Johannesburg – Over the next 10 years British shopping centre giant Capital Shopping Centres (CSC) wants to spend £1bn on expanding certain of its centres to unlock further value for shareholders and retailers.
CSC believes its defensive, quality assets will assist it in obtaining financing in difficult debt markets.
The step is good news for the company’s South African shareholders, for whom the shares constitute an important rand hedge.
CSC has a dual listing on the London Stock Exchange and its South African shareholding is about 32%, including the Gordon family interest.
“Happy shoppers make for happy retailers, ultimately leading to happy shareholders,” said CSC chief executive David Fischel on a recent visit to a group of South Africa property analysts and fund managers.
Fischel said it is to the company’s benefit that there is almost no new retail space worth mentioning in prospect.
The British planning authorities are reluctant to approve new peri-urban centres because municipalities are sharply focused on keeping the wheels of central city retailers turning.
This places CSC with its five peri-urban and nine central city centres valued at £7bn in a favourable position,because retailers wanting to expand will enlarge their shops within existing centres.
Leon Allison, a property analyst at Macquarie First South, said top international brands wishing to expand into Britain will use CSC’s shopping centres to gain exposure to a large part of the market.
Some of these retailers will open a flagship store in CSC centres.
“Apple is a good example – 40% of its shops in Britain are in CSC centres.”
Two-thirds of the British population live within a 45-minute drive from a CSC centre.
Anton de Goede, a property portfolio manager at Coronation, regards the opportunities in the CSC portfolio as significant in both the short and the long term.
“The asset management opportunities that can be exploited in the next six to 18 months with relatively limited capital expenditure involve the purchase of additional land alongside centres and getting all the plan applications for large expansions approved.”
There is also a focus on persuading global retailers to take additional space in the centres. “These retailers include Hollister, Forever 21 and Banana Republic.”
One of the group’s important strategies is for significant expansion to the catering component in its centres to equal that of its flagship property, the Trafford Centre in Manchester.
This component currently contributes between 8% and 13% of the rental income and the idea is to have visitors spend longer periods in the centres.
The Trafford Centre, valued at £1.7bn (24% of the company’s asset value), has the largest catering offering in Europe with more than 60 restaurants and bars. In 2010 sales amounted to more than £70m. Visits to the centre averaged two hours and 30 minutes.
De Goede said the long-term projects, which are worth £1bn, including extensions to the Victoria and the Broadmarsh Centre in Nottingham, at Cribbs Causeway in Bristol and at the Braehead Centre in Glasgow, will start at the end of 2014 at the earliest, with completion expected by 2019.
“If one assumes that the projects can deliver a revenue yield of 7%, this could boost the net asset by at least £200m."
He said this would go hand in hand with capital recovery, where some of the smaller centres can be disposed of when the retail environment lifts its head, or where small interests in some of the larger centres can be sold.
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