Capital & Regional portfolio value drops but FY profit seen in line

Property investment company Capital & Regional said on Thursday that its net rental income for 2018 was expected to be flat and adjusted profit should be in line with market expectations, but the valuation of its portfolio declined amid negative sentiment towards retail assets.

In an update for the second half of 2018, the group said net rental income is expected to be in line with 2017 despite 20 CVAs and retailer restructurings, which have dented NRI by around £1.5m over the year.

Capital & Regional completed 87 leasing transactions in the year, comprising 42 new lettings and 45 renewals. Meanwhile, its occupancy increased from 96.9% across the portfolio at 30 June to 97% at 31 December.

Footfall was up 0.7% in the second half, outperforming the national index, which was down 3.7%. Footfall for the year as whole was up 1.2% on a like-for-like basis, compared to the national index decline of 3.5%.

The valuation of the company's portfolio fell by 4.5% in the second half to £855.3m. This was attributed to negative sentiment towards retail assets. Centres outside London saw a drop of 10.1%, while the group's three London assets saw their value rise by 1.1%, driven by income growth.

Capital & Regional also said it was in ongoing discussions with struggling department store chain Debenhams and is "advancing plans for the right sizing of some stores".

Debenhams pays an average rent of £8.65 per square foot on units in three of the company's seven wholly-owned assets, a total of around 340,000 sqft, representing 5.8% of total income.

Peel Hunt said that from an operational perspective, the trading statement is "undoubtedly positive" in what is a difficult market for retail. However, the broker's anticipated valuation falls have been confirmed.

"With that said the London assets have held up well with an unprecedented 1.1% valuation increase. The shares trade on a 52% discount to NAV and a 13% dividend yield," it said.

At 1330 GMT, the shares were down 4.4% to 27.20p.