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Difference between Scottish fund and Property shares is that, many fools who are investors, can ask Scottish fund to encash their investment and Scottish fund knowing that property shares in their fund is undervalued, still have to encash them effecting value of other shares they hold. As for Property shares, they do not need to cash their shareholders. If fools come to market, they sell their assets cheaply, that is all.
As for Intu, even at present valuation, they have around £8.3 billion worth of assets and £4.7 billion in loan. With net asset of £3.6 billion, if they borrow a billion pound to pay of old expensive billion pounds loan, all their perceived problem would be over and share price could go over £2.00 in no time.
With so much liquidity in the market, I think such borrowing is not too difficult. Since Intu do not need loan urgently (their payment would come in 2021), they are taking life easy, that is all.
Overall debt of £4.9 billion in Dec 2018 has reduced to £4.7 bn in July 2019 ... and is further reducing.
For instance, I wrote earlier: Intu needs to pay:
2021: £1.16 billion to pay
2022: £ 775 million to pay
2023: £1.03 billion to pay
2024: £ 593 million to pay
has reduced to:
2021: £926 million to pay
2022: £ 778 million to pay
2023: £1.03 billion to pay
2024: £ 668 million to pay
Further reduction in debt and moving debt forwards must have happened by now.
Covenant headroom on both loan to value and interest cover are as follow:
15 per cent fall in capital values from June 2019 valuations would create a covenant shortfall of £83 million (obviously, that can be covered by already held £500 million in cash and facilities).
In this 15 per cent fall in capital values (that hasnot happened, but if it happens), is from none of Intu investment grade bonds, secured on Intu flagship assets (around £4.7 billion of asset base), would reach their covenant limits
Majority of the interest cover covenants have substantial headroom. 10 per cent fall in income would create a covenant shortfall of £26 million (no problem at all, even if income falls by 10 percent or more).
Committed investment (£209 millions), £124 million already spent in 2019, further £85 million to be spent by end of 2021 ... all these investment would further increase income and investment value:
At intu Broadmarsh Intu commenced construction of the £89 million regeneration of the centre in January 2019. This leisure led scheme will be anchored by The Light cinema and Hollywood Bowl, with two-thirds of the units either exchanged or in advanced negotiations
At intu Trafford Centre, construction is underway for the expansion and transformation of Barton Square which will open in spring 2020. The £75 million project is enclosing the courtyard, enhancing interiors, allowing trading from two levels and providing a fashion offer for the first
time at Barton Square with Primark anchoring this development
The extensions at intu Watford and intu Lakeside are now open, the remaining spend relating to the final lettings
Active asset management projects total £61 million and include £11 million enhancing the look and feel of intu Merry Hill, £7 million to complete the final design and resolve any outstanding planning matters at intu Costa del Sol and £8 million enhancing the food court and ski-zone at intu Xanadú
I think, all this is encouraging. I sincerely believe, Intu share price could be over a pound (or £1.50) after briexit and could be over £2.50 by 2022 (if not by mid 2021) ... So, wait if one can or throw their savings selling cheap if one wants.
Importance of a business success is not on what outsider value its real state, but it is, how much profit it is making in business. There are many companies, whose real state value is irrelevant, and their market value is determined by money they are making.
As for Intu, company has around £ 4.6 bn debt but making over £500 million gross profit. Intu profit covers ~ twice the interest on debt. Intu also has around £500 million, mostly cash, accumulated because they did not pay dividend and also from sale of some assets. Intu property portfolio is huge, that is still around £8 billion after billions written off.
So, why share price is so low? :) ... To me, it is process of wealth transfer that regularly happens from nervous investors to cleaver one.
Well, there is reason for some to get nervous. That is, if no lender refinances the debt than Intu has to find ...
2021: £1.16 billion to pay
2022: £ 775 million to pay
2023: £1.03 billion to pay
2024: £ 593 million to pay
Overall, between 2021 and 2024 (in 4 years), Intu has to pay debt £3.5 bn to lenders. That is problem if lenders would not be willing to refinance the debt
[Remember, intu properties are still 45 percent owned by Intu and debt only constitute 55 percent of assets ... plus intu earning is almost twice the interest intu needs to service the debt). ... Situation is worse than most homeowners ... as majority of British would become homeless and in trouble if mortgage companies would ask their mortgage debt back]
I believe Intu would find no difficulty in refinancing their debt and thus there is nothing to worry about (other than nervous fools, whose wealth should get transferred to those with belief and sense).
VitaBella: I am not worried about share price going down. I buy shares and forget what price of that share is doing in the market. I wait and wait, until Company I bought Shares goes bust or give me good return. In between, whatever the share price does, is irrelevant as far as I am concerned. I avoid playing with my health and blood pressure worrying about intermediate SP between company going bust and me selling shares at profit (or keep taking dividend). I occasionally write here on the forum, just for passing time.
As for INTU is concerned. they are not short of cash. They have around £500 million cash facilities, mostly cash. Their rental income is such that they can service debt they have and still left with more than £200 million cash.
Only problem is LTV (Loan to Value) ratio, and I believe value of their assets has gone down considerably, still it is ~ £3 billion more than debt, so no problem. Worse problem is repayment of loan in 2021, but that problem is only real problematic if loan would not get renewed, and I believe lenders would renew it, as they know Intu can service their debt (there is no chance for default) and lenders also need borrowers, thus all this LTV shortfall in this uncertain market is just a cosmetic jargon. not to worry about. Regardless, Intu LTV would only become problem if retail property valuation goes down further 20 to 25 percent from present state.
Remember, Intu debt is still only 55 to 56 percent of present property value. In other words, Intu asset is around 44 to 45 percent of what they hold as properties. In UK, where many can take 100 percent mortgage, having 55 percent mortgage generating twice the financing cost in income is no big deal.
Problem is that, if LTV goes below 50 percent, INTU could pay dividend and save on Tax payments. Regardless, I do not mind if INTU do not pay dividend for next few years or until retail property value stabilises.
FT Share price forecast: 18 analysts offering 12 month price targets for Intu Properties PLC have a median target of 34.00, with a high estimate of 118.00 and a low estimate of 28.00. The median estimate represents a -9.77% decrease from the last price of 37.68.
So, even today, many analysts believe Intu in 12 months could be as high as 118 pence. I believe, once Briexit would be over, within a year of that date. Intu Share price would rocket to over 200 pence.
News: 12 Nov 2019 ... The first tram has been tested along the new Trafford Park line, heading out to the Trafford Centre . The £350m Metrolink extension project, supported by Trafford Council , will see six new stops added out into Trafford Park and is expected to open in the first half of 2020.
Above news means more visits, more profits for shops, more money for Intu and increase in valuation of Intu trafford.
I think, this news alone is worth 100s of million pounds increase in Intu trafford investment - compared to June 2019 value.
Whatever anyone says. Truth is that, Intu do not need buyer nor they are in any financial trouble. Position is that, if Intu do not pay dividend for next 14 to 15 years, they would pay off their debt without doing anything and would be debt free with all their assets what they have now.
Another thing to remember is that, if retail sectors have no value than why anyone would buy it anyhow? … Or if retail sector is losing value and eventually, would be valueless, then also no one would buy with such prospect. So, in that case, into share price would be already zero, company bankrupt and there is no way they can come out of this pit hole. If anyone thinks that into is already valueless, then they should transfer their shares to me and I would pay them a nominal sum, maybe few pence, as to them, even few pence are something for shares they believe is valueless.
As far as I am concerned, I know that people can make or lose money in shares. Keeping that in mind, I would prefer losing all my investment in Intu (several 10s of thousand pounds) because company gone bankrupt than losing due to stupid decision (of selling low), because I believe if I lose my investment in Intu than that would be bad luck of holding shares in good & solid company, as I believe I would be stupid if I sell Intu shares below £2.00. In reality, I believe Intu share price would rocket after Briexit finalises (in EU or out) and once dividend would start (most likely after Briexit), Intu share price could shoot over £5.00, and that could be few years down the line.
MaverickD: Why u think Intu management is looking for a takeover buyer (a buyer not for any particular asset they want to sell, but buyer for entire company)? Intu has no problem servicing the debt, rather, with present rent income (after paying all sorts of running cost), they can service twice the debt they have.
Problem is debt maturity in 2021. Intu can borrow to repay or repay using cash they have, plus more asset selling (or asset selling plus going for right issue). If property value keep going down substantially and continue going down next year and year after too, borrowing to repay debt would be difficult. Thus, Intu is taking step in advance. Intu is raising capital that they may not need if property value does not decrease substantially.
But to sell the company cheap? That is and should not be an option. Each share even today is backed with over £2.00 assets and they can service the debt even if rent income halves. Even if offer comes, I doubt Intu management would accept it if offer would be substantially lower than their asset value.
INTU mid-term Strategy update to fix the balance sheet: Is there anything to worry?
- as highlighted in the 2019 interim results, we are working to make material progress over the next six months in fixing the balance sheet. We have no material debt maturities until intu Milton Keynes and the SGS term loan in early 2021, but our focus is to create liquidity to deal with these upcoming refinancing activities and address any actions which may be required to manage credit exposures with banks that arise prior to that, including from further falls in asset values. Our self-help measures to do this are:
… [Intu is planning ahead for debt to mature in 2021 – no immediate debt maturity problem. Mentions POSSIBLE steps Intu could take]
- retaining cash generated from operations within the business
… [Intu not to pay dividends, save money for debt maturities]
- disposals and part-disposals of assets both in the UK and Spain
… [Intu intends to dispose some assets - Intu they have until 2021]
- reduction in capital expenditure pipeline
… [Intu intends to reduce capital expenditure in pipeline that would save some cash]
- in the period, we have:
- entered advanced stages of negotiations on the disposals of intu Asturias and intu Puerto Ve-necia, and at intu Xanadú, where our lock in period expires in summer 2020, we are continuing discussions with our partner
... [Intu entered advanced stage negotiations on various disposals. Remember: if Intu do not want to take loan to pay maturing debts, they need to cash-in some of their assets by 2021)]
- initiated a review of options for disposal or part-disposal of certain UK assets
… [Intu is also looking at option of disposing some of their UK assets]
- disposed of a further £21 million of sundry assets, 13 per cent ahead of their December 2018 valuation. Year to date, proceeds amount to £33 million from sundry asset disposals
… [Intu already disposed £33 million sundry assets and intend to dispose further £21 million sundry assets. They disposed £33 million assets at 13 percent above Dec 2018 valuation. It is good news, as Intu is managing to dispose off assets at above Dec 2018 valuation].
- we will continue to keep all options under review from the self-help measures described above through to raising equity, which is also likely to form part of the solution
… [Intu is saying that along with no dividends, reducing costs and disposing assets, if required, they MAY need to raise equity, as it is part of solution]
- net external debt reduced by £210 million in the quarter as a result of the part disposal of intu Derby, with loan to value of 57.7 per cent, based on June 2019 property valuations
… [During last 3 months (last quarter), Intu reduced £210 million debt, resulting in 57.7 percent debt to value ratio (where property valuation is based on June 2019)]
Remember: Indu already have around £500 million in cash and facilities (
Let see facts, what Intu financial statement for last 6 months (Jan 2019 to June 2019) says:
Gross rental income: £ 237 mn
Net service charge expenses & void rates: £ 13 mn
Bad debt and lease incentive write off: £ 2 mn
Property operating expenses: £ 17 mn
Total £ 237 – (13 + 2 + 17) = £ 205 mn
Thus:
Net rental income: £ 205.2 mn (as above)
Admin expenses: £ 20.8 mn
Net finance cost: £ 113.5 mn
Taxation: £ 8.7 mn
Others: £ 4.2 mn
Net earnings (after all expenses deducted in last 6 months, from Jan to June 2019): £66.4 million. That translate to around £ 132.8 mn net yearly earnings.
(This figure, £66.4 mn earning in last 6 months – equal to £132.8 mn earning for whole year, is most important … if it start going negative, then only there is problem, still, with huge asset, that is also not too big a problem).
[Note: Finance cost was higher than last year, as company did some readjustment and rescheduling of finances, thus, a part is one-off fees.
Taxation: £ 8.7 mn - If company do not distribute profit to shareholders, they pay tax]
Meanwhile, company has cash and availability facilities £ 495 mn (as far as I know, that is mostly cash with the company … saved from not paying last dividend, part disposal of Intu derby and reserves).
Now come to debt and covenants headroom:
If (and if) retail property value with Indu reduces by 10 percent from Dec 2018, then Intu would need £16 mn to correct everything. On the other hand, if reduction is 15 percent then Intu would need £83 mn (Note: Intu has around £495 mn cash and availability facilities, mostly cash).
But then, every company can go bust but looking at present situation, there is very little to worry about. If a person gets worry about company going bankrupt, they should not buy shares.
HeresHopin: Cleaver people are those who do their own research and read other people's opinion, then evaluate it using facts and figures. These people stick with their own evaluation and even if they lose, they cannot or couldnot blame others.
Dumb people are those who who make opinion without facts and figures, but based entirely on other people's opinion. These people, when make money, they think they are cleaver because they listened, but when they lose, they believe that they were duped by others. Fact is that, they duped themselves listening to opinions and not evaluating it with facts on ground.
As for Intu share price, I won't say that it would be down or up in next few months. I have reasonable amount of Intu shares and my average price is over £1.20. I am not buying more, but I do believe that over time, it would reach over £2 (if not more). Regardless, all shares buying as built in gamble elements in it, so one buy shares but do not get greedy expecting to make lots of money and in process, lose their socks.
Anyhow, I believe that Intu would recover, not on other people's opinion, but because every year, Intu is making more money than it is spending (on running the business) plus assets it has it in brick and mortor, not based on goodwill or anything that has no intrinsic value. Intu capitalisation decreased due to lowering of retail property value, not because their have started earning substantially less than past. I believe, with inflation, their earning and property value would go up with time.
It is true that they have huge debt, but things that go with them is inflation, that is unlikey to go negative, rahter, inflation might increase substantially once UK would come out of EU. With inflation, it is obvios that rental income and property value would also increase (while, debt would stay same as long as Intu keep servicing the debt with their yearly income).
Even today, if they use all their excess rental income to pay debt and do not pay dividend, they can pay off their entire debt in 15 years (that is less time than what many take to payoff mortgage on their property). As for finance cost of debt, they can service it easily as their account shows (rather, their rental income is twice what they spend on servicing the debt and running the business).
Anyhow, it is all my opinion and I cannot say that it would happen. :)
HeresHopin: Why do people make such dumb predictions - 20% drop surely on Monday...
Well, people who are dumb have to make dumb predictions (or maybe, they think all on the forums are dumb).
It is because of these dumb people, many dumb lose money in stock market and many cleaver make money in stock market.
My last post was for RAMAZOTTI:
Here is something to remember:
Warren Buffett once described the stock market as “a device for transferring money from the impatient to the patient”. ... ... ... What the billionaire investor meant was that we should ignore short-term share price movements and focus on businesses which offer long-term value.
on this forum, there are 4 types of posts. One from impatient investors. other from patient investors, third type of posts are from ignorants and fourth type of posts (most important) are from deceivers (propaganda masters and fear mongers). All these type of posts represent type of people in share market, and in short term, share price do get effected because of them, but in long run ... shares with good management and value in business, succeeds.
I hope you understood what I am saying. :)
I have not written on board since sometime, because there are many ******s on the forum who understand little and love to talk BS. Anyhow, we all know that sentiment against Intu is high, but to say that they could have problem servicing the debt (at least in near future), then that is height of ignorance. Intu problem is not about servicing the debt, but it is about reduction in market value of their assets and value of investment covering the debt.
If Intu lower the debt by selling assets, they would see proportional reduction in income and cost of debt, but as their share price is valued (maybe 20 pence to a pound of net asset). this valuation would increase. As for servicing the debt, that is no problem. Here are the figures for first 6 months of 2019 (published by Intu on 31st July 2019).
https://www.intugroup.co.uk/media/6346/intu-half-year-presentation-2019.pdf
Net rental income (for 6 months): £205.2 million plus £4.2 mn other income = £209.4 mn
Cost:
Admin expenses: £20.8 million
Net debt financing (interest and part of repayment): £113.5 million.
So ... total cost of running the business with present debt (excluding taxes) is £134.3 million.
Obviously, Intu income (£209.4 mn) from business is more than cost (£134.3 mn), and that excess income is £75.1 mn (in 6 months) If things stay same, their excess income would be around £150 mn by end of the year ... that is after admin cost and paying for debt financing.
So, servicing the debt should not be problem. Only thing intu has to watch is reduction in market value of assets, that make debt looks like much more than it should be.
Zccax77: Umeed you are deluded. Debts are the second biggest reason companies fail, the first being poor cashflow. There is a reason they have to pay 4.2% interest on their debts, since that is the risk premia above and beyond the risk free rate
That is not the case. Indu is paying such high interest because they borrowed (or bought assets with debt) when interest rate in UK was high. Even Intu debt taken few years ago have interest rate below 3 percent. In present environment, Intu should easily get loan @ 2 percent interest or below that.
JUNE 2019: The Bank of England has kept UK interest rates at 0.75 per cent after a unanimous vote by the nine members of its monetary policy committee. The bank also hiked its economic growth forecast to 1.5 per cent in 2019, 1.6 per cent in 2020 and 2.1 per cent in 2021.
zccax: I do not think Intu would (or should) sell assets to pay debt. In today's low interest environment, they can borrow at interest lower than what they must be paying on debt they need to retire. They have ~£5 bn debt. If they borrow £3 bn to pay old £3 bn debt at 1 percent less interest, then that would be £30 million a year saving.
June 2019: 'Bank of England interest Rate maintained at 0.75%. 'Bank of England: Our Monetary Policy Committee has voted unanimously to maintain Bank Rate at 0.75%'.
Hypnotically: If Intu manages to borrow £5 bn @ 1 percent interest (and lock it for next 10 years) - they would retire all their debt and cost of new debt would be £50 million a year. With rental income of around £450 million, they can finance any debt. They paid around £200 in interest last year. Just think, if they play their cards right, look for cheap borrowing and do not waste too much time in looking for buyers, they can increase ~ £100 million in profit (from saving on interest) by borrowing £5 bn @ 1 percent to retire old debt (costing them ~4.2 percent), and then no debt worries ever.
Due to briexit drama, pound value is low. So, if they borrow in Euro (that also has low interest rate) to retire sterling debt, then they would also benefit if pounds value rises after briexit drama (as their euro debt in pounds would decrease) - though there is risk if pounds keep going down - but risk is part of any business.
zccax77: https://www.insider.co.uk/news/golden-age-online-retail-over-17261374
That is good news for retail shops. Online retailing is good for lazy customers, but it is expanding at the expense of environment, jobs and creational activities like shopping and window shopping. :) … You cannot replace the enjoyment of shopping at big shopping centre with a parcel that drops at your home and then you return it because you did not liked it.
On the other hand, some shopping centre can be converted to residential properties and service sector outlets (health clubs, cinemas, night clubs, sports centre, sauna, coaching centre, vocational colleges, etc).
If retail property is going through bad patch, then it is time to make money or lose confidence and miss the opportunity. In present environment, best thing for companies like Intu is to let the storm pass. Briexit and uncertain political situation is the problem to go through. There is always sunshine on the other side. I think, Intu has enough cash and finance facilities to weather the storm.