Merry Hill owner Intu braced for drop in rental income as tenants go bust
The owner of the Merry Hill shopping centre is expecting to report a sharp drop in rental income for 2019.
Intu has warned that rental income is likely to fall by nine per cent, with the drop being put down to the high number of companies who rent space in its shopping centres becoming insolvent.
More than half the decline is from Arcadia and Monsoon pushing through an insolvency process known as a Company Voluntary Arrangement (CVA).
Bosses said rent in 2020 is also expected to drop, but at a slower rate than 2019, and added that the political and economic uncertainty is putting off current tenants from signing up for new lettings.
But the company insisted it was performing ahead of its rivals and only expects a further impact this year if any write-offs are required due to more retail failures.
Intu said: "Although new lettings and rent reviews are still positive overall, CVAs in the period were slightly worse than expected and the political and economic uncertainty is causing customers to delay new lettings, with letting activity in the third quarter slower than forecast and at a lower level than 2018.
"We anticipate that like-for-like net rental income for 2019 will be down by around nine per cent, with more than half the reduction coming from the impact of CVAs such as Arcadia and Monsoon."
CVAs have been used by several retailers to reduce rents. It involves landlords voting to cut bills to avoid a full-scale collapse of the retailer seeking a reduction.
Beyond the CVA issues, Intu said customers are well-financed and it continues to attract top brands to its sites, which include Lakeside in Essex, the Metrocentre in Gateshead and the Trafford Centre in Manchester.
Chief executive Matthew Roberts said: "In the last quarter, we have continued to face challenging market conditions along with the rest of the sector. In particular, CVAs were slightly worse than expected. In the face of these challenges, there is much that gives me confidence about Intu.
"Many of our top customers are global, well-capitalised businesses and, having visited 17 Intu centres in recent weeks, there is a very different feeling on the ground to the one we read about regularly.
"While letting activity has been slower in the third quarter as some customers delay decisions due to continued political and economic uncertainty, we are still signing a good number of new deals with great brands."
Harrods has recently taken a 23,000 square foot site at Lakeside and Zara has signed up for a new flagship store at St David's in Cardiff.
Mr Roberts also revealed that he has been meeting the chief executives of Next, Primark and Sports Direct to improve Intu's working relationship with the brands.
Overall, footfall was up 1.2 per cent in the three months to September 30, with £5 million of new rent coming in, although occupancy levels have fallen from 97 per cent to 95.1 per cent so far this year, with leases averaging 6.5 years versus 7.4 years in 2018.