Last checked at 19 May 2009 07:32
19 May 2009
Capital & Regional plc
Interim Management Statement
Capital & Regional plc, the co-investing property asset manager, today presents its first interim management statement for 2009.
Highlights
The key highlights since 30 December 2008 are:
Hugh Scott-Barrett, Chief Executive, commented:
"In the short time since the announcement of our 2008 final results we have continued to make progress on the three immediate priorities facing the Group. The Junction fund's financial position has now been strengthened. An announcement on the plan for the X-Leisure fund is expected within the next two weeks. Lastly, we are continuing to progress renegotiations with respect to our central banking facility in the expectation that these will be concluded by the time of announcement of the interim results."
Operating and financial review
Tenant markets
Continuing the position seen in 2008, the retail sector still faces challenging trading conditions, whereas the performances of both the part of the leisure sector in which we operate and our German joint venture have to date largely been more resilient in the face of the economic downturn. The key facts are as follows:
Passing rent, calculated for the three UK funds on a weighted average like-for-like basis, fell by 2.6% between the fourth quarter of 2008 and the first quarter of 2009, largely due to the level of tenant insolvencies in The Mall and The Junction. Despite the difficult market conditions the funds have continued to make new lettings, raising £1.6 million from 30 units at 5.5% above 30 December 2008 ERV, and have settled rent reviews at new passing rent of £7.7 million in 61 units at 1.5% above ERV.
Occupancy across the three funds remained satisfactory in light of conditions in the wider market, falling to 93.1% at 31 March 2009 from 94.6% at 30 December 2008. This reflected significant administrations early in 2009, notably Woolworths where The Mall saw 6 stores becoming vacant in the first few days of the year. Progress is being made in letting these former Woolworths units.
Rent collection rates (adjusted for monthly payment plans and tenants in administration) improved slightly, with 95.1% of rent paid within 30 days of the March quarter day compared to 94.7% in December. In the current market conditions, this represents a good performance which reflects the continuing efforts of our credit controllers to proactively manage tenant difficulties.
Tenants in 83 units, representing passing rent of £6.9 million or 2.8% of the funds' total, became insolvent in the first quarter. The Mall has seen tenants occupying 73 units with passing rent of £5.0 million become insolvent in the first three months of the year, of which 56% by value of passing rent are continuing to trade. This is out of a total of 2,200 lettable units in the overall fund. Tenants in a further 22 units, with passing rent of £1.6 million or 0.7% of the funds' total, have entered administration since the end of the first quarter. All were in The Mall and 44% (by value of passing rent) are currently continuing to trade.
The part of the leisure sector in which we operate has to date remained reasonably strong. Both the cinema market and the value-focussed restaurants in our facilities have continued their good performance of 2008. SNO!zone has had a more challenging start to the year, with both revenue and operating profit lower than 2008 levels as a result of both the adverse weather in early February and some signs that the recession is affecting higher-end discretionary leisure spending. The impact on operating profit has been mitigated by a number of initiatives that have been introduced to help to increase SNO!zone's revenue and reduce its costs.
In Germany, the existing tenant base has continued to perform well which reflects the defensive nature of the portfolio, with 70% of passing rent anchored by food retailers. Occupancy remains high at 98.1% and there were negligible insolvencies in the quarter.
Property investment markets
We announced the March fund valuations with our annual results statement on 24 April 2009. These property valuations saw further significant falls in the first quarter, with The Mall falling 12.4%, The Junction 15.7% and X-Leisure 12.4%. This partly reflected further yield shift, but the loss of income arising from tenants going into administration also had some impact, especially in The Mall. At 30 April 2009 the properties in The Mall were valued at £1,395 million, which was a fall of 5.9% in the month. Valuations at 30 June are likely to reflect continuing pressures on income.
Junction restructuring
On 15 May the restructuring of The Junction fund completed with the receipt of new capital of £63.6 million, which was largely used to pay down the fund's existing debt. On 29 April 2009 unit holders had voted in favour of the changes to the governance and structure of the fund which were a prerequisite to the equity issue. The refinancing package agreed with the fund's banks, described further below, was conditional on the new equity being injected. The Group has so far subscribed for £600,000 of new units, although we have the option to invest up to a further £2 million for a 3 month period. As a consequence of the new units issued to date, our interest in the fund has fallen from 27.3% to around 13.4%.
X-Leisure restructuring
Progress has been made on a potential equity raise with an appetite from existing unit holders to support such a transaction. Discussions are progressing with the fund's banks for the renegotiation of both the central facility and for individual property assets. Based on these developments we believe that a solution can be found to the fund's current financial position and expect to announce further details within the next two weeks.
Debt and bank covenants
Our main focus continues to be on ensuring that we have a stable financial structure going forward. A critical part of this involves renegotiating the terms of our central facility to ensure that we have sufficient flexibility to deal with expectations of continuing adverse property market conditions. The existing facility has three main financial covenants: an asset cover test; a gearing test; and an interest cover test. As part of our discussions with the bank we are looking to widen the asset cover test to include other assets and seeking to amend other facility terms to provide sufficient headroom. We expect this process to be complete by the time we announce our half-year results.
At 30 April 2009 £34.6 million of the £125.5 million central facility was drawn, compared to £27.4 million on 30 December 2008.
The key points in respect of the debt position in the funds are as follows:
The Mall - following last year's equity issue the only LTV test for The Mall operates on a debt incurrence basis. The fixed nature of the bonds and available cash mean that this test can be managed.
The Junction - following the successful capital raise a new banking facility is in place which provides the flexibility needed to deal with expectations of continuing adverse property market conditions. The LTV covenant has been increased to 90% until 30 September 2010, after which it will fall in tiers to 65% at September 2012, and the ICR covenant has been set at 130% until 2012, after which it will increase further to 135%. Other changes to the facility include the margin payable, which is now linked to the level of LTV covenant, and the maturity date which has been extended to April 2014, or earlier if the fund comes to an end.
X-Leisure - as noted above the outstanding balance on the fund's central facility was reduced with the proceeds from the sale of the O2 Centre. Discussions are progressing with the banks on a refinancing package to include a further waiver to the LTV covenant to allow the restructuring of the fund to be successfully concluded.
For further information:
| Capital & Regional: | |
| Hugh Scott-Barrett, Chief Executive | Tel: 020 7932 8000 |
| Charles Staveley, Group Finance Director | Tel: 020 7932 8000 |
| Maitland | |
| Martin Leeburn / Emma Burdett | Tel: 020 7379 5151 |
Notes to editors:
About Capital & Regional plc
Capital & Regional is the co-investing asset manager which specialises in town centre shopping centres, out of town retail parks, and urban entertainment complexes.
Capital & Regional founded the The Mall and The Junction funds in conjunction with Aviva Fund Management. It also founded the X-Leisure fund with Hermes Investment Management Limited, and has a number of other joint ventures and developments. Its shares are quoted on the London Stock Exchange.
For further information see www.capreg.com
Forward Looking Statements
This document contains certain statements that are neither reported financial results nor other historical information. These statements are forward-looking in nature and are subject to risks and uncertainties. Actual future results may differ materially from those expressed in or implied by these statements. Many of these risks and uncertainties relate to factors that are beyond Capital & Regional's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as the Company's ability to continue to obtain financing to meet its liquidity needs, changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this document. Capital & Regional does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document. Information contained in this document relating to the Company should not be relied upon as a guide to future performance.