplift from new lettings and lease renewals in The Mall and The Junction as mentioned above and an inward yield compression of 18 basis points in X-Leisure.

The X-Leisure fund, which carries out monthly valuations, reported a property valuation as at 30 April 2011 of £543.6 million at a net initial yield of 6.83%, slightly up on a like for like basis from the March valuation.

IPD index performance

The Mall outperformed the IPD shopping centre index for the first quarter by 0.7% with a total return of 2.8%, and on a rolling 12 month basis to 31 March 2011 had a total return of 19.6% compared to the IPD index of 12.9%.

X-Leisure outperformed the IPD leisure index for the first quarter by 1.1% with a total return of 4.1%, and on a rolling 12 month basis to 31 March 2011 had a total return of 16.1% compared to the IPD index of 13.8%.

Property acquisition

The Group completed the purchase of The Waterside Shopping Centre in Lincoln in February 2011 for £24.8 million at a net initial yield of 7.68%. In April 2011, the Group sold a 50% interest in The Waterside Shopping Centre to Karoo Investment Fund II S.C.A. SICAV-SIF ("Karoo").

Property disposals

There have been the following property disposals since year end:

·     The Mall Bristol was sold in January 2011 for £50.2 million at a net initial yield of 7.0%; and

·     The Junction sold the Ocean Retail Park in Portsmouth in March 2011 for £60.9 million at a net initial yield of 5.81%

Financing

The Mall repaid debt of £55.0 million with the proceeds from the sale of Bristol and the cash sweep, leaving outstanding debt of £772.7 million at 30 April 2011.

The Junction repaid debt of £31.7 million with the proceeds from the sale of Portsmouth, leaving outstanding debt of £257.5 million at 31 March 2011.

X-Leisure made debt amortisation payments of £0.1 million leaving an outstanding debt of £298.2 million at 31 March 2011.

The German portfolio made debt amortisation payments of €2.1 million leaving an outstanding debt of €469.3 million at 31 March 2011. As described in the 2010 Annual Report, the €164.0 million debt in one of the German portfolios matures in July 2011. The Group and the German joint venture partner acquired €18.0 million of this debt at a discount shortly before the 2010 year end reducing the refinancing risk. As anticipated as part of the refinancing process a covenant breach has been triggered in April 2011 and a standstill agreement has been agreed for a period until 14 July 2011. We continue to have a constructive dialogue with the loan servicer on extending the maturity of the debt and we remain confident of a successful outcome.

There has been no drawdown on the £58.0 million central credit facility and as at 30 April 2011 the group held cash of £20.9 million.

- 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 16.7% 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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