Intu Properties flags slowdown in net rental income growth in 2017

Intu Properties saw strong demand from retailers for new long-term leases between 1 July and 25 October, amid brisk footfall at its properties, but cautioned that new rental incomes might grow more slowly in 2017.

The shopping-centre operator agreed 67 new long-term leases, split between 61 in the UK and 6 in Spain, for a total of £13m in new annual rents.

Management also cast the closure of BHS in a positive light, emphasising the opportunity that affords it to improve its tenant base as it relets those stores.

Occupancy ran at 95.6%, marking a six tenths of a percentage point drop from end-June 2016 levels. Nevertheless, new lettings thus far in the year had more than compensated for the one percentage point drag from the closure of BHS, the company said in a statement.

Year-on-year to date, footfall had grown by 1.2% in Britain, outpacing the 1.8% drop seen in the Experian benchmark, Intu said.

Its UK development pipeline was also on track.

In a separate statement, the shopping centre operator said it sold intu Bromley for £177.9m, a premium when compared to the 30 June 2016 valuation of £175.9m.

Following that disposal, and on a pro-forma basis, cash and available facilities stood at £616m and its debt-to-asset ratio at 43.5%.

Management said the company remained on track to deliver like-for-like net rental income for 2016 of between 3% to 4%.

The momentum in its business was expected to continue in 2017, although the void periods while the BHS stores were relet and its major stores at intu Lakeside and intu Merry Hillat were remodelled might lower the rate of growth for its 2017 like-for-like net rental income by between two and three percentage points.

"In a deal that we see as being a short-term positive for sentiment, INTU has sold Bromley slightly ahead of book value. Trading through Q3 did not see a material change versus the first half and management has reiterated its 3-4% like-for-like NRI guidance. Our key issue is that INTU remains highly leveraged and capital consumptive, and we see better value elsewhere," analysts at Numis said in a research note sent to clients.

The broker reiterated its 'reduce' recommendation and 261p target price.