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Flat 2017 for Intu despite Brexit worries

Intu Properties updates on possible takeover

Flat 2017 for Intu despite Brexit worries – Intu has announced results for the year ended 31 December 2017. Highlights were NAV (adjusted and diluted) rising from 404p to 411p as the market value of their investment properties rose from £9,985m to £10,529m. Net rental income was up to £460m from £447m but underlying earnings per share were flat at 15p. The dividend was maintained at 14p. Intu’s debt to assets ratio rose to 45.2% from 43.7%.

They say:

  • the increase in net rental income of GBP13 million includes strong like-for-like recovery in the second half of the year with growth of 2.4 per cent, delivering full year like-for-like growth of 0.5 per cent
  • growth in the second half of the year took full year underlying earnings to GBP201 million, ahead of 2016
  • increase in Spanish valuations was partially offset by a small fall in UK values, delivers a property revaluation surplus of GBP47 million
  • increased profit for the year by GBP31 million to GBP203 million primarily from the property revaluation surplus (movement of GBP111 million against the deficit in 2016), partially offset by one-off GBP74 million gain on disposal in 2016
  • a total financial return for the year of 5.2%
  • substantial cash and available facilities of GBP833 million on a pro forma basis (31 December 2016: GBP922 million), reflecting the GBP148 million disposal of 50 per cent of intu Chapelfield, Norwich

Delivering attractive long-term total property returns from strong, stable income streams

  • increase in like-for-like net rental income of 0.5 per cent, a third successive year of growth. Former BHS stores substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo
  • signed 217 long-term leases (2016: 214) – 179 in the UK and 38 in Spain – delivering GBP38 million of annual rent at an average of 7 per cent above the previous passing rent (2016: 4 per cent) and in line with valuers’ assumptions
  • rent reviews settled in the year on average 9 per cent above previous passing rent (2016: 8 per cent)
  • occupancy stable at 96.1 per cent (December 2016: 96.0 per cent)
  • footfall increased by 0.1 per cent outperforming the national ShopperTrak retail average which fell by 2.8 per cent

Delivering UK developments

  • capital expenditure of GBP184 million in the year including GBP63 million on the extension of intu Watford and GBP58 million on the acquisition of income generating properties which will form part of future capital projects
  • the GBP180 million intu Watford extension is on target and on budget to open in October 2018 with pre-lets well advanced
  • commenced the GBP72 million Nickelodeon-anchored leisure scheme at intu Lakeside; completed the leisure line-up by signing Hollywood Bowl, Puttshack and Flip Out
  • near-term committed and pipeline capital expenditure for the next three years of GBP562 million, with intention to start intu Trafford Centre (Barton Square – GBP72 million) and intu Broadmarsh, Nottingham (GBP81 million) projects in 2018

Making the brand count

  • unprompted awareness of the intu brand increased to 26 per cent (2016: 22 per cent), with prompted awareness increasing to 71 per cent (2016: 63 per cent)
  • net promoter score, their measure of customer service, consistent at around 70 throughout the year
  • intu Experiences, their dedicated promotions business, generated income of GBP22 million, equivalent to the rental income of intu’s seventh largest centre
  • intu.co.uk delivered sales for retailers of GBP9 million, a 50 per cent increase on 2016
  • achieved their 2020 target of a 50 per cent intensity reduction in carbon emissions three years ahead of plan

Seizing the growth opportunity in Spain

  • Creating a business of scale through acquisitions and development projects
  • acquired Madrid Xanadú, one of Spain’s top-10 shopping centres, for a headline price of EUR530 million, and introduced TH Real Estate as a 50 per cent joint venture partner
  • signed 38 long-term leases delivering GBP2 million of annual rent at an average of 25 per cent above previous passing rent
  • occupancy stable at 97 per cent and footfall up 1 per cent, which includes the disruption from the intu Asturias mall redevelopment in the year which has now successfully completed
  • revaluation surplus of GBP98 million in Spain from intu Costa del Sol land (GBP74 million) and existing centres (GBP24 million) with intu Asturias up 11 per cent and Puerto Venecia up 4 per cent, driven by growth in rental values
  • at intu Costa del Sol, their proposed 230,000 sq m shopping resort development, they say approval of the General Plan of Torremolinos was a major step forward. The remaining consents are expected in the coming months

David Fischel, intu Chief Executive, commented: “The underlying strengths of the intu business were much in evidence in 2017 as we recorded a robust overall performance, confounding the external gloom and negativity in pre-Brexit UK about retail and retail property. 

We recorded a strong year of leasing activity, signing 217 long-term leases in the UK and Spain, at rents in aggregate 7 per cent ahead of previous rents, as retailers continue to focus on increasing their space in prime, high footfall retail and leisure destinations such as our shopping centres. 

During the year, major flagship brands upsized and optimised their presence, with the likes of Primark, Next and River Island taking additional space in our centres, and Inditex and H&M expanding their brand portfolios with us. Major international brands have also continued to recognise the attraction of our centres, including Victoria’s Secret (US), Lovisa (Australia), Colette (Australia) and Inglot (Poland) adding new stores. 

This successful leasing performance has driven our third successive year of like for like net rental income growth, a key strategic priority for us. Following increases of 1.8 per cent in 2015 and 3.6 per cent in 2016, we have delivered a 0.5 per cent increase for the year overall, with a strong second half recovery with growth of 2.4%. Consequently, we reiterate our medium-term guidance, over the next three to five years, of 2 to 3 per cent like-for-like net rental income growth per annum and expect to be in the range of 1.5 to 2.5 per cent like-for-like net rental income growth in 2018. 

Our asset performance was resilient in the UK and buoyant in Spain, resulting in a revaluation surplus of GBP47 million, which in turn drove an increased profit for the year of GBP203 million (2016: GBP172 million) and took net asset value per share from 404 pence to 411 pence. Other key performance indicators, such as 96 per cent occupancy and increased footfall for the year, also demonstrated that intu is in good shape. 

We moved on at pace with our investment plans, with significant projects underway at intu Watford, intu Lakeside and a number of other centres. In the UK, we spent GBP184 million during the year and have plans to invest a further GBP562 million over the next three years, with plenty of opportunity beyond that period, at returns we anticipate to deliver significant enhancement to shareholder value. 

Our successful asset recycling initiatives have continued as we concluded terms for the GBP148 million disposal of 50 per cent interest in intu Chapelfield, following our disposals of intu Bromley and part of intu Uxbridge in previous years, all on terms confirming the market values of these assets. 

We continued to seize the substantial growth opportunity we see in Spain and acquired Madrid Xanadú in the year, a centre full of potential and an ideal fit for our shopping resort model in Spain. With three top 10 shopping centres in the country, our Spanish business, which we embarked upon in 2013 at an opportune moment in the cycle, delivered a tremendous performance during the year with continued high occupancy, increased footfall and valuations of intu Asturias and Puerto Venecia, Zaragoza increasing 11 per cent and 4 per cent respectively. We also welcomed new names to our centres, including Quiz, Levis, Pandora, Alcott and Xiaomi, signing 38 new leases at an average 25% ahead of previous passing rent. 

Five years on from launch, the importance of the intu brand has continued to grow with customer awareness increasing considerably. The transaction between Hammerson and intu is expected to complete later this year and, as announced in December, the enlarged group will be using the intu name within its shopping centre business. 

These results are an endorsement of the underlying strength of the intu business. Our active asset management, repositioning of the portfolio, investment in our centres and brand in recent years have put intu in a strong position to mitigate the continuing challenging business environment. Because of this, we remain confident in our future prospects and our ability to deliver further like-for-like rental growth in the year ahead.”

INTU :  Flat 2017 for Intu despite Brexit worries

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