Capital & Regional, the co-investment retail and leisure property fund manager, endured a torrid October in its three funds.
The value of the properties in the Mall shopping centre, Junction retail warehouse and X-Leisure funds fell by 6% in the one month on a weighted average basis.
The biggest decline was 8.7% in the Mall, which, said Capital & Regional chief executive Hugh Scott-Barrett, ‘was in large part due to alignment by the valuers with transactional evidence in the market’.
The equivalent yield of the Mall properties rose by 0.48% to 7.38% in October. The Junction properties dropped by 3.6% in value and X-Leisure’s by 3.8%.
The plunge in values was revealed this morning in the company’s interim management statement.
Scott-Barrett said the focus of the company ‘continues to be ensuring that we have a stable financial structure going forward’.
He said that, while the financial position of the Mall was ‘strong’, the Junction and X-Leisure needed restructuring.
‘Our key objective is to stabilise the capital structure of the fund in order to provide it with a viable future,' Scott-Barrett said of the Junction. ‘Although we have an asset currently under offer we recognise that asset disposals alone are only part of the solution and we are therefore looking at all options which may well lead to a restructuring of the fund.’
X-Leisure had a loan-to-value ratio of 67% at the end of October against a covenant of 70%. It has agreement in principle from its banks to add a Norwich property to the security pool, which would reduce the loan-to-value to 62%.
However, Scott-Barrett said: ‘The fund is exploring a combination of asset disposals and negotiations with its banks to ensure that it has sufficient flexibility to stay within its banking covenants as values fall.’
Operationally, Scott-Barrett said Capital & Regional had produced a ‘sound’ performance in the third quarter. But provisions for bad debts across the funds increased by £0.7m to £1.5m in the three months. Tenants in 27 units, representing passing rent of £1.7m or 0.7% of the funds' total, became insolvent in the third quarter. This compared to 32 units in the second quarter. Tenants in a further 10 units have become insolvent since the beginning of October.
The Mall has seen tenants occupying 76 units with a total passing rent of £6.5m become insolvent in the first three quarters of this year out of a total of 2,200 units.
‘There is increasing evidence of recession in the UK economy although the impact on our business at this time is mixed,’ said Scott-Barrett. ‘In October the Mall saw footfall fall 1.7% compared to October 2007, although this was better than the national index which decreased by 2.3% in the month. ‘In contrast, X-Leisure had a strong month with footfall increasing 6.9% compared to October 2007.’