There’s no doubt that rand-hedge property companies betting in the UK have enjoyed fervent support from income-chasing South African investors in the past but they have lost their lustre following the country’s decision to leave the 28-member European Union.
But it appears that UK-focused shopping mall owner Capital & Regional has been spared from the jitters prompted by the Brexit vote if its operational performance is anything to go by.
The company, which owns a £1 billion property portfolio of shopping malls in towns like Blackburn, Camberley, Hemel, Hempstead and others, says its letting activity has remained robust since the Brexit referendum.
On Thursday, Capital & Regional reported new leases worth more than £3 million for the first six months of the year – entailing 27 new lettings and 11 lease renewals at its shopping malls. Its leasing efforts have resulted in a 3.9% increase in the company’s like-for-like net rental income to £23.8 million.
Investors were rewarded with an 8% growth in dividend payouts.
Capital & Regional’s group finance director Charles Staveley says although markets have stabilised in recent weeks, fundamentals into UK’s property sector are still strong.
The big allure of the UK is that yields on properties are higher than borrowing costs, as the Bank of England has cut interest rates to rock-bottom levels to stimulate the economy.
In addition to cutting interest rates, the bank has unleashed a fresh round of quantitative easing – with the central bank looking to purchase £60 billion worth of long-term government bonds over the next six months. Arguably, it’s too early to make a call on the full impact of the Brexit vote on the UK’s property market, as the actual exit from the EU is expected to take two years.
Staveley says shopping malls remain defensive during an economy slowdown. This can be seen in the company’s “dominant in-town shopping centres with high footfall numbers”. Underscoring this is that Capital & Regional’s shopping malls have posted an increase of 1.6% for July, which is above the industry benchmark of 1.4%.
Much of Capital & Regional’s focus has been on rolling out its £65 million capital expenditure (capex) programme which will be rolled out in the next three years to spruce up its shopping malls. Staveley says the company expects to have rolled out half of the capex value by year end, as it forges ahead with extending shopping malls to add more retail space.
Staveley says that for every £1 of capex spent, Capital & Regional will get £1.60 in value.
The company will also recycle capital from the sale of properties into shopping mall refurbishments. Capital & Regional is considering selling its Camberley-based shopping mall, The Mall, following an unsolicited offer. In addition to owning seven shopping malls, it owns a 20% stake in the Kingfisher Centre in Redditch and a 50% stake in the Buttermarket Centre in Ipswich.
Where the company has felt Brexit vote pressures is on its stock, which has fallen by 24% on the JSE over the past three months.This is in line with the sell-off seen in the stocks of other UK-focused companies such as Capital & Counties Properties and Intu Properties.
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