Intu Properties to sell UK mall equity stakes and raise development finance to fund £1.9bn development programme

Intu Properties plans to sell further equity stakes in its existing built UK shopping centre portfolio as well as seek a partner for its Spanish shopping centre in Zaragoza, in a three-part strategy to fund the REIT’s ambitious £1.9bn development programme over the next eight years.

The prime shopping centre-focussed REIT outlined this morning scale, individual cost and timeline for its development and capex programme across its property portfolio.

This is comprised of spending £1.3bn across 13 of its 18 UK shopping centres – including major retail and leisure extensions at Victoria Centre, Braehead, Lakeside, Cribbs Causeway, Watford and Trafford Centre – which will create a total of 2.7m additional retail floor space.

In addition, a further £565m is earmarked to develop Intu’s three major Spanish retail developments at Malaga, Valencia and Palma.

The expansive development programme is staggered over eight years and will be financed through a combination of three strategies.

Firstly, selling equity stakes to re-invest in centres to achieve “superior returns”, raise development finance and then refinance upon completion of developments as well as utilising its £671m in cash resources.

Last year, Intu sold an 80% equity stake in intu Uxbridge to Kumpulan Wang Persaraan Diperbadankan (KWAP), the £19bn Malaysian pension fund, for £174.6m, reflecting a 2% premium to the 2013 year end book valuation.

Intu would not be drawn on which of its UK shopping centres it is considering selling an equity stake in.  However, the malls for which Intu’s extensions are largest and most expensive are:

  • a £275m retail and leisure extension at intu Lakeside, creating 665,000 sq ft in new lettable space, staggered in two parts commencing in 2016 and 2017;
  • a £225m retail and leisure extension at intu Victoria  Centre, creating 500,00 sq ft in new lettable space, slated for commencing in 2020;
  • a £200m extension at intu Victoria  Centre, creating 475,000 sq ft in new lettable space, slated for commencing in 2020;
  • a £105m retail and leisure extension at Cribbs Causeway, creating 380,000 sq ft in new lettable space, slated for commencing in 2019;

David Fischel, chief executive at Intu Properties, said in the firm’s annual results published this morning that the development pipeline’s active management projects will be funded through existing facilities.

“The catalyst for our other extensions, the majority of which have planning approved, will be the required level of tenant interest.

“We should not need additional equity to finance these projects.  We can finance the extensions from existing available facilities, raising debt against the value created from completed developments and recycling capital from other assets to reinvest into these growth opportunities, including introducing partners into existing assets. 

“The major developments are likely to be spread over a number of years so the proceeds from financing a completed project can be used to help finance the next one.”

In addition, Intu’s annual results this morning stated: “In the case of major extensions and creation of significant new or reconfigured space, we aim to have agreed terms with a sufficient level of tenants including strategic pre-lets before proceeding with construction.”

In Spain, Intu completed the €451m acquisition of the Puerto Venecia shopping centre and retail park in Zaragoza, which the REIT states is “the template for our shopping resort developments in Spain”. Eurofund is Intu’s Spanish development partner.

Intu re-iterated that it “will be looking to introduce an investment partner into Puerto Venecia”.  CoStar News understands that a potential partner has already been identified and talks are already underway.

Intu has development options on sites in Malaga, Palma, Valencia and Vigo.  Subject to shareholder approval, Intu intends to exercise the Malaga option next month. “Engagement with key retailers has indicated a strong interest in the development,” Intu explained in its results.

The expected stabilised initial yield on costs for the project is more than 7%.

Fischel added: “Spain has very attractive market dynamics with an economy moving out of recession and a sophisticated consumer and retail market, but a retail sector where ownership of the regional shopping centre market remains highly fragmented and without a large committed pipeline of new centres.

“The country holds huge potential for the creation of genuinely regional destination centres in which we specialise.”

On the broader economic outlook for the sector, Intu’s annual report stated: “The retail sector has been changing at a rapid pace and change is likely to continue in 2015 as the UK economy continues to strengthen. 

“The outlook for retail spending in 2015 is positive due to a combination of low inflation, reviving growth in earnings and resilience in the labour market, indicating that households’ real disposable income should increase over the course of the year.”

About CoStar News

Finance Editor, CoStar News
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