Last checked at 16 May 2008 07:08
Capital & Regional plc
Interim Management Statement
Capital & Regional plc, the co-investing property asset manager, today presents its first interim management statement for 2008.
Summary
Underlying tenant facing business remains resilient - all indicators within their normal trading range
Group debt at 31 March 2008, excluding £386m of debt secured on the German portfolio which is non-recourse, has been reduced from £270m to £114m
Junction fund leverage reduced by the sale of Great Western Retail Park in Glasgow for £58.5m
A proposal to raise new equity within the Mall to provide a more resilient capital structure is well progressed
Hugh Scott-Barrett, formerly CFO of ABN AMRO, started as Chief Executive
Hugh Scott-Barrett, CEO, said
"Investment market conditions are likely to remain challenging through the balance of 2008 given the scarcity of bank financing. Our occupier markets have however proven their resilience and continue to do so.
Management attention is focused on increasing financial flexibility both at the Group as well as at Fund level. Our immediate priority is to work with the Mall in concluding the proposal to raise new equity."
Our tenant markets
Our underlying tenant business is proving resilient and a number of our key indicators are showing favourable year on year comparisons.
More specifically in the Mall shopping centre portfolio:
We have had fewer tenant failures this year than last (1.5% of passing rent compared to 2.25% in Q1 2007)
Footfall during the first quarter was up 1.2% compared to the same period last year. Nationwide footfall fell by 1.7%
Rent collection statistics in Q1 2008 have improved slightly (94.9% collected within 30 days compared to 94.3% in 2007)
Average occupancy for the year to 31 March 2008 at 94.3% was slightly down on the year to 31 March 2007 (95.2%) due mainly to space taken back for developments
186 rent reviews were settled during the year to 31st March 2008 at 3.7% over ERV compared to 182 at 5.1% over ERV during the year to 31st March 2007
ERV grew by 0.55% during the quarter to 31 March 2008
The Junction's tenant facing business has been stable. In the quarter there were no tenant failures, and vacancies remained unchanged at 5.18% from 30 December 2007, ERV on a like for like basis fell by 0.4% in Q1.
Our leisure business reports that their tenants are trading well. Cinema operators, who are important to the portfolio as anchor tenants and drivers of footfall continue to perform well in spite of the absence of any blockbusters . Family restaurants such as Frankie & Benny's and Chiquito's are reporting trade up year on year. Our own snow business, SNO!zone, has increased turnover from Q1 2007.
Our German portfolio has a very stable indexed income stream that continues to make a significant contribution to our profitability and has benefited from the recent strength of the Euro.
We are aware of forecasts of a downturn in UK consumer spending. We continue to monitor the situation closely.
Valuations
During the first quarter our Fund property valuations fell by 4.75%(1) as equivalent yields rose. The biggest fall was seen in the Junction fund, where a reduction in rental growth expectations has led to the biggest adjustment in yields from a lower base.
| % fall in | Nominal | True | ||
| ungeared | Initial | equivalent | equivalent | |
| value | yield at | yield at | yield at | |
| during | 31 March | 31 March | 31 March | |
| Portfolio | Q1 | 2008 (2) | 2008 | 2008 |
| Mall | (4.5)% | 5.20% | 5.97% | 6.20% |
| Junction | (5.5)% | 4.84% | 5.60% | 5.80% |
| X-Leisure | (2.6)% | 5.22% | 5.95% | 6.18% |
| Weighted average | (4.75)% | 5.10% | 5.87% | 6.10% |
The trend continued during April when values fell by a further 1% on the same weighted average basis. We show below our unit price data for 30 April in the usual format:
| Unit | Unit | Change | |||||
| value | value | Underlying | in unit | Units | C&R | ||
| Valuation | at | at | valuation | value | owned | percentage | |
| of | 30 April | 31 December | change | (geared) | by | of | |
| properties | 2008 | 2007 | YTD | YTD | C&R | fund | |
| Mall Fund | £2,875,389,434 | £1.8350 | £2.0642 | (4.9)% | (11.1)% | 157,742,057 | 24.2% |
| Junction Fund | £1,080,618,369 | £1.5951 | £1.8704 | (7.2)% | (14.7)% | 85,000,000 | 27.3% |
| X-Leisure Fund | £905,700,000 | £1.5219 | £1.6775 | (4.5)% | (9.3)% | 51,899,578 | 19.4% |
(1) Calculated on a "see through" basis - a weighted average (based on 30 December 2007 valuations) to reflect Capital & Regional's share of each portfolio.
(2) Initial yields quoted for the Mall and Junction exclude developments and development land. Including developments and development land the initial yields for the Mall and the Junction are 4.99% and 4.66% respectively.
Finance
Fund debt
The bank lending market has tightened further during 2008 to date and the further fall in values has brought our fund loan to value covenants into focus. At 31 March 2008 the bank facility loan to value ("LTV") covenants were as follows:
| Portfolio | LTV | LTV | Covenant (3) |
| (net debt / | (gross debt/ | ||
| property | property | ||
| value) (4) | value) | ||
| Mall | 57% | 59% | 60% |
| Junction | 50% | 53% | 60% |
| X-Leisure | 51% | 52% | 70% |
The Junction and X-Leisure funds have already taken action to reduce their gearing. During the first quarter the Junction Fund sold the Gt Western Retail Park for £58.5m and used the proceeds to pay down debt.
The Mall debt position:
In our press release of 1 May 2008, we indicated that the Mall was reviewing a number of options to ensure that the Fund remains within all its agreed financial covenants, and said that we would update shareholders on 16 May 2008. In particular an equity raising proposal at the Fund level which is intended to provide a far more resilient capital structure for the Fund, is well progressed. Negotiations are also continuing in relation to asset sales. We expect the Fund to be able to make a definitive statement in relation to these initiatives before the end of the month.
Group Debt
|
| 31 March 2008 | 30 December 2007 |
|
| £m | £m |
| Core revolving credit facility (HBOS) | 25 | 61 |
| Debt secured on German portfolio | 386 | 355 |
| Other | 89 | 209 |
| Group debt | 500 | 625 |
Group debt at 31 March 2008, excluding debt secured on the German portfolio which is non-recourse, has been reduced from £270m to £114m.
Our £175m revolving credit facility with HBOS was £25m drawn at the end of March leaving us with £150m in available bank facilities, and we complied with all our financial covenants. In particular the gearing covenant in the HBOS facility, which measures Group debt plus our share of off balance sheet debt as a percentage of net assets, stood at 204% against a limit of 250%.
We continue to look to increase our financial flexibility both by the sale of assets held directly by the Group and the introduction of co-investors to our German portfolio. We will provide further details in due course.
(3) Covenants are based upon gross debt.
(4) Net debt is gross debt net of cash.
Outlook
This difficult period for the sector is not yet over, and it is not yet clear where values will settle when confidence returns. Our underlying tenant facing business remains resilient and we continue to use our experienced management to maximise returns from our property management business and to assess opportunities for realising value from our portfolio.
For further information:
Capital & Regional:
Hugh Scott-Barrett, Chief Executive
William Sunnucks, Group Finance Director
Tel: 020 7932 8000
Maitland
Martin Leeburn
Emma Burdett
Tel: 020 7379 5151
There will be a conference call for analysts and investors at 9am today. Please contact Sian Stanley at Maitland on 020 7379 5151 or sstanley@maitland.co.uk for details.
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.