Retail Landlords:

With shopping centres and high street retailers going through torrid times, so it’s hardly surprising at this time that Intu, one of their largest shopping centre owners, saw a large paper losses when their recent results were announced. A £1.4 bn paper loss on the diminution of its property values was recorded – its portfolio value went down 13.3 per cent to £9.2bn.

It’s been estimated that UK shopping centres currently account for around 27% of the £285 or more billion spent every year in the UK retail sector. Over 50% of the UK’s shopping population is estimated to visit a shopping centre every couple of weeks, a major attraction and a substantially credible alternative to the traditional high street and on-line shopping.

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Formerly known as Capital Shopping Centres Group, Intu are the owners of some of the biggest centres including the Trafford Centre, the Metrocentre, Gateshead, Lakeside Shopping Centre, West Thurrock and Arndale Manchester. Along with Hammerson, Land Securities, Hermes and Westfield these are large scale landlords owning a large chuck of Britain’s retail establishment.

So, with retailing going through what is perhaps the most difficult year in living memory, with consumer and investor sentiment weakened significantly, it is no surprise that these large scale commercial landlords are suffering at this time.

Shares in Intu were down around 10 per cent when the figures were announced as the value of its properties declined following a swathe of retail challenges, administrations and shop closures.

The turnaround has been dramatic for Intu, a FTSE 250 quoted PLC, with per share earning declining from 15p to 14.4p and the substantial losses coming after a couple of failed takeover bids last year, and down from profits of around £203m in the previous 12 months.

A £2.8billion proposed takeover led by property mogul John Whittaker’s Peel Group, one of Intu’s biggest shareholders, failed to materialise with Whittaker blaming the continuing uncertainty in retail and market volatility.

Retail industry expert Richard Lim, told City AM said that the problem for shopping centre owners such as Intu is that while “primary locations in large city centres and key regions continue to demand high and rising rental values, secondary markets with excess capacity and declining levels of footfall will remain weak, leading to a broad dispersion in market performance”.

Company boss David Fischel said:

“…intu has again delivered a resilient operational performance which demonstrates how our centres differentiate themselves as winning destinations for retailers with their variety and excitement. We own and manage many of the best shopping centres, in some of the strongest locations, in the UK and Spain.”

It is highly likely that landlords with retail properties in shopping centres and on the high street will have to come to terms with across the board falling retail property values and yet more potential for retailer administrations and shop vacancies.

©LandlordZONE® – legal content applies primarily to England and is not a definitive statement of the law, always seek professional advice.

1 COMMENT

  1. The only reason in my opinion that Intu’s portfolio and today Hammerson’s has been marked down and NAVs affected adversely is that valuers are being (told to be) less inclined towards valuation based yield-compression and more inclined – as really they should’ve been all along – to valuation based on prospects for rental growth. Capital growth and rents decoupled years ago but did valuers generally take any notice? No. Instead they persisted in assuming that buyers of shopping centres could be relied upon to continually overpay and for auction results to be treated as representative of the open market.

    In March 2014, I wrote about the reason behind inflated valuations in an article entitled “Valuation and Overpaying’ that may be found on my website at:

    http://www.michaellever.co.uk/newsletter/rrm/files/752210ff00b8d6db180843f8a7e3f35e-243.php

    I quote “what has happened is that not only has the way shop property is valued disconnected from fundamental principles, but also the banks and vested interests have create a market that is completely divorced from the reality of property itself.”

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