Intu upbeat over rental income growth at malls

JSE-LISTED UK shopping centre owner Intu Properties is confident it will achieve net rental income growth of between 2% and 3% this year, but its expansion plans have drawn caution from at least one analyst.

Intu, which with a market capitalisation of R85.5bn is the largest real estate investment trust listed on the JSE, reported in a trading update for the first quarter of this year that its year-on-year footfall had risen 1.4% by the end of March.

Tenant occupancy was at 95.3% across its portfolio, compared with 94.3% at the end of March last year.

This was down from 95.8% at the end of December last year, reflecting seasonal fluctuations since Christmas, according to Intu.

CEO David Fischel said that Intu’s malls were still in a healthy position despite volatile markets and negative investor sentiment.

“Encouragingly, we have seen little impact on customer flow into our shopping centres or tenant interest for space, which remains very positive despite financial markets being volatile ahead of the European Union (EU) referendum vote on June 23,” Mr Fischel said. UK citizens will vote to stay in or leave the EU.

“Global investors continue to look actively at prime regional shopping centres in the UK, focusing on the quality income streams provided by this asset class,” he said.

Alternative Real Estate Capital Management fund manager Garreth Elston said that Intu’s quarterly trading update was “a mixed bag” for investors. “The increase in footfall was positive, but the occupancy decline is concerning,” he said.

“The positive reports from Intu’s Spanish operations are encouraging, but we remain concerned that the company has expanded a little too aggressively, given current market volatility,” Mr Elston said.

“Despite the fact that the company is trading at a substantial discount to its net asset value, concerns linger that Intu’s development pipeline is a little too large, and when coupled to their high-leverage levels, we view the company as being on risky ground, especially in the volatile UK and Spanish markets, dealing with Brexit and Spain’s political deadlock, respectively,” Mr Elston said.

Intu said its UK expansion plan was on track.

Eleven new restaurants were opened at Intu Metrocentre, extending its leisure area.

This £17m redevelopment brought new brands, such as Five Guys, TGI Fridays, and Barburrito to the centre, and delivered an initial yield on cost of more than 8%.

A restaurant development at Intu Eldon Square was scheduled to open in October, with 92% of the project having been let.

At Intu Watford, Mr Fischel said the demolition of the “outdated” Charter Place precinct adjacent to the centre had been completed.

“We have commenced the fixedcost building contract for the £180m extension. Nearly 60% of the new space is under offer,” he said.

Intu has recently expanded into Spain, acquiring two malls and also has two development sites.

Mr Fischel said its Spanish malls were performing well.

“Our centres continue to perform well in the improving Spanish economy, and we have achieved quality new letting at both centres at improved rental levels. Year-on-year, footfall and retailer sales were up 2% and 4%, respectively,” he said.

andersona@bdlive.co.za

We remain concerned that the company has expanded a little too aggressively given current market volatility

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