Intu looks to second-half improvement
Owner of shopping centres in Britain and Spain confident its prospects will pick up after first-half like-for-like net rental income dips
Intu Properties’ CEO David Fischel is confident that the group’s prospects will improve in the second half of its 2017 financial year as confidence and clarity return to the British economy.
First-half like-for-like net rental income for the owner of shopping centres in Britain and Spain fell 1.5% in line with previous guidance which Intu gave the market.
After increases of 1.8% in 2015 and 3.6% in 2016, like-for-like net rental income fell 1.5% in the period, against a strong comparative 7.5% increase for the first half of 2016.
"Intu has performed robustly over the six-month period in a UK retail environment which continues to be challenging. Retail brands are being selective in their expansion, looking at established locations such as our 17 prime shopping centres, which are attracting high foot-fall through their differentiated offering and compelling customer experience," said Fischel.
Intu’s tenants had been resilient, which was shown in the company’s centres having recorded 103 lettings in the period at 7% more than previous passing rents, said Fischel.
This included brands such as Next, River Island, Hugo Boss, Gant, Paul Smith, Victoria’s Secret and Tesla.
"Also our tenants continue to invest in enlarging and upgrading their units, which has resulted in maintained high occupancy," said Fischel.
Intu’s £679m development programme in the UK was progressing on schedule, with the £180m Intu Watford extension remaining on target to open in autumn 2018.
The group would soon start on the £71m Intu Lakeside leisure extension, which was nearly fully let to tenants including Nickelodeon, Hollywood Bowl and many restaurants, Fischel said.
The group’s Spanish business continued to perform well and Intu had come to own three of the country’s top 10 shopping centres by size.
"During the period we acquired Madrid Xanadú for €530m, a centre which has strong leisure attractions, including an indoor ski slope, an aquarium and a Nickelodeon theme park attraction under construction.
"We have a clear strategy to deliver long-term value to shareholders and, with cash and available facilities amounting to £920m, we have significant flexibility to pursue opportunities as they arise in the UK and Spain," said Fischel.
More capital could be deployed in Spain when opportunities arose.
Craig Smith, head of research at Anchor Stockbrokers, said Intu and other British property groups had been affected by the Brexit referendum.
However, Intu operated outside of London to a greater extent, which meant it was possibly less exposed to any negative sentiment owing to the effects of Brexit.
"Brexit has created uncertainty in the UK and some corporates in the financial sector looking to potentially relocate certain functions to mainland Europe and this has had a material negative impact on UK-focused listed property companies," Smith said.
"Direct property yields, however, haven’t really reacted and pricing is still holding firm.
"My overall view is that prime properties in UK are expensive on a risk-adjusted view, in spite of spread between prime property yields and bond yields. However, there are possibly opportunities in alterna-tive real estate asset classes such as last-mile logistics, student housing, data centres and storage," Smith said.