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Intu says too early to tell what impact Brexit will have

Intu says its NAV (adjusted and diluted) barely changed (up to 405p from 404p) and like-for-like net rental income increased by 7.5 per cent in the first six months of 2016, reflecting increased occupancy, improving rental levels from new lettings and rent reviews and the benefits of unit reconfigurations. They signed 98 long-term leases (82 in the UK and 16 in Spain) for GBP17 million new annual rent at an average 7 per cent above previous passing rent and in line with valuers’ assumptions. They increased occupancy to 96.1 per cent through demand for new lettings (30 June 2015: 95.1 per cent). Footfall increased by 1.3 per cent, compared to a 1.7 per cent fall in the national Experian retail average; estimated retailer sales in their centres increased by 0.2 per cent. Intu says it has a strong pipeline of new lettings with 106 leases in solicitors’ hands, of which 27 have exchanged since the outcome of the EU referendum vote.

In the UK Intu spent GBP23 million in the period on active asset management projects including the completion of the catering developments at intu Metrocentre (nine restaurants) and intu Bromley (five restaurants), both projects opening fully let. They say they are on target for opening 20 new restaurants at intu Eldon Square in Autumn 2016 with 19 pre-let and they have completed the demolition work and signed and commenced the main contract for the GBP178 million extension of intu Watford. Intu also agreed a contract with Parques Reunidos to create a 50,000 sq. ft. Nickelodeon themed indoor family entertainment centre to anchor the GBP70 million leisure extension at intu Lakeside.

In Spain, occupancy remained strong at our two existing completed centres, with footfall and retailer sales both up 2 per cent in the period. They signed 16 new leases at 16 per cent above previous passing rent and saw an increased market value of both centres in the period with intu Asturias up 8 per cent and Puerto Venecia up 4 per cent.

Intu acquired the remaining 50 per cent interest in the intu Merry Hill estate in June 2016 for GBP410 million enabling them to accelerate re-engineering the retail, catering and leisure mix to unlock the full potential of this centre and disposed of their interest in Equity One in January 2016 for GBP202 million, completing its exit from the US.

Intu had cash and available facilities of GBP564 million at 30 June 2016 (31 December 2015: GBP588 million) and a weighted average debt maturity of 7.2 years, with only GBP168 million of refinancing required through to the end of 2017. They also have substantial headroom on their debt covenants. By way of an example, a 25 per cent fall in capital values and 10 per cent fall in income would only require an equity cure of GBP84 million. The weighted average unexpired lease term is 7.7 years.

The property valuation surplus of GBP5 million for the six months includes a like-for-like surplus of GBP55 million (0.6 per cent). The industry monthly retail index decreased by 1.1 per cent over the same period. Stamp duty on UK commercial property increased in the period from 4 per cent to 5 per cent and both intu and IPD figures are stated after a 1 per cent negative impact as the valuers have reflected this change in their purchaser’s cost assumptions. The GBP55 million like-for-like surplus was offset by a GBP44 million reduction in the value of the Charter Place extension to intu Watford. They expect this reduction to reverse as the development progresses, particularly once intu Watford and Charter Place are valued as a single asset rather than separately, as at present. The valuation of intu Watford does not, at this point in the development of Charter Place, reflect any of the positive impact of the extension on rental values of the existing centre.  They have estimated this impact at 1 to 2 per cent of the overall project costs.

In addition to the GBP5 million surplus, they recorded a GBP35 million gain on acquisition of the remaining 50 per cent of intu Merry Hill, with the terms reflecting their favourable position as the owner of the other half. In recognition of the uncertainty resulting from the EU referendum outcome, the valuers have included the following statement in their valuation reports. ‘Since the referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the market place. The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced.’ Intu say “It is too early for the full consequences of the EU vote to emerge, although the likelihood of macro-economic weakness has increased. However, since 23 June 2016, our footfall has been in line with the first six months and we have continued to engage with tenants on new space and sign leases, exchanging 27 leases.”

intu : Intu says too early to tell what impact Brexit will have

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