UK REIT Intu reported on Tuesday that it signed a record number of 60 new leases in the first quarter of 2018, but failed to provide an update on the status of its takeover by its larger rival Hammerson.
A day earlier, Hammerson’s second largest shareholder APG said it planned to vote against the merger between the two UK retail REITs, saying the all-share offer for Intu was ‘insufficiently attractive’ for Hammerson shareholders. ‘Furthermore, we believe that the proposed acquisition will significantly dilute Hammerson’s high-quality portfolio,’ the Dutch pension fund administrator said.
APG holds a 7% stake in Hammerson, making it the company’s second-largest shareholder.
Intu has a £10 bn (€11.5 bn) portfolio in the UK comprising prime regional shopping centres, and a £800 mln portfolio in Spain. The Spanish assets include three of Spain’s top-10 shopping centres and the proposed 230,000 m2, £600 mln shopping resort development Intu Costa del Sol near Malaga.
‘Our prime shopping centres produced a strong first quarter with lettings at increased rents, high occupancy and footfall exceeding the comparable period last year, with footfall significantly and consistently outperforming the ShopperTrak national retail benchmark over the last five years,’ David Fischel, Intu Chief Executive, noted in the trading update.
The 60 long-term leases signed in the first three months of the year (43 in the UK and 17 in Spain) were agreed 5% above previous passing rent.
Fischel said he continued to see growth opportunities for the UK portfolio. Intu is due to open its £180 mln extension at Intu Watford later this year and the £72 mln leisure extension at Intu Lakeside next year. The company is also planning to invest over £560 mln in its UK centres over the next three years.
Intu has reduced its average cost of debt to 3.5% over the past five years and had a debt to asset ratio of 45.3% at 31 March 2018 (based on 31 December 2017 investment property valuations).
In its public letter to Hammerson’s management board, APG reiterated that Hammerson's offer for Intu did not take sufficient account of the additional risks involved given the state of the UK retail environment, the increased financial leverage that would be required and execution risks associated with implementation of the deal.