Bloomberg News

Capital Shopping May Have to Write Down Properties, Analyst Says

November 01, 2011

Oct. 31 (Bloomberg) -- Capital Shopping Centres Group Plc, the U.K.’s largest publicly traded mall owner, may have to write down property values, Deutsche Bank AG analyst Martin Allen said. The shares fell as much 3.2 percent in London.

The company known as CSC signed 56 leases in the third quarter to generate a net 3 million pounds ($4.2 million) in additional annual rental income, according to a statement today. On average, tenants will pay 10 percent less than the rental value that appraisers had estimated, CSC said. Six leases accounted for most of the shortfall, according to the company.

Allen said the gap between rental value estimates and the actual rents achieved when shops in CSC’s malls are leased is widening. CSC said Aug. 2 that it leased 80 new units in the first half for an average of 2 percent less than their estimated rental values.

“The data are starting to point to possible systemic over- estimation of rental values by the group’s valuers,” Allen said in a note to investors today. The issue needs addressing “with some urgency, even if it has negative consequences for the valuation of the group’s property portfolio,” he said. Allen has a “buy” rating on the stock.

Fluctuating Rents

The third-quarter numbers represent a small proportion of the 2,500 units at CSC’s shopping centers and rents achieved fluctuate from quarter to quarter compared with the medium to long-term values estimated by the five independent appraisers, Finance Director Matthew Roberts said by telephone.

“We’re getting more rents for these shops than we were getting under the previous terms,” he said. CSC aims to reach the estimated rental values for its property assets as a whole in the medium to long term, Roberts said.

CSC was down 10.3 pence, or 3 percent, at 329.7 pence at 3:25 p.m. in London. That reduced the company’s market value to 2.83 billion pounds.

In the first nine months, CSC signed tenants on 136 long- term leases at an average 5 percent discount to appraisers’ estimated rental value to generate an additional 7 million pounds in income. The company also reported a vacancy rate of 3 percent, unchanged from the end of June.

CSC owns 10 of the U.K.’s 25 largest malls by retail sales including the Metrocentre at Gateshead and Manchester’s Trafford Centre.

--Editors: Andrew Blackman, Jeff St.Onge.

To contact the reporter on this story: Simon Packard in London at

To contact the editor responsible for this story: Andrew Blackman at

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