Shopping centre owner Intu has warned that rental income in 2019 is likely to fall by nine per cent, with more than half the decline coming from Arcadia and Monsoon’s CVAs.
The shopping centre giant said rent in 2020 was also expected to drop, but at a slower rate than 2019, and added that the political and economic uncertainty was putting off current tenants from signing up to new lettings. However, Intu insisted it was performing ahead of its rivals and only expects a further impact this year if any write-offs are required due to more retail failures.
“Although new lettings and rent reviews are still positive overall, CVAs in the period were slightly worse than expected and the political and economic uncertainty is causing customers to delay new lettings, with letting activity in the third quarter slower than forecast and at a lower level than 2018,” Intu said in a statement. We anticipate that like-for-like net rental income for 2019 will be down by around nine per cent, with more than half the reduction coming from the impact of CVAs such as Arcadia and Monsoon.”
CVAs have been used by several retailers to reduce rents or end leases early so as to shut down stores. It involves landlords voting to cut bills to avoid a full-scale collapse of the retailer seeking a reduction. Beyond the CVA issues, Intu said customers were well-financed and it continues to attract top brands to its sites, which include Lakeside in Essex, the Metrocentre in Gateshead and the Trafford Centre in Manchester.
“In the last quarter, we have continued to face challenging market conditions along with the rest of the sector. In particular, CVAs were slightly worse than expected. In the face of these challenges, there is much that gives me confidence about Intu. Many of our top customers are global, well-capitalised businesses and, having visited 17 Intu centres in recent weeks, there is a very different feeling on the ground to the one we read about regularly. While letting activity has been slower in the third quarter as some customers delay decisions due to continued political and economic uncertainty, we are still signing a good number of new deals with great brands.” – Chief Executive – Matthew Roberts said
Harrods recently took a 23,000sq ft site at Lakeside and Zara signed up for a new flagship store at St David’s in Cardiff. Roberts also revealed that he has been meeting the chief executives of Next, Primark and Sports Direct to improve Intu’s working relationship with the retailers.
Overall, footfall was up 1.2 per cent in the three months to September 30, with £5 million of new rent coming in. However, occupancy levels fell from 97 per cent to 95.1 per cent so far this year, with leases averaging 6.5 years versus 7.4 years in 2018. Intu is also sifting through a massive debt mountain and has vowed to sell off £2 billion of assets to shore up its balance sheet.