Tenant failures to dent Capital & Regional short-term results

CAPITAL & Regional, the listed UK-focused retail property real estate investment trust with a £1 billion (R18.45bn) portfolio of dominant community shopping centres, has confirmed that tenant restructurings or failures were a challenge to its short-term results.

Lawrence Hutchings, the chief executive of Capital & Regional, said yesterday that only a reasonably small proportion of occupier restructurings or failures announced in the year to date directly impacted its portfolio, but were expected to have a greater impact in the second half of the year.

However, Hutchings said they remained confident the combination of their in-house expertise and the strength and affordability of their underlying assets would enable the company to successfully remerchandise and evolve their centres to maintain positive momentum.

Hutchings said it had broadened the risk of threat from the Internet since the release of the company’s 2017 financial report to incorporate wider structural changes to the UK retail market.

He said the impact of these structural changes had been seen in the number of company voluntary arrangements (CVAs) and other restructurings in the six months to June.

The structural change risk to retail listed by Capital & Regional includes the trend towards online shopping, which may adversely impact footfall in shopping centres and potentially reduce tenant demand for space and the levels of rent that could be achieved.

Capital & Regional said there had been 12 CVAs involving national retailers or leisure operators across the UK this year, which affected 2 154 stores, of which 22 percent or 480 had been closed or marked for closure.

It said three of the CVAs involved tenants in 12 units across its wholly-owned portfolio, with only one unit closure.

The company said CVAs and insolvencies had a total impact on net rental income of £0.4 million in the six months to June and the full impact for the full year was expected to be about £1.2m.

Of this, £0.4m related to CVAs and £0.8m to insolvencies, it said. Net rental income from wholly-owned assets increased by 1.3 percent to £26m from £25m. A 5.2 percent increase in the interim dividend to 1.82p (34 cents) has been proposed from the 1.73p in the previous corresponding period.

Hutchings said the board continued to maintain its medium-term objective of dividend growth in a range of 5 to 8 percent a year.

“Given the short-term impact of CVAs or administrations, the board expects full year dividend growth in 2018 to be at the low end of this range,” he said.

Adjusted profit grew by 6.9 percent to £15.5m from £14.5m.

Occupancy improved to 96.9 percent from 95.5 percent in June last year, with £1.2m of rent reviews settled in the period across 10 leases, with nine of these agreed at an average increase of 2.2 percent.

Hutchings said there were 37.9 million shopper visits across the wholly-owned portfolio in the six months to June, representing like-for-like growth of 1.7 percent and another period of considerable outperformance of the national index, which was down by 3.4 percent.

He said this was further evidence of the resilience of Capital & Regional’s assets and the important role they played in fulfilling the needs of their local community together with the impact of the company’s strategy.

Shares in Capital & Regional, of which 8.9 percent were held on its South African register, closed 7 percent down on the JSE yesterday at R8.10.