RECORD RETAILER DEMAND AND STRONG OPERATING PERFORMANCE
David Fischel, intu Chief Executive, commented:
“Our prime shopping centres produced a strong first quarter with lettings at increased rents, high occupancy and footfall exceeding the comparable period* last year, with footfall significantly and consistently outperforming the ShopperTrak national retail benchmark over the last five years.
It was a record three months for retailer demand as we signed 60 new leases, with high quality names increasing their presence with intu and great new brands coming to our shopping centres for the first time. This includes flagship retailers Zara and River Island trebling and doubling their space respectively at intu Lakeside and Abercrombie & Fitch choosing intu Trafford Centre for its first UK store outside London.
Our prime centres continue to outperform as retailers and shoppers gravitate towards the best locations. We have a very concentrated portfolio. Over 80% of our UK gross asset value is comprised of 10 centres, all PMA ranked top-25 UK centres and some of the largest and most popular retail and leisure destinations in the country.
We continue to see growth opportunities for our £10 billion UK portfolio. We have a substantial ongoing investment programme that will see us open our £180 million extension at intu Watford later this year and the £72 million leisure extension at intu Lakeside next year, with lettings proceeding strongly in both cases. We are also planning to invest over £560 million in our UK centres over the next three years.
Our well-timed entry into the Spanish market continues to offer significant upside as the country's economic recovery continues, both from the three top-10 centres we currently own and from our plan to begin construction in the next 12 months of a £600 million world class retail resort near Málaga.
All this development activity is underpinned by a robust financial structure with cash and available facilities of £872 million and an active capital recycling programme.
As a result of this strong performance, we reiterate our guidance for like-for-like net rental income growth both for the current financial year, subject to no further material tenant failures, and over the medium term.”
* First quarter excluding the two weeks commencing 18 February 2018 impacted by severe snow
Highlights in the period:
· Record level of retailer demand in the first quarter with 60 long term leases agreed (43 in the UK and 17 in Spain) for £10 million of annual rent, 5 per cent above previous passing rent
· Sustained high occupancy of 96.1 per cent (March 2017: 95.8 per cent), unchanged from 31 December 2017
· Increased footfall year-on-year to date, excluding the periods of severe snow, by 1.5 per cent in the UK and continuing to outperform the UK benchmark
· Anticipated growth in like-for-like net rental income for the year continues to be in the range of 1.5 per cent to 2.5 per cent, with the outcome expected to be stronger in the second half than the first half
· £180 million intu Watford extension on target to open in October 2018 and anchored by Debenhams and Cineworld. Further letting in the period to Jack Wills and The Florist, taking pre-lets to 70 per cent
· Completed the disposal of 50 per cent of intu Chapelfield for £148 million, in line with the December 2016 market value
· Cash and available facilities of £872 million and debt to asset ratio of 45.3 per cent at 31 March 2018 (based on 31 December 2017 investment property valuations)
· Market movements in the fair value of debt and financial instruments since the year end have positively impacted net assets (and thereby NNNAV) by around £180 million
Delivering operational excellence
We had record letting activity in the quarter, with 60 long term leases signed representing £10 million of annual rent (Q1 2017: 42 leases; £6 million of annual rent). In aggregate, these were 5 per cent above previous passing rent. Signings in the period include:
· key flagship fashion retailers ensuring they optimise their store size in prime high footfall destinations. At intu Lakeside, Zara and River Island are both upsizing, trebling and doubling their space respectively
· international brand Abercrombie & Fitch to open only its second UK store at intu Trafford Centre
· aspirational brands continuing to open stores in our regional centres with Jo Malone opening at intu Lakeside and The White Company at Cribbs Causeway
· leisure operators recognising the attraction of regional destinations with Rock Up, a climbing experience for all ages, set to open at intu Watford
Tenants have opened or are shop fitting 61 stores year to date, including the 78,000 square foot Next flagship store at intu Metrocentre which opened in March, another example of a major retailer recognising the importance of flagship stores in their multichannel strategy.
We settled 24 rent reviews in the period for new rents totalling £8 million, an average uplift of 8 per cent on the previous rent.
Footfall in the period, excluding the periods of severe snow when some centres were closed, increased by 1.5 per cent in the UK. Over the Easter period, footfall was up by 7 per cent against the Easter period in 2017 demonstrating the attraction of day out retail and leisure destinations.
Unprompted awareness of the intu brand increased to 29 per cent (December 2017: 26 per cent), with prompted awareness increasing to 75 per cent (December 2017: 71 per cent).
intu.co.uk, our premium content publisher and shopping platform, delivered a 31 per cent increase in sales for retailers against the same period in 2017.
Growing like-for-like net rental income
Anticipated growth in like-for-like net rental income for 2018 continues to be in the range 1.5 per cent to 2.5 per cent, subject to no further material tenant failures, with the outcome expected to be stronger in the second half than the first half.
Since the end of 2017, a number of administrations and restructurings have been initiated by tenants, including New Look, Toys R Us and Prezzo. The majority of our units with these operators are still trading as the tenants go through their restructuring processes.
The estimated impact of these administrations and restructurings is approximately £3.9 million in 2018, equivalent to 0.8 per cent of our 2017 net rental income. This is before we take any mitigating actions to find quality replacement tenants and reduce property operating expenses to minimise the impact of any closures. Our like-for-like net rental income guidance is inclusive of the effect of these administrations and restructurings.
As previously stated, we expect to deliver medium term like-for-like net rental income growth of 2 to 3 per cent per annum, over the next three to five years.
Optimising our flagship destinations
We remain on target with two major development projects on-site.
At intu Watford, the £180 million extension is scheduled to open in October 2018 and we have exchanged on 70 per cent of the space, with Jack Wills and The Florist signing in the period. A further 7 per cent is in detailed negotiations.
The £72 million Nickelodeon anchored leisure development at intu Lakeside, which is expected to substantially strengthen the centre through increasing catchment and footfall, is due to open in Spring 2019 and is progressing well, with 85 per cent of the space exchanged.
In Spain, following last year's acquisition of Madrid Xanadú, we are successfully delivering our shopping resort concept with ongoing active asset management projects, introducing an aquarium and Nickelodeon theme park. These will augment the attractions of the centre, which already includes an indoor ski slope and a compelling mix of retail and catering.
Making smart use of capital
In January 2018, we completed the disposal of 50 per cent of intu Chapelfield for £148 million, in line with the December 2016 market value. Further, we have agreed a £74 million debt facility on our remaining interest in intu Chapelfield.
Cash and available facilities at 31 March 2018 were £872 million.
In April 2018, we amended and extended our €225 million term loan secured on Puerto Venecia, Zaragoza. The margin on this loan was reduced by 120 basis points and the maturity date extended from 2019 to 2025.
Market movements in the fair value of debt and financial instruments since the year end have positively impacted net assets (and thereby NNNAV) by around £180 million.
intu's key strengths
· intu is the UK's leading owner, manager and developer of prime regional shopping centres
intu has a portfolio that comprises some of the largest and most popular retail and leisure destinations in the country, owning four of the top-10 PMA ranked shopping centres and eight of the top-20, with our assets set out in the chart below.