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Gewillia. Bear in mind that these days, the average punter is willing and able to go short. It’s been a profitable and growing business for the facilitators, and is most obviously evidenced on these boards by the growing number of naive derampers who repeat themselves day in, day out. I agree that care needs to be taken before buying here - it needs to be part of a portfolio. But when talking as negatively as you do - in a leveraged situation with many unknowns - you equally need to be cautious of encouraging shorters, IMO. To be candid - if someone can justify buying the Ritz for £700m, then they can justify paying £1.5bn for the TC, or a lot more - and that would leave a short position in a big mess. It is an interesting story you tell, but there are investment maxims which - when applied to a broader range of situations - can result in a positive outcome for those left holding. The one that springs to mind is “buy when there is blood on the streets”. Looking at the intu chart now - we can’t be far off that. Of course, many of these situations disappear - you lose 100%. Others go on and thrive, you make 500%+. Take a look at the history of EIG, POG, AAZ, SKP etc - all highly leveraged investments facing vast difficulties, that went on to multiply. Hopefully you hit enough of the good ones to compensate for the bad ones.. I think the 4p price here tells us a lot about sentiment, but perhaps less about the reality. There are discrete high quality assets here with good prospects trading at large discounts to peak, and sentiment can change quickly - which is why I sought to concentrate thinking on 2025. In the short term, markets are a voting machine and in the long term a weighing machine. Current markets have thrown up a lot - but not sure I’m quite as convinced as you about the general quality. FTSE is a lot of oil, commodities, retailers etc.. all a bit mucky.. versus an asset like the Trafford Centre?! No comparison. But I do like GOG, MARS, POG (still!)... and literally dozens of what I perceive as high risk/higher return names - intu included. Hope that helps and good to have an informed chat. Best wishes.
The new leases to be on longer terms
When the applecart is rerighted .
Maybe all the stalwarts will end up surrendering leases chipping rents 33% perhaps with fixed annual increases til the 1st review when reverting back to open market rental
Breathing space and at least that will give the lending markets transparency of income
Yields will reduce as it again becomes an attractive investment for investors in a low interest world and the prospect of growth
Gewillia
Well as far as I can make out The Milky Bar Kid is farming similar fields elsewhere Long on Countrywide Particularly risky where the MO of the main shareholder is a distressed debt buyer and CWD owe £95m breaching covenants
One thing we have both learned about estate agents with the notable exception of Savills that borrowing monies to buy existing businesses is not a great idea .
Eessentially golden goodbyes to equity partners (thanks for the cheque and goodnight) for capital sums based on past deals hoping they leave some fairy dust and client relationships behind .It rarely works out well for shareholders . Donaldsons and DTZ spring to mind
Having said that Nortons Coin won the Gold Cup at 100-1
Last Sentence should read, "Who else are you betting on? Assuming, cheekily, that you might be willing to share."
Wigwammer, I hope I'm not encouraging anyone to do anything, except to be extremely careful before going long on Intu.
You're toying with the numbers, like I do. All sorts of interesting answers appear. But the questions I continually ask myself are, How realistic is this outcome? What are the chances of something happening? My personal experience of this kind of situation is that the assets eventually sell for less than was hoped & the liabilities multiply. I've never forgotten a lesson learnt at 19. I was gopher to the boss of the property management dept. He sent me to visit an industrial tenant, who'd missed the quarter day. A small engineering business. The boss was in the office alone. They were out of business. He'd shut it down because he'd no work-in-progress, but was very confident we'd get paid by the liquidator because he had a slew of accounts receivable. Even showed me a typed sheet. I duly reported that we'd get the cash eventually. Months later, in comes the Statement of Affairs & there's sweet tweet for the unsecured creditors. I pop round to ask what happened to the AR's? His smile was gone. The moment the liquidator wrote to all the AR's telling them to make payment to him, instead of the tenant, the grubby little AR's all wrote back, "Yes. We have the invoice, but unfortunately there's a problem with the widgets supplied to us. If you'd like to repair them to or satisfaction, we'll be happy to pay." - It's all a lie. It's a con, but commercial debtors know that Administrators have no interest in rectifying problems and rarely sue. That was an eyeopener that I've seen repeated many times. Businessmen are very tough.
When the chips are down, there's no charity. Everyone fights their corner like rats in a sack. Per the numbers, there could be a possible £392 m of net cash from a gross sale at £1.5b. But how realistic is this? If TC sold for slightly less, say, £1.35b, the £392m falls to £242m. Another £100m of penalties, drops it to £142m. My point is, that this number can change very meaningfully, very quickly and we don't really have the information to quantify it with real accuracy. Hence my watchword is extreme caution.
I haven't done the exercise, and doubt I will, to establish how the balance sheet would transform following a TC sale and debt redemption, so you could well be right in your calculations.
Cross Default Clauses - I make no pretence of being able guess which way a banker might jump. I merely wanted to point out their existence to people here who might never have heard of them. Very nasty hand grenades they are.
Like you say, it's not black and white. If it was, then the shares would be at either 0 or 20p+. The fact they're at 4p says there are two opinions, although perhaps the fact they're much closer to zero than 20p, suggests something?
I like your idea of a portfolio of dodgy plc's where the downside is 4p and the upside is 16p+. Who else are you bettin
Thank you, Gewillia. That does answer the question. A couple of thoughts in return 1) the valuation of TC at £1.5bn is more than 35% below peak. FTSE is about 28% off peak. It’s a cliche I know, but investors like Bricks and Mortar. 2) Yes, shopping patterns are changing, but centres are also about entertainment - shops, restaurants, bars, cinema etc - the strong will benefit as the weak fail. TC and intu have prime assets 3) leftfield actions by “Deep Pockets” happen more frequently than predicted. I note over the weekend the Ritz was sold for half the price we’re touting for the TC. Strange but true. So I see a probability you are right, but a material chance these are worth substantially more - high risk, high return - but with an asymmetric payoff in the holders favour. Hence, I diversify across a broad range of such names and limit the risk in each one. It has worked well over time for me. Well done on your other investments. ATB
Wigwammer, If I knew the answers to your two questions, I'd be richer than Bill Gates.
Is there a material chance that someone will pay £1.5 billion for TC? The optimist in me would have answered this question, before 1st March, with "Maybe". Simply on the grounds that assets of this quality come on the market very rarely. There will still be a need for some bricks&mortar shops, even if online goes to 67% of retail sales, and when that war is over, the very best, like TC, will be left standing. And if 'Deep Pockets' is prepared to take a 10 to 15 year view, then he'll likely be showing a good paper profit in a decade's time. Whether 'Deep Pockets' actually exists, I have no idea. I've been retired too long. Hence the "Maybe".
However, today, with Covid-19 hanging around for months yet, my guess is "No". For two reasons; One, the financial system is being upended by the (very necessary imo) lockdowns. Where that will end, no-one knows. And, as always, in a crisis, Cash is King. Secondly, thanks to the stock market rebalance, down roughly 25%, there are now all manner of other first-class opportunities to invest in assets and companies with proven business models, which are free of the sort of structural problems that online is posing to shopping centres. Meaning they're much less risky.
These other opportunities do not require taking a 5+ year view. They'll double your money in 12 to 24 months. A quick example from the recent past; Housebuilders tanked after the Brexit referendum. I saw no reason to believe that the UK population would stop buying homes just because of a referendum. We all need somewhere to live and in, or out, of the EU, I could see no logic is assuming that people would stop buying new homes. Consequently in early July of '16, I bought Persimmon and Berkeley. The former for £13 and change. Sold in December '17 for £27 and change. Ditto Berkeley. In at £25. Out at £41. A risk-free almost 100% in 18 months. (I wish they were all that easy).
I'm going off for a coffee now, so I'll give you my answer to your second question later. Please remember, in the meantime, that my comments are just opinions. They could well be wrong. I try to base them entirely on cold, hard, facts and numbers. No emotion. But humans are very emotional. That's how we tend to behave. Some gazillionaire, madder than Donnie Trump, might fall in love with TC and pay £2 billion. It's unlikely, but you never know.
Many thanks for another thought provoking response, Gewillia. It certainly helps to add relevant numbers to analysis rather than emotive platitudes. I guess my immediate thought is - with all due respect - you haven’t answered either question posed. Is there a material chance that the TC is purchased for £1.5bn? Are there reasonable economic reasons for thinking a purchaser will be pleased in 5 years time? These are difficult questions to answer = but reasonable ones. If one is going to go on to a public board - where people may be influenced to sell or short shares at low levels - and suggest that intu is uninvestible then one needs to demonstrate why there is no material chance that the shares are worth more than they are now. With regard to your follow up - if a £1.5bn valuation is achieved, you state they will receive nowhere near that. Not sure what you mean. Post fees, they will likely get £1.4bn+. With that liquidity they can do all sorts of things. As you suggest - pay down the £700m debt due on TC. Repay debt early as required by covenants: £113m group asset level + £161m rcf + £34m group level rent = £308m. £1bn+ gross debt repaid. £392m net cash addition. The likelihood of cross default clauses being invoked under these circumstances - a fear which you do not quantify - reduces substantially for the simple reason that the leverage falls, equity ratio rises, and the liquidity position vastly improves. The remaining debt holders are in a happier place. Taking a further 20% valuation hit to the U.K. assets, or £900m, would still leave £700m net equity, or circa 50p a share for shareholders. In short, it is quite important to answer the questions posed above before encouraging people to act on sentiment because - if there is a material chance of such occurrence - you may be encouraging them to sell at the worst possible time. For clarity, I suspect the probability is this share is worth zero. But there is a material chance it is worth well north of 20p. It’s not black and white as some suggest, nor should people be encouraged to think it is. ATB
With respect, Wigwammer, I mentioned, very deliberately, no possible price at all, saying of Mr. Whittaker, "I'd imagine he would like to buy this particular asset for himself. Whether he wants to? Whether he can raise the wind? Who knows?"
If someone comes in with a bid, they won't be paying Intu the entire contract purchase price, so there's no £1.5 billion of liquidity, or anything approaching that. Per the annual accounts, there appears to be at least three sources of debt attached to the property. The lawyers for any purchaser will be under instructions to pay the amounts required to repay the debts direct to the lenders. Just as your solicitor pays your mortgage lender any outstanding balance, when you sell your home, before they send you a net cheque for the equity.
The main secured debt on TC at 31.12.19 was £697.8 million. You will appreciate I am no banker, the unsecured financings are fiendishly complicated and the published detail is almost certainly insufficient for even a qualified outsider to analyse their impact on the company's cash reserves. So I can make no comment, except to say that if a sale was negotiated for the Trafford Centre then some £700 million would come straight off the top to repay the secured debt alone.
Whilst that repayment would apparently leave Intu with several hundred million of net cash, I beg to point out that Intu has probable more immediate short-term liabilities of several hundred million pounds, should the assets fall another 10% from their 31/12 values. The annual report discloses, that in this event, and after receipt of all money from the Spanish sales, the company would have to pay £113 m to the lenders at asset-level mortgages. Plus, £161 m to the lenders of the Revolving Credit Facility to cure net-worth and borrowing-to-net-worth covenants. That's £274 m out the door. Throw in the fact that Intu has a portfolio of Interest Rate Swaps, that are over £300 m underwater and have to be repaid eventually, and it appears "the equity" from a future sale of TC is disappearing through shareholders fingers faster than snow melts in a heatwave. The "liquidity" is a mirage.
A final warning, in response to other talking cheerily about bonds that don't have to be repaid, or refinanced, until 2022, 2023, or whenever. All lenders have a very nasty device called a Cross-Default Clause in their paperwork. If Intu incurs a penalty and seeks a waiver in June, whether or not it is granted, they are legally "in default" of that loan. CDC's permit every other lender to claim that Intu is then in default to them too. PI's are thus in the position where they are hoping and praying that no lender decides to pull the pin on June 30th. What's the chance of no lender breaking ranks? This is another reason why I am pessimistic. Rothschilds have their job cut out. I wish them well.
Thanks Gewillia. So are you saying there IS a material chance that intu sell all or part of the TC for £1.5bn? If so, with an extra £1.5bn of liquidity, why will they have difficulty meeting relatively small covenant breaches on the other properties? Just to add a little of my own thoughts. The investment case here is very different at 5p, than it was at 55p, or 105p. Because at the higher levels of valuation the crystallisation of value from the TC stake would have meant relatively little in terms of shareholder upside. But if the valuation of TC is realised at anywhere near book value (£1.65bn) with the market cap at £55m, then the upside for holders (including whittaker) runs into 100’s of percent.... Sorry but I think your thoughts on mm’s misrepresent their role - they will simply be acting on the request of a fund manager, who may or may not know what he/she is talking about. If they are anything like coronation, or the property analysts that advised coronation, they may be an MM acting on poorly informed instruction. ATB
IMO, shareholders BODs should accept any offer from Whitekar, of course above 40p if he is ready to commit £500m to £1000m to debt, all will be smoothie
Indeed Wigwammer, there's every chance that someone, perhaps several parties, with deep pockets will come in to buy the assets. They're great property investments, with the exception of the onerous terms of the Derby 50%.
Were I a PI now though, I would be worried that such a buyer would approach the lenders on a property, instead of the company. Trafford Centre appears to be some distance away from penalty liabilities, but most of the others are on the brink. Let's imagine a situation where Centre X is about to trigger a liability to pay, say, £25 million in June and Intu asks for a waiver. Lender is very nervous. Deep Pockets offers Lender an amount that keeps the lender whole, after expenses. So Lender refuses to grant waiver, forecloses and flips Centre X to Deep Pockets. Where does that leave the PI's?
This situation is such a horrible mess. The retail investment market was so knackered already, thanks to online, and now Covid has turned the apple-cart upside down.
Trafford Centre was developed by Whittaker and is apparently the apple of his eye. So I'd imagine he would like to buy this particular asset for himself. Whether he wants to? Whether he can raise the wind? Who knows?
And what would be left in Intu, in the way of cash for the PI's, after, what would effectively be, a partial, or total, company liquidation, is anybody's guess. The legal & accounting fees involved in those exercises tend to be beyond mouthwatering. For anyone going long, it's all one almighty gamble that there might be more than 5p left for the PI's, in this scenario.
BTW, I think Scoredagainsteps comment at 14.31 Monday is very telling. His Market-Maker pal is warning him. That means the Market-Makers are very nervous, which means they are overall short the stock. If you come in to buy, they will sell you stock they don't hold and buy it back for less later, to close their short. This explains the enormous spread in Intu - anything between 10 and 20% difference in the Bid & Offer. When the MM's are overall short at 4p, that tells you where they believe the SP is going - likely to zero! The MM's don't want to be left holding any possibly worthless shares. All IMO.
Also, with respect to MM’s everywhere - their expertise is in building relationships and finding liquidity. They are not usually your “go to” people when it comes to knowing the inside line on fundamentals and valuation. It is a little misleading to suggest otherwise to an audience where some people may not recognise the role of an mm.
Thanks Gewillia. Informative. Not trying to catch you out at all, but genuinely interested in your view. Is there not a material chance that someone bids £1.5bn for the trafford centre, or an equivalent valuation for part of it? And is there not also reasonable economic reasons for believing this investor will be pleased with the valuation outcome in 2025? With all due respect the industry you represent - it is precisely the professional valuers and institutional shareholders who just locked in losses at 5p - that ballsed up the valuations in the first place. Getting it this wrong does not make them fountains of wise prescience. ATB
SharketMare, forgive me for intruding on a question that you asked Sain, but he and I share roughly the same age and background - London-based commercial property starting around the last quarter of the last century.
Although I've never invested in, or shorted, a single share of Intu, it was plain to me over a year ago, when the SP was north of £1, that this company was headed for the rocks. Because of my experience, I decided to make it my business to warn any less experienced potential investors of the grave danger of going long on Intu & explain why the potential was so deceptive. The numbers just didn't stack up. They still don't. The properties are beautiful, but the debts attached thereto are far too large. You have to have expertise in following the public numbers, in order to judge the risk & probable outcome of the company's investment and debt policy. Having experience going back 50 years, seeing several similar situations, which all ended in tears for the PI's, I reckoned that most PI's lacked that and thought I should warn them. Sain is coming from the same place. He has been singing the same warning song, perhaps for even longer. He speaks the truth.
I've, more or less, shut up, because the shares are now trading for pennies & warnings are not needed. The SP & the company's announcement that they have been unable raise funds to pay down the debts, tells you all you need to know. Whether the major shareholder has sufficient cash to mount any sort of rescue remains unknown. Last week's decision by a formerly 10% shareholder to bail at 4 to 5p over a matter of days, suggest they know that he doesn't.
So, where are we now? The comments here are beginning remind me of those to be seen on the very small companies that purport to be active in Oil& Gas or Gold Mining in the wilder parts of the world. Wild optimism that some white knight is about to ride to the PI's rescue & bail them out. The riverboat gamblers, whom I greatly admire for their courage, are into this stock like a rat up a drain. Holding for a day makes you a long-term investor. Intu is about as far from being a prudent 'widows & orphans' investment as Madonna is from being a virgin.
Rishi Sunak might lend them some of his £330 billion? Whittaker might bid 5p in August? Pigs might fly. It's all possible and I have no opinion.
But I do know one thing; Sooner or later companies like Intu run out of cash. They can't pay their bills. They're insolvent. Intu are facing enormous (£100m to £300m) penalty payments to lenders starting in June and now their tenants have stopped paying rent. 70% of the expected March cash-flow has vanished. It's an offence to continue trading when directors knows the company is facing insolvency.
Why do I still come here daily to read the news? I'm just waiting for the RNS announcing the appointment of administrators. Enjoy your trading, but take heed of ScoredAgain's post at 14.31 yesterday. Good Luck!
Well I will answer your question if you are so interested
You might also like to ask Double what his motives are in consitentally ramping a share when the company is falling apart
Been involved with retail property as an agent, mangement ,valuation , investor and owner all my working life . The INTU story is of huge interest to me and how the story pans out will impact me greatly elsewhere. It also influences any investment decisions I might make Whether I still own shares or not in INTU has no bearing on that
My comments are more observational than negative They tend to be factual with market based links and comments from elsewhere. I will of course seek your permission before I post again
Sain, I've only paid cursory attention to this board since taking a punt and making a quick exit. But in that time I have seen that you were previously invested and now have sold up. Presumably at a loss. Why do you persist in remaining on this board and posting exclusively negative comments on the share? Are you just really annoyed that you didn't do well out of it and this is some bitter online vendetta?
I don't get why you would spend time posting about something you're no longer financially involved in.
No he is not like that he is straight , Never tells me anything , In all fairness retail is on its knees .
You owe him a beer .Best piece of advice he has given .Any other markers from him?
WEll a close friend of the family who is a mkt maker said stay clear of intu . Otherwise i would of bought he can be wrong cant he
https://www.bbc.co.uk/news/business-52093585
DOMINOES BUT NOT AS IN PIZZA
Carluccios collapses who are in many of Intu Centres following Brighthouse earlier