Merry Hill owner confirms investment plans for the shopping centre
The owner of Dudley’s Merry Hill shopping centre has confirmed that the site will undergo major investment of around £110m this year as it looks to claw back lost revenue.
Intu Properties completed the acquisition of the remaining 50% of the centre last year in a deal worth £410m.
It said in today’s full results statement: “We believe the centre presents a significant opportunity to re-engineer and update the tenant mix. Encouraging large flagship formats and reducing the number of smaller units will make the centre more attractive to retailers and customers, and improve the rental tone. This strategy is similar to that which has been successfully implemented at intu Trafford Centre and intu Lakeside.”
When the deal to acquire the outstanding half of the centre was being negotiated, little could the company have realised that by the time the year was out it would have lost two of its major tenants – BHS and Sainsbury’s.
The administration of the fashion brand has left a large two-level unit empty, while the supermarket group pulled the plug on its store at the end of last year. Neither has yet been replaced.
“Owning 100% of intu Merry Hill allows us to advance the many improvement opportunities more rapidly and due to its size the returns should be meaningful. The first steps are already underway through taking back the former Sainsbury’s store to facilitate sizeable re-tenanting transactions,” it said.
But despite the situation, there has also been growth. Fashion brand River Island and JD Sports have both upsized their units.
The work being carried out on the centre is part of a £262m investment programme by intu across its various portfolio and these are expected to generate a stabilised initial yield on cost of 6 to 10%.
“At intu Merry Hill we have several projects expected to cost around £110m to deliver our strategy for the centre. These include right-sizing a number of anchors and major space users, which in turn will reduce the number of smaller units, and repositioning the catering and leisure offering,” it said.
intu will also be looking to increase footfall among the ABC1 demograph. This currently stands at 48% – the lowest among its flagship centres.
Across its entire portfolio, the group saw growth in like-for-like net rental income of 3.6%, which it said was in line with guidance.
Underlying earnings increased by 7% to £200m, primarily as a result of the growth in like-for-like net rental income.
Like-for-like property values were unchanged in the year absorbing the 1% increase in stamp duty and significantly outperforming the IPD monthly retail index which decreased by 4.7%.
However, property revaluation did impact the group significantly, with profit down to £172m, a reduction of £346m (2015: £518m – which included a property revaluation surplus of £351m).
