Shopping centre owner Intu Properties PLC (LON:INTU) cut its rental income guidance for the year following the collapse of tenants House of Fraser and Coast.
House of Fraser was rescued by Sports Direct International PLC (LON:SPD) and its boss Mike Ashley after the department store chain went into administration in August. Before the rescue deal, 31 of House of Fraser’s 59 branches, were earmarked for closure under an insolvency process known as a company voluntary arrangement.
READ: House of Fraser suppliers stand to lose millions of pounds from retailer's collapse
Ashley has said he would try to keep as many stores open as possible, including the flagship Oxford Street store.
Women’s fashion retailer Coast took a hit from concession partner House of Fraser, entering administration earlier this month. Karen Millen has agreed to buy some parts of the business.
READ: Coast enters into administration after taking hit from House of Fraser collapse
Intu said tenant administrations this year, particularly write-offs relating to the failure of Coast and House of Fraser, will result in a 1.5% hit to like-for-like rental income for the year. It now expects like-for-like net rental income growth of 0% to 1%.
Third quarter property valuations fall amid weak investment confidence in retail
In the third quarter to September, property valuations dropped 3% on a like-for-like basis due to negative investment sentiment in the hard-hit retail sector.
The net asset value per share fell to 344p at September 30, down from 362p at June 30, reflecting a property revaluation deficit of £298mln.
The growing shift away from the high street to online and weaker consumer confidence has resulted in lower footfall at bricks and mortar retailers. In response, a number of retailers including Debenhams, New Look and Mothercare have been closing down stores.
Intu said footfall at its shopping centres has fallen 1.3% in the year to date.
Intu agrees more leases and higher rents
The group still agreed 84 long-term leases worth £15mln in annual rent in the third quarter, compared to 73 leases worth £13mln a year ago.
The occupancy rate at the end of the period was 97%, up 0.4% on June and last year. Rents agreed with tenants were on average 5% above the previous amount.
"intu has continued to deliver a strong and resilient operational performance through a period which has been particularly challenging for UK retailers, demonstrating the clear differentiation between winning destinations such as intu owns and the rest,” said chief executive David Fischel.
Shares declined 1.04% to 199.4p in morning trading.
Intu a 'relatively attractive' takeover target, says Liberum
Last week, Intu said it was considering a 215p per share preliminary takeover offer from a consortium formed by its deputy chairman John Whittaker and Saudi Arabian and Canadian investors.
READ: Intu Properties says considering 215p per share preliminary takeover offer from Whittaker consortium
The consortium formed by UK billionaire Whittaker’s Peel Group, Saudi Arabia’s Olayan and Canadian property investor Brookfield Asset Management has been granted access to company documents to conduct due diligence with a view to making a firm offer.
The news followed an aborted £3.5bn takeover bid from UK peer Hammerson PLC (LON:HMSO) in April. Hammerson said it withdrew its offer of 253.9p each due to pressure from shareholders and a tough UK retail market.
Liberum said the trading update from Intu aids the "relative attractiveness" of a 215p potential bid from the Peel Group, Olayan Group and Brookfield Property.
The broker maintained a 'sell' rating on Intu and target price of 145p.
It believes some of the pressures on rental income is cyclical, which may eventually ease, but thinks the company's "limited ability to maintain investment and drive growth justifies the current negative sentiment".