Member Info for gewillia

Well this chat has gone very quiet in the last fortnight. Surely not everyone is basking poolside in the Caribbean? I was enjoying a delightful foot-massage from my 25-year-old PA, Veronica, until SWMBO yelled from the kitchen, ruining my day-dream, with orders to get the recycling bin down to the pavement.

So, to business: I spent Christmas in London and was surprised by the number of vacant shop units in the south-west of the city, compared to the last Christmas visit in 2017. There also seemed to be noticeably fewer bodies about on the pavements.

It'll be a few days before we get some hard numbers on footfall, etc., with Next's results out on Friday, but in the meantime I thought to share some purely gut-feelings over what to expect in the next few weeks. I think 10% is the absolute minimum to expect in the way of asset devaluation here at 31/12. The valuers really are up against it. The Spanish striptease continues, with no sign of a deal, or at least, one that's acceptable to Intu's board. It's a year from the initial approaches and still no tenners on the table. I reckon there's no deal to be had in this awful market.

Could the valuers go down by 15%? I don't know, but it wouldn't really surprise me, if they did. And what effect would that have on the SP here? I had a beer with a London nephew, an active commercial developer, third-generation. He's familiar with Derby and served his time at JLL's investment dept. When I asked what rate he'd put on Intu's onerous 50% interest, his answer was 11% on projected 2020 income. Which, of course, means nothing, because he isn't doing the valuation, but he does have his finger on the pulse of the market.

And then there's the cash-raise, which is surely coming. Months on since first mentioned, it seems to be taking rather a long time to bring to fruition. That's another pessimistic sign for me. But despite all this gloom, I want to wish "All Our Readers", regular and irregular, a happy and prosperous, Corbyn & McDonnell-Free, New Year and it would be interesting to know what you think may happen in the way of asset-writedowns, here and elsewhere, over the next few months.

I just took a boo at the latest annual report to 30/09/2018. This fund is 40% retail. Their 2nd, 3rd and 4th biggest assets, at an average valuation of £120 million each, are 3 shopping centres. Two in South Wales at Llanelli & Bridgend and one in Maidstone.

The herd instinct suggests that whole bunch of panicked investors in other funds will try to pull the trigger tomorrow and we'll get a repeat of the referendum meltdown, with lots of funds frozen for months. This difference this time is that the 2016 panic was a false alarm. Properties didn't collapse in value just because of the Brexit vote and the market stabilised. This time the general public seems to have woken up to the fact that retail investments, other than, perhaps, the primest of the prime, are heading down the Swannee.

The Grauniad has a good article:

https://www.theguardian.com/business/2019/dec/04/what-does-the-m-and-g-property-fund-own

The fund has seen £750 million of redemptions in the past 12 months. Assets are down from £3.2 billion to £2.5b. Who will buy these large investments and what sort of write-downs at 31/12/19, are we going to see in early 2020?

There's 2 articles in The Times today on pages 41 & 44. P.44 gives interesting background to Zillah's business model and her eye for a bargain, revealing that TI Media, bought last month for £140m, was previously sold in 2001 for US$1.6 billion. Now there's a haircut! Also reveals that Peel Hunt, the house broker, has an SP forecast of £19.95. That we should all be so lucky.

P.41 is mostly the usual back-biting, envious journalist, claptrap; Zillah "could stoke tensions with shareholders". Notice the use of the word "could". This ain't news. It's Simon Duke's feverish imagination over the fact that Zillah was paid £3.33 million cash, plus a share-bonus worth £1.45m last year. Now, under a long-term incentive scheme, she's in line for another share award worth £17.5m.

Duke further exaggerates, breathlessly, "One third of Future investors rebelled . . . either by voting against or failing to endorse the remuneration report at Future's AGM in February." Roughly 30% voted against, and all I can say is that they're miserable bar stewards. Zillah has taken the share price from 60p on April 2014 to £6.70 in February and £14.50 today. The company's value has gone from four-fifths, of five eighths, of sweet tweet (less than £50 million)) to £1.4 billion in less than six years, and you don't want to pay her £3.3 million a year? Her pay represents less than 1/400th of the capital gain she's made for you. IMO you're all ungrateful tightwads and don't deserve to be so lucky as owners of the best-performing share on the LSE main market this year.

Zillah will soon be given 1.25 million new shares. I say it's very well-deserved. Thank you and good luck, Zillah. Keep doing a great job and we'll shower you with more hard-earned riches.

22 November 2019
JMAT slides gracefully down to an intra-day low of 2,944p, from 3,202p four months ago. Looks like UBS were right on the button. What did they know, that we didn't?

OK phy510, Here's your answer; Go to Para 7 in TR-1. You'll see two lines of numbers and three columns. The top line refers to "Resulting situation . . ." That means the position today. The bottom line refers to "Position of previous notifications . . ." This means the old position before the trades now being disclosed.

The third column of 7 refers to Para. 8c, is the addition of the percentages shown in columns 8a and 8b of Para.8, just beneath 7. It discloses the total position of Morgan Stanley. The top line is the total new position 5.49%. The bottom line is the total old position 5.57%. Because the new position is smaller than the old, MS now have a smaller total holding and are therefore net sellers. 8a incidentally is MS's positions in shares they hold directly. 8b is their holdings of any derivatives, (Options, contracts for difference, equity swaps, etc.) that give them some control over more underlying shares.

So you don't really need to bother with all the other numbers cluttering up the form in Para 8, 8a, 8b1 and 8b2, unless you're a quant. Para. 7 will tell you most everything you ever need to know.

Umeed, With respect, the read-across from today's Half Year results of Land Securities, allied to Intu's latest numbers, suggests you are being overoptimistic. You are half-right in saying they don't need a buyer, they need a massive refinancing, but very wrong in saying they're not in financial trouble. They simply have far too much debt. Look at these numbers:

Half Year net rental income £205m, less G&A expenses £21m and Debt Service £134m = £50m surplus to cover all capital expenditure on improving properties and paying down the current total debt of Four Billion, Seven Hundred and Fourteen million pounds. This surplus of £100m pa would take 24 (Twenty Four) years to halve this debt (not the 10/14 years to repay it all, as you suggest). And as Sain points out, they don't even have five years to sort it out.

The only way they can fund any substantial capital expenditure is via more debt and who will lend it to them? Intu appears to understand this, where the Q3 Update says, "reduction in capital expenditure pipeline."

My Sunday estimates of the likely LTV ratio at 31/12 are, perhaps, slightly understated, but based on LSecs regional retail drop in value of 9.4% and ERV drop of 3.7% and a yield of 5.5% (up 36 basis points), it looks highly likely now that the year-end LTV will be either side of 65% (Compare that to LSecs 28% LTV and you see the size of Intu's problem).

Matthew Roberts makes mention of visiting all his major tenants CEO's in the past few weeks. That reminded me of Next plc's CEO, Lord Wolfson, who, in his latest report, said that "Our intention is to halve our rents payable, as all our leases fall due for renewal in the next five years." I'll bet, hearing that curdled Matthew's coffee.

I ran out of space on the weekend and couldn't point out that, if, as, and when, they get the Spanish assets sold, every £100m of sales proceeds will reduce the LTV by 1%. Pretty insignificant but nonetheless helpful, as the ratio will go down.

Wearing my bookie's hat, there's a dirty great Rights Issue coming, if Intu can line up some of the market's biggest operators to back it. Intu have some absolutely wonderful properties, but the enormous unknown is what tenants will be paying to occupy them in five years, as this internet shopping tsunami plays itself out. It's an enormous risk for a KKR, or Brookfield, to plough, say, £200 million, or more, each, into an equity issue to get the LTV down to 32%, only to find in 5 years that it's gone back to 65% because rents have halved in the meantime. Interesting times, indeed. Risky!!

Sain, thanks for the invitation to dust off the steam-driven slide-rule. You wonder if valuers will mark down the portfolio by 12% for the full year? Well, it was already cut by 9.6% at 30th June & HMSO just sold some shops at 5% below their June valuation. This week Intu said to expect another rental income fall in 2020, but not as bad as the 9% fall in 2019.

The valuers at 31st December will know the Christmas retail sales numbers, plus any bad news from retailers expiring in early January, together with Intu's own projected NRI for 2020. Will it be down 3%, 5% or 7%? We may find out in late Feb, with the 2019 results. So, going down the middle at 5%, suggests a portfolio value fall of 9.5%, plus 5%, + 5% between 31/12/18 & '19 = 19.5% down on £9,187 million = £7,490m at 01/01/20.

Interestingly, I confirmed this number using the rental income of £410m for this year, where a 5% drop = £390m for 2020, which at 5.21% overall yield (the number the valuers used at 30/06/19) = £7,485m. Also of interest are the truly enormous falls in the portfolio since 31/12/17 when it stood at £10,529m, to £9,187m in '18 and a likely £7,490m next month, which is matched by the NRI totals of £460m in '17, £450m in '18, £410m in '91 and £390m next year.

A £300m(almost 30%) fall in gross assets in just 2 years probably explains why INTU's quoted debt has fallen from premium prices to 20% discounts today. Lenders are nervous & if they are selling the 1st Mtge. Deb. 2027 down from £110 on 8th August to £80 last Thursday, it behoves even the most optimistic of equity holders to pay attention.

The slide-rule has been working hard. I played with several scenarios, assuming that the capital yields will not tighten, may weaken & the rents are going down by less than 9% in 2020.

The yields projected for 2020 were 5.3%, 5.4% & 5.5% overall and the 2020 NRI falls were 3%, 5% & 7%. These produce LTV %ages of between 61% and 66% during 2020, based on debt reduced from £4,892m to £4,714 after the Derby sale. More pessimistic valuers will produce worse numbers & LTV %ages.

Towards the end of the 2018 full year results is, "Analysis of Rental Income - Financial Covenants". This discloses for the individual properties that no penalties are payable until LTV exceeds 65% for any of them. Some are 75% & Metrocentre is 100%! My calculation is for the overall portfolio & there's a separate disclosure in the half-year results that a 20% overall fall in 2019 would incur payments of £43 million. That's exactly where we seem to be. There will be some penalty payments due to lenders in 2020. Can you hear any rivets popping?

The question is, where's the cash coming from? Right now the half-year cash-flow seems to be temporarily negative; £205m NRI, less G&A £21m, interest payable £113m & capex £124m, (falling to £35 million in 2020) = £54m shortfall. Cash is very tight. Will the providers of the £500m facilities allow any to be drawn down? Interesting t

Intu has no spare cash, mehmeh. What they do have are historic commitments from lenders to provide up to £500 million of new borrowings. Would a lender advance anything if asked now? would be my $64,000 question.

Per the half-year statement, 100% of profits were covered by expenses on interest and their capital expenditure programme. Yesterday, the update said they're looking to reduce Capex costs.

Numbers do not lie. Stripping out the obligatory optimistic puffery, this update discloses that Net Rental Income will fall by 9% this year and is expected to fall again next year, but not as badly. Let's assume by 5%. The half-year results reported a 9% fall in values. Let's be optimistic and assume only a 5% fall over this half and the first half of next year.

Portfolio value at 31/12/18 was £8.9 billion - 15% = £7.5 billion at 31/12/19. (The income goes down by 15%, so the value does the same). Property debt was £5.23 billion at 30/06/19 and is steady. That gives a Debt to equity ratio of nearly 70% at end-December. (The 57.7% mentioned in Q3 is historic and outdated.) Small wonder the Q3 Update says twice that, " raising equity is an option". It's more than an option. It's an absolute necessity, because The projected sales in Spain and elsewhere will take only a few points off that 70%. Not enough to trouble the scorer.

Let's assume that, as a minimum, the Debt/Equity ratio must be brought down to 50%. Half of a projected portfolio value of £7.5 billion is £3.75b, which is £1.5 billion less than current debt. So, I suggest, the capital raise will be for a minimum £1.5 billion, or £1 per existing share, which is three times the current SP.

I have little knowledge of the mechanics and maths of deeply-discounted rights issues, but having been on the receiving end of a number of them, my waters are telling me that a 5 for 1 rights at 20 pence each looks to be roughly in the ball park. John Whittaker speaks for just over 50% of the equity, so let's further assume that he can raise the cash to cover his £750 million.

What about the PI's? I suggest it's getting close to 'Wipeout Time' as very few PI's who've bought in since 1st January will want to double or treble their current investment. This means JW will need to line up some very heavy, risk taking, hitters to underwrite the PI's 50%. There's a number out there; Brookfield, Kohlberg Kravis, to name but two, who are v. experienced property investors. But are any of them in the market to catch a falling knife? We shall see.

Assuming (and it's a big assumption) that I'm half-right in these speculations, current outside shareholders will be left with 5% to 10% of Intu. It's a wonderful property company. The assets are superb, as can be seen from the update, as they outperform lesser quality malls. Maybe sell now and come back later and cheaper once the rights issue is complete? I don't know enough about the maths, but I'm pretty certain that a share price of 35p won't be seen again for a long time, once the Rights Issue is announced.

As always I stand to be corrected, if my maths and/or assumptions are wrong.

Unfortunately Kenny Alexander seems to have made a very public fool of himself (again!) by withdrawing his agreement to give evidence to the committee, when later confronted with the problems faced by one of his "problem-customers".

The committee, of course, has relished the chance to pour doggy-doo all over him from a great height.

Something about, "if you can't stand the heat, Kenny . . . ." comes to mind. We pay him millions a year to front-up at the difficult times, not run away like a fourth-former caught with a cigarette behind the bicycle shed.

HiHi & VitaBella; Your questions have had me wading thru the RNS that appeared between 30/09 & 15/10. Let's deal with 30/09, re JPMorgan: It begins with a sophisticated option trade called a "Strangle". This is where one party believes that an underlying share will be worth either vastly more, or vastly less than its' current price at some future date. Conversely, the writer believes that certain boundaries won't be exceeded. It gives the holder the right to either sell (a Put) at a lower fixed priced, or buy (a Call) at a higher fixed price. The prices were fixed at 255p & 382.5p & the expiry dates are between 27/09 & 20/12 this year. There are 12 'strangles' covering 13,974,545 shares. All were exercised on 26th September.

The problem with Form TR-1 is that there's lots of info' that it doesn't tell you; like when these options were first taken out. So you have to use some intelligent guesswork to fill in the blanks. Thus, the last time that Intu traded between the two strike prices was roughly Feb '16 to Jul '17. Next question; Is JPM the option holder or the writer? (The Form doesn't tell you). The Put side has been 'in the money' since late '17 & has become increasingly profitable since. I would therefore assume that JPM is the holder, because no sensible trader would have continued to hold a writer's worsening loss-making position. So it seems reasonable to assume that in late September JPM exercised the right to sell almost 14 million shares at a profit of £2.12 each (255p less c.43p) for almost £30 million total. In addition there's a one line note at the bottom of TR-1 in S. 11., "Table 8 includes stock borrows of 52,861,867 shares. (3.90%.)" People borrow stock to sell it short. JPM never appears on the official shorters list, so I would presume that JPM was (still is?) long almost 53 million shares, which it's lent out, for big fees, to the names appearing on the Short Positions List. Thus, to my relatively unsophisticated eye, it looks like JPM has hedged its' long exposure on 53 million shares, by buying strangles against any possible large fall and also the Equity Swaps, which are a similar hedging instrument. The pair cover over 42 million shares.

As regards all the option dealing between two Peel Group companies, my take is that companies with substantial cash reserves have transferred their cash to companies with substantial cash needs. I note that these Put Option were entered into on 10th October and exercised on the 11th. Also that the the option tranches are each for 1,060,000 at 255p. This number is (strangely?) very similar to the Put Option tranches in the JPM filings, which are for 1,074.965 shares. Thus suggesting a possible connection between these trades.

It would take a much more experienced investor than me to sort all this out, but my take is that Whittaker has raised large amounts of cash for a war-chest, which he may need soon to keep the bankers at bay, (or take INTU private?

I think I'd like to try whatever you're smoking, haute couture. According to their website ITE, now renamed HYVE, are international organisers of exhibitions and conferences. There's no mention of any magazines. Good Luck with your investing!

Sain, I agree. BMO today has published the quarterly revaluation to 30th September of its' quoted Real Estate fund. It discloses that their retail properties have been down-valued by 5.5% for those outside the South-East and 2.1% for those inside SE. England. Add that to the employment news from the British Retail Consortium that c.85,000 jobs in retail have gone in the past 12 months, or 2.8% of the total workforce. And I can only conclude that, overall, this market is still falling.

Ripley, it's a frustrating habit of some chart websites to delete earlier prices as from the date of a renaming, or stock-split, as is the case here. However, if you visit "www.londonstockexchange.com" they have all the old prices and charts for Paddy Power going back years, and all seamlessly tied into Flutter's prices for the last three months. Just enter the FLTR code in the top right corner of the homepage.

There you'll see that Paddy went over £90 briefly in both 2016 & '18, as indeed Flutter did for some minutes, after announcing the Stars deal earlier this month. Otherwise the 5 year lows were traded between March and June of this year, around the £55 mark. So the current price is midway between the highs and lows.

Such has always been the way, Repression. The bookies nourish their profitable clients and discourage the costly ones. I knew Bernard Murphy, owner of one the largest betting shop chains in Liverpool, fifty years ago. An amiable man, who freely admitted that he loved the punters with their sixpenny-each-way 6-horse accumulators and hated the likes of myself who placed one or two single bets a week on a stakes race, usually two-year-olds, ignoring all handicaps, with £10 or £20 each-way.

When I said that 6d each way was a tough way to earn a living, his reply was "All grist to the mill", explaining that the chances of those long-odds bets ever coming in was close to zero, so if you had 1,000 punters betting a shilling a day for six days every week, that amounted to £300 a week, equivalent to at least £4,000 a week today. But if I came in and turned £20 into £120, that wiped out the losing efforts of hundreds of his punters that afternoon. This is the reason why the bookies drive Rollers.

It used to be possible to learn each shop's limit where they had to call the bet into head office, before taking it, and then have a good lunch-hour walk, around the city-centre betting shops, putting on just under the limit here and the same there. Although they did get to know my face. Nowadays with these pesky computers, head-office knows every bet going on in real time, which must make your job very difficult. Good luck anyway.

By the way, you're absolutely right. They do want mugs. Just look at the bets they offer, "Arsenal to win and keep a clean sheet plus Lacazette to score." with odds of maybe 4-1. It's nuts. The bet is a triple anyway and they're offering single odds. Anyone making a bet for a particular player to score, even Lionel Messi, is tossing a coin, but Barça to win? Until recently, that was a very different bankable proposition.

Thanks for this post, Sain, which details all the stores that closed in the Derby centre in the past few years.

What catches my eye are the four stores that were open at 31.12.2018, but which have shut their doors between January and June this year; Byron, Patisserie Valerie, Oasis and New Look Men. The rents they were paying will be included in the guarantee that Intu gave to Cale Street to maintain their 50% income at 31st December '18 levels.

So Intu is now subbing Cale for half these rents that are no longer being received. There's no news on any relettings, but this is unlikely to help the upcoming 31st December revaluation, especially if any reletting is at less than the 2018 passing rents.

Hi there, Sain. Here's another story from the BBC, this time about Harrogate shops. What I took from it was, a prime location, vacated by a CVA, was relet at half the previous rent. And if national-multiple covenants (whatever they are really worth these days) are being replaced by Mom & Pop Cafés, I imagine that will affect yields too.

https://www.bbc.co.uk/news/business-49923459

And they duly came true three months later, Silotar. Does no-one have any (printable) views on the proposed takeover?

Some of the press seem to think they'll have difficulty getting it past the monopolies and mergers regulators. Personally, I'm more interested in the short-term results of the new market in legalised sports betting in the US. With the NFL season now into Week 5, both GVC and WMH are due to update the market next Wednesday, which may give us a read-across on how Flutter is doing there.

You make a good point, Umeed, that current net rental income is still sufficient to service debt. The question I ask is, for how long might this continue?

H1 2018 NRI was £223m. which fell to £205M in H1 2019. Debt service in H1 '19 was, as you rightly say, £134m, leaving £75m for Capex, Dividends, etc. In the annual report to 31/12/18, the then chief executive said that Intu has a capital expenditure programme of £428m for the three years starting January '19. That's roughly £71m per half year.

So there's no spare cash for a dividend, as 100% of free cash-flow is now committed to debt service and planned capital expenditure. All of this is before any possible current & future falls in rental income, due to the many problems that we're already aware of.

Likewise in the 12th main heading of the annual report, Financial Strength, the CEO laid out a stress test showing the effect on any covenant shortfall, in the event that capital values continued to fall from their 31/12/18 levels. The first hypothesis was a 10% fall, which showed a covenant shortfall of just £1m. Interestingly, we seem to be at just that point right now. Intu themselves later suffered a 7.7% write-down, as of 30/06, and yesterday Hammerson announced the sale of one of their shopping centres "at 3% less than 30th June valuation." I may be comparing duck's with oranges, but it does suggest that values are still falling and Intu is right on the edge of triggering loan covenants, requiring cash payments to lenders.

The CEO went on to say that Intu has £500m of undrawn loan facilities, suggesting that any covenant cash shortfalls could be paid from them. It's been my experience that undrawn credit lines disappear like snow in the Sahara, when the going gets really tough. I instance BP when their Gulf of Mexico well blew up; they admitted later that, at the height of the row with the US President, all of their international credit lines were closed. The bankers, as usual, were in the business of lending umbrellas only on very sunny days.

It seems to me that Intu's cash position is very tight and their capex programme may be in danger of having to be cut.

Finally, in the same 2018 report, the CEO mentions how unsolicited offers have been received for the Spanish properties. These offers can't exactly have been of the "Quick. let me snatch your arm off before you change you mind" variety in terms of price, given that nothing has been concluded over nine months later. I advocate extreme caution before betting the farm, or any money you can't afford to lose 100% of, on this particular stock.

It appears MERI is about to help Merian's open-ended OEICS get out of their £90 million illiquidity jam, by buying their interests in a boat-load of unquoted securities "The Transaction".

Thus filling their OEICS with cold cash and ensuring they don't suffer from a 'Woodford Moment', should their investors get nervous, when Woody's funds are finally reinstated and promptly liquidated by a herd of investors charging for the door, sometime next year.

I do hope there's an independent valuation to protect our interests. Meantime this little bail-out exercise has seen MERI's price collapse from £1.37 on August 15th to £1.20 today. Thanks guys!