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Hi Hereshopin, Re yours of 12.30 Friday. Apologies for taking so long to reply, I went to the sunshine at York races for the past two days. The numbers I set out at 12.15; namely the amounts needed to get the Balance Sheet down to an appropriate debt-to-assets ratio of closer to 30% from a present close to 60%, plus the effect on that ratio of the Derby sale, were obtained firstly, from Intu's RSN of that sale, dated 9th July. In Para 4, the final sentence reads, "On a pro-forma basis, the transaction reduces debt to assets ratio by around one percent."
In Intu's Half Year Report, the Results Summary numbers at the beginning show, on Line 8, "Market Value of Properties" at 30th June of £8,357,500. The next line, #9, shows "Proforma Net external Debt" of £4,714,200. That debt, as a percentage of total assets is 56.4%. Which, in my book, is "close to 60%".
To have had a debt-to-assets ratio of 30%, on the 30th June gross assets of £8,357,500, would require a gross external debt level of no more than £2,507,100. The difference between that amount and the current debt of £4,714,200 is £2,207,100. Hence my comment that, imo, Intu needs a cash injection of around £2 billion pounds to rebuild it's balance sheet and get the ratio down close to 30%. The level at which most other large real estate companies operate.
I hasten to assure you that I would never knowingly post bad numbers on this, or any other website. A reputation for credibility is hard-won and very easily lost, the moment anyone strays off the straight and narrow. So the last thing I'd ever do is deliberately post erroneous numbers. The readers of LSE are hopefully far too bright to fall for such a dodgy poster, more than once, if at all.
2-3 years ago, Amazon and other online retailers were also very active and growing. But intu share price was much higher.
At present, we have a full set of toxic factors: Brexit mess, low pound, higher costs to retailers due to low pound, growth online shopping and ... huge amount of negative publicity.
All the above, plus of course big intu’s debt (big hello to management) depressed the shares.
But prime, best shopping centers in the UK will not be unused.
Once sentiment turns , intu can shoot up. But, equally, if poor sentiment persists and management does not sell big centers, intu may struggle to refinance.
KAZ operates in a cyclical industry, Intu operates in an ex growth industry currently being destroyed by amazon et al. Apple and oranges.
zccax77, I often agree with your posts as they are often good. However, I cannot agree that JW gave up on intu.
Last year he made everything possible to take it private even in falling market. It was Brookfield who withdrew their support. JW spent many years of his life to create Trafford Centre and it’s absolutely beautiful shopping center.
There are ways out for intu from this crisis.
Few years ago I owned KAZ shares, they were trading at less than 100p because of balance sheet, debt concerns. Then they shot up to above 700p.
Intu shares are risky now but there are ways out and sentiment towards one of best shopping centers in the UK can improve rather quickly. Luckily we still have at least one year before first significant refinancing
JW has basically lost his life’s work. He swapped his gem which is Trafford for the carp in Intu’s portfolio, a very poor trade. I think JW has given up on INTU. The problem is if he tries to rescue it, it will take down the rest of his empire with it. Pretty risky for him. Google Peel holdings and you will see he is now devoting his time and effort into other projects as part of Peel 50:50 project, including building a massive mixed development right next to the Trafford centre.
Also, I do not believe that John Whittaker will allow management to just sit and watch his shareholding of close to 30% and his lifetime work disappear and go to creditors.
Maybe I am wrong but I see him as one of shareholders who will fight to reduce the debt level and get refinancing done successfully with no delusion to existing shareholders.
Yes, sale of entire Spanish portfolio may not be enough. Intu needs also to sell something like Trafford Centre even at a discount. If they sell it say for 1.5bn (which is 20% discount to its depressed value as of July 2019) then it makes the change to the debt and future refinancing.
I do not feel that intu is now lost to the current shareholders. But management must act boldly and quickly.
Another hope is that Brexit uncertainty is gone in a few months and sentiment towards UK improves. In this case, intu and its prime shopping centers should be very attractive to takeover.
If Brexit is soft then GBP exchange rate should rise. That will help to reduce retailers costs and improve intu’s outlook.
Situation is delicate now for intu but there are ways out.
Sorry forgot the nearterm capital commitments:
Short term borrowings -243
Borrowings -4,838
Derivative financial instruments -237
Cash and cash equivalents 401
Net debt -4,917
Spanish Portfolio disposal 631
Pro-forma debt -4,286
Capital commitments -209
-4,495
Short term borrowings -243
Borrowings -4,838
Derivative financial instruments -237
Cash and cash equivalents 401
Net debt -4,917
Spanish Portfolio disposal 631
Pro-forma debt -4,286
I believe you're right, Zccax. This business has close to a 60% level. For as long as I can remember, all major commercial property investors have run with debt levels around 30%. Presumably because that's the average debt level that works best for them, across all bull and bear markets.
The Derby sale for £186 million reduced the debt by about 1.5%. The mooted Spanish sale at around £250 million will cut it another 2.0 to 2.5%. Frankly, this isn't going to greatly improve matters, if your target is to cut debt by 20%+ in the short term.
It looks as if Intu needs a cash injection of £2 billion minimum, to get the debt close to 40%. Punters would do well to remember that while Location, Location is the #1 rule in property investment, the second is Finance, Finance, Finance. If you have the wrong finance on the world's most beautiful property investment, it will still drag you down to ruin. It's like being boyfriend to the prettiest girl in St. Tropez this August, who is sadly & unfortunately riddled with several STD's. Nothing good will result from that for you.
Whittaker and his controlled company Peel own just over 50%. Assuming they could raise £2 billion to bail the properties out, why would they bail out the Intu minority shareholders too? Seems far more profitable for them to do a deal with with the banks and later take 100% of any profits from the refinancing, than to risk their £2 billion and have to share 50% of any profits with the small shareholders here. A bit cynical, I know, but I also think it's more realistic.
I think the real meaning of that comment was to clarify who the real owners of the business now are which are the credit providers. Meaning negligible equity value. The equity from the Spanish sales will barely cover the derivative financial liability of £237m.
There are not many buyers out there for shopping centres and everyone wants to sell, HMSO, BLND, LAND and all the PE owners. Meaning deals being done at yields of 7+%.
" An RNS would be welcome stating what the Company proposes to do to address issues."
Read the half year report - plenty in there , if you havent read it
Just seen Odey asset management are the biggest shorters. Hopefully this price range will keep at the support levels so they will have to reduce their short positions. Seems to be profit taking at these low levels but would only get a very low profit %. Will hold for now as long as it dosn`t go below 30p. An RNS would be welcome stating what the Company proposes to do to address issues.
Just seen Odey asset management are the biggest shorters. Hopefully this price range will keep at the support levels so they will have to reduce their short positions. Seems to be profit taking at these low levels but would only get a very low profit %. Will hold for now as long as it dosn`t go below 30p. An RNS would be welcome stating what the Company proposes to do to address issues.
Its a real estate business with mortgages (loans) on its properties...of course there is a lot of debt.
There isnt any immediate concern over any covenant issues ..loans and bonds spread out over a number of years
Investing money into the ,properties that are currently losing value , so that isnt seen as good in the short term as the balance sheet shows
Selling out of Spain is disappointing as the footbal is up 3.5% and the valuations are holding up pretty well ...although that should mean that there will be interested buyers, just more complicated as they are joint ventures
British Land, Hammerson, Land Securities have all started to tick up from recent share price slumps , so there is beginning to see shoots in the sector , although the retail part of it is obviously still a difficult sector and risky ...the other companies being much more diversified, of course.
I bought a few yesterday but there is no knowing if the shorters will push further or not and any immediate rise could easily be sold into to
Happy to sit and wait and see , and keep a watchful eye
Thank You for the info. If a consortium made a previous offer then at the price of £2.10, it would have been on property values and retailers rental income. Both will have gone down since then but not enough to justify the current SP. Unless there are other issues within the Company, then a takeover should be done now. Will wait and see.
Just had a gamble on this one even though i`m aware a fundraising could dilute more than my Mams lemon squash. If as you say that a sale of the crown jewels would be enough to clear most of the debt, what would a resonable full takeover price in your opinion. Dont know enough about this Company to make an estimate hence the gamble. I would be happy with a £1 offer including the debt as opposed to a fundraising. Looks to be a long-shot for any decent takeover price.
GLA