Intu SGS - Sarria Daily Comment 01/11/2021

INTU SGS — (Tomás) INTU SGS released their quarterly presentation and will follow up with a conference call on Wednesday 10th at 2 pm. Some highlights from the presentation include:

- Footfall in September was between 70-74% of 2019 (pre-Covid) levels. This was slightly down versus the July/August levels but coincided with the fuel shortages in the UK.

- Occupancy has crept up across the portfolio to 81% (84% adjusted for a new lease agreed in early October). There continues to be a pipeline of potential tenants including some anchor deals which are currently at Heads of Terms stage.

- Rent Collection continues to improve with Q3 collection rates at 74% and 78% for Net Rent and Service Charge respectively. As of mid-October, 64% and 70% of Q4 rents and Service Charges have been collected.

Based on recent SGS transactions, management are indicating rents have generally found their floor in the UK market. This stability is key to driving investor sentiment and should drive valuations eventually. However, the investor appetite has not been tested with limited transactions. It should also be noted that the supply chain issues, staff shortages, and increased energy costs are all significant headwinds for UK retail and have the potential to further impact the stability of rent rates.

Conclusion: The update from SGS is in line with our expectations - slow improvement in occupancy and collection rates - and we remain cautiously bullish on UK shopping centres. We are conscious of the inflationary pressures that face UK consumers but in the absence of further Covid restrictions, expect strong UK retail numbers over the Christmas period which will underpin rent collections.