CAPITAL SHOPPING CENTRES
The old Liberty International back in the black
RESULTS ANNOUNCED last week by mall owner Capital Shopping Centres (CSC) in Britain – formerly known as Liberty International – confirm consumers in Britain are beginning to spend again. The first set of interim results published since Liberty International’s shopping centres were split from its smaller, central London-focused business Capital & Counties in May show the company has finally returned to profit following Britain’s twoyear property slump.
In the six months to end-June this year CSC increased its underlying earnings by 28%, while the market value of its property portfolio was up 6% to £4,9bn (around R56,1bn). CEO David Fischel says it appears retail sales in Britain are on the mend, which is prompting retailers to again start expanding their footprints. Fischel says national retailers such as food store Primark, fashion chain Next and electronics giant Apple are all looking to expand their existing outlets at many of CSC’s regional malls, including the likes of Lakeside (near London) and Metrocentre (Gateshead).
Analysts have described CSC’s results as favourable. Macquarie First South Securities property analyst Leon Allison says its progress on the letting front is a stand-out feature of its results. Allison notes that in the six months to June, CSC had signed 131 lettings at passing rentals up a hefty 38% on levels previously fetched for those units. A further 194 lettings are under offer, with rentals an impressive 53% higher than before. Albeit off depressed levels, Allison says strong rental reversions will provide a key underpin for growth. There’s also been a shift towards more long-term leases.
Other positives include steadily rising occupancy levels, with the portfolio vacancy down from a high of 6,4% in December 2008 to less than 2% currently. Allison says tenant failures continue to decrease, with first quarter 2010 tenant failures at their lowest level in four years.
However, Allison says investors shouldn’t expect fireworks from CSC over the next 12 to 24 months. “Concerns remain the British government’s austerity measures and the rise in the VAT rate from 17,5% to 20% from 1 January next year could slow Britain’s economic recovery and consumer spending.”
He’s placed a neutral recommendation on the stock. “Although there’s reasonably good potential for CSC to show earnings and dividend growth off a low base over the next 12 months, the stock currently looks fully priced at a dividend yield of 4,4%.”
Allison notes other London-listed property counters, including British Land, are trading at a more attractive yield of 5,7% and a larger discount to NAV and therefore currently show more value than CSC.
However, Allison says CSC remains an easy entry point for SA investors wanting to gain exposure to Britain’s real estate market without having to use their off- shore allowance.
Keith Crawford, analyst at Londonbased KBC Peel Hunt, says CSC’s portfolio of 13 regional shopping centres remains Britain’s best quality shopping offerings. However, he cautioned in an issue of London’s
Financial Times last week that the consumer spending outlook in Britain isn’t all that rosy with the potential of a renewed downturn after Britain’s government announced huge public sector spending cuts. Inflation worries are also growing and taxes are set to increase.
Says Crawford: “The easy gains of passive yield shift have now come to an end and – as a result of CSC’s exposure to retailer occupier markets – future performance may lag other leader stocks.”
LAKESIDE NEAR LONDON