UK shopping centre landlord intu last week issued a warning of a bigger drop in rental income this year as struggling retailers shut shops at a faster rate than expected.
The company said that Brexit uncertainties were also having an impact on letting demand and that it would suffer from a further rise in company voluntary arrangements (CVAs).
It is understood that the company failed to factor in potential shop closures by Debenhams and Arcadia as part of its previous forecasts. Debenhams recently revealed plans to shut 22 of its department stores. None on its current list are in Intu centres, the landlord said, but more are expected.
Debenhams accounts for 3% of Intu’s rent roll, with around 11 stores in its centres. Topshop owner Arcadia accounts for about 4% of its rents and is Intu’s second largest tenant after next with about 35 outlets.
“We expect the remainder of 2019 to be challenging due to a higher than expected level of CVAs and a slowdown in new lettings as tenants delay their decisions due to the uncertainties in the current political and retail environments,” Intu’s chief executive, Matthew Roberts, said.
“As such, we have revised our approach to how we guide towards our year-end like-for-like net rental income to factor in expected CVAs and have adjusted our 2019 guidance accordingly to minus four to six per cent,” he added.
Intu, which also owns the Merry Hill centre in the West Midlands, the Gateshead Metrocentre and Braehead in Glasgow, had previously forecast a drop of only -1% to -2%.
Roberts said Intu has seen a steady “drip” of CVAs having recent lost Giraffe, Paperchase and New Look stores. But he said: “Take a business like New Look, we lost a quarter of the stores we had with New Look...and what they’ve done is get rid of their loss making stores across the country, consolidated it down to a smaller chain, someone has put some money in and they’re now investing again back into our stores. So the New Look business is much healthier than it was two years ago and we’re benefiting from that.”
RPA Perspective The former finance chief said that tenants are also playing “a canny game. “They are thinking... well Intu may get some space back, why don’t we hang for three or six months and see if they’ll give us a cheaper rent than we might otherwise have taken.”
The company published the market update before its AGM on Friday.
Roberts said: “My priority is to reduce our loan to value to below 50% and our plans to achieve this are underway. Our recent sale of a 50% interest in intu Derby at book value is a positive first step in this regard.
Our operational performance in the quarter has been stable. We have continued to see good letting activity with 53 long-term leases signed amounting to £6 million of annual rent at an average of 1% above previous passing rent. These include new types of tenants such as Metro Bank at Manchester Arndale, exciting new catering concepts with Market Halls at intu Lakeside and an expanding leisure a climbing attraction.
“However, we expect the remainder of 2019 to be challenging due to a higher than expected level of CVAs and a slowdown in new lettings as tenants delay their decisions due the uncertainties in the current political and retail environments. As such, we have revised our approach to how we guide towards our year-end like for like net rental income to factor in expected CVAs. Despite the current operating environment, I believe we have a very good business and am confident we can meet the challenges we are facing head on.”
