February 27, 2013 10:43 am

Intu weathers high street storm

The UK’s largest shopping centre owner tried to shrug off the carnage in the retail sector on Wednesday as it said it would issue more shares to fund a £251m mall purchase in Milton Keynes.

However, shares in Intu Properties, known as Capital Shopping Centres prior to a rebranding earlier this year, fell in morning trading in the wake of the acquisition and placing announcement and a mixed reaction to its annual results.

The FTSE 100 property group said it was weathering the failure of several store chains, including two of its bigger tenants: HMV, the music retailer, and Republic, which sells clothing.

Intu said the administrators of collapsed retailers tended to keep hold of shops in its malls, which include the Trafford Centre in Manchester, Lakeside in Essex and Metrocentre in Gateshead.

In spite of the pressure on the sector, Intu’s occupancy level was relatively steady in 2012, dropping from 97 per cent to 96 per cent during the course of the year.

These figures do not take into account the collapse of HMV and Republic, which occurred in the early weeks of its current financial year.

David Fischel, Intu chief executive, said two out of the 12 HMV branches in its centres had been given up by administrators but added: “We have already got tenants lined up for these units.”

Tenants in administration count for 4 per cent of its rent roll, although the blow has been softened by many of the affected shops continuing to trade.

At the same time as announcing its annual results, Intu confirmed that it was buying Midsummer Place, a shopping centre in Milton Keynes anchored by a Debenhams department store and an outpost of H&M, the clothing retailer. The seller is Legal & General, the insurer.

Intu said it would fund the deal by an underwritten equity placing that would see up to 86m new shares issued, equivalent to as much as 10 per cent of its current share capital.

Shares in Intu fell 2 per cent to 335.9p in early morning trading in London on Wednesday, leaving them almost unchanged over the past year.

Aided by a 0.6 per cent increase in property valuations in a market generally seeing falling values, Intu posted an annual pre-tax profit of £153m, up from £27m. The swing largely reflected non-cash changes in the fair value of financial instruments.

Investec Securities, which has a “sell” recommendation on Intu shares, said the group’s 16.1p underlying annual earnings per share – down from 16.5p – fell short of the 16.4p it expected, although it met Bloomberg’s consensus analyst forecast.

Cantor Fitzgerald, which has a “reduce” recommendation on the shares, said the adjusted net asset value per share of 392p, up from 391p, was well ahead of market expectations.

Oriel Securities, which rates Intu as a “hold”, said the results were marginally ahead of its expectations but said the flat annual total dividend of 15p per share was “a little disappointing”.

Intu also announced that it had established a new special purpose vehicle to issue investment grade secured debt, which it said would become a central source of financing for the group, diversifying its funding options.

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