UK-focused REIT, Capital & Regional, has announced an exclusivity agreement with Far East Consortium International (FEC), a leading residential and hotel developer, to identify and develop new residential opportunities across its shopping centre portfolio.
The partnership forms part of Capital & Regional’s strategy to reposition its assets to meet the structural changes in retail and to shift to community and sustainable ’15-minute neighbourhoods’.
“Both FEC’s and our own management team recognise the importance of sustainable mixed-use urban environments that enhance the sense of place and serve their local communities. The combination of our existing skills and resources will help to unlock further opportunities to create these across, and potentially beyond, our existing estate” commented Lawrence Hutchings, CEO of Capital & Regional.
“We have already demonstrated that residential can play an integral role in repositioning existing retail property, especially in greater London and we are therefore pleased to formalise our relationship with FEC, having known the business for several years. We believe this agreement is a further demonstration of our team’s ability to take a highly innovative approach to the management of our community centres and the potential our portfolio offers”.
Listed on the Hong Kong Stock Exchange with a market cap of around HK$6.7 billion, FEC is active in the UK with a strong track record in residential and mixed-use developments.
“Far East Consortium has vast experience in delivering high density schemes in the UK and working closely with local councils and boroughs. We have identified two immediate potential opportunities and we will work closely with Capital & Regional to explore how we might jointly deliver high quality residential properties within their London portfolio, which are already well served by existing retail amenities and transport links” commented Chris Hoong, Managing Director of Far East Consortium International Limited.
“Residential developments also provide additional clientele to retail properties and enhance existing communities and therefore help drive income of occupiers. We are delighted to have signed this exclusivity agreement with Capital & Regional as we sincerely believe that our interests are aligned and that we can add significant value to each other.”
The REIT reported an increase in its net loan-to-value (LTV) to 72% (30 December 2020: 65%) or 61%, excluding managed assets (30 December 2020: 56%) with total cash on its balance sheet of c.£75 million, of which €56.8 million was maintained centrally outside of the collateral of any of its debt facilities and equivalent to more than one year’s contracted rent.
Net Asset Value per share and EPRA NTA per share was at 113p and 117p (December 2020: 150p and 158p respectively) for the reporting period.
In its portfolio of dominant in-town community shopping centres, 99% of its leased units are trading with all seven of its community shopping centres remaining open to some degree.
Occupancy remained robust at 90% as at 30 June 2021 (December 2020: 92%) with footfall across its portfolio outperforming the national index by 9.1% with 18.3 million visits during the first half of 2021. While footfall continues to be impacted by Covid-19, and slow to recover, sales have bounced back at a higher rate.
“Footfall at our community centres has once again significantly outperformed the wider market with a noticeable trend of consumers spending more and visiting slightly less. We have continued to see strong levels of leasing throughout the entire first half, with volumes comparable with H1 2019, supported by our increased focus on new, start up and independent retailers. This initiative also ensures our centres are tailored to the requirements of their communities and has helped us maintain occupancy at 90%, achieve rent and ERV premia, and make significant progress on re-leasing our three former Debenhams stores” noted Hutchings.
83% of rent due in respect of the 2021 year to the end of August has been collected with a further 13% improvement on the update provided on 25 June 2021.
53 new lettings and renewals were achieved during the period at a combined average premium to previous rent and ERV. This compares to 24 and 44 deals respectively in the equivalent 2020 and 2019 periods.
Over 30 lettings and renewals have been completed since 30 June 2021 with net rental income (NRI) reduced by £1.8 million to £13.4 million (June 2020: £15.21 million) largely due to Covid-19 which drove a reduction in adjusted profit of £2.3 million (June 2020: £4.6 million).
Capital & Regional reported an IFRS loss of £41.3 million for the period primarily due to a 7.5% fall in like-for-like property valuations (June 2020: 16% fall in property valuations and loss of £115.5 million).
“Accepting the further fall in valuations during the period, current market dynamics in the sector as well as the wider economy provide cause for optimism that the investment market may be starting to stabilise. This, allied with the relative outperformance of our Investment Assets and the improving operational performance, provide the necessary base for making longer term strategic decisions and determining the best approach for addressing debt levels. We appreciate the continued support from our lenders who we liaise closely with on our different non-recourse facilities, extending waivers as they are required and working towards longer term resolutions on a facility-by-facility basis”.
“As we emerge from 18 months of unprecedented challenges, we are increasingly confident that a shared need from consumers and retailers for well-located, accessible retail and services with affordable occupancy costs, is highly supportive of our community centre strategy and our belief in the 15-minute neighbourhood” he concluded.