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RI should be a good news as it will fix balance sheet and make refinancing easier. I expect that intu management discussed the size if equity raising with banks to make sure that they are happy with end leverage level.
In Q3 conf call, intu management stated that they will try to raise enough equity so that LTV ratio is 50% at the bottom of the valuations. If this is the case, then I am glad that equity raise is only 1 billion.
Big question is at what price new investors come in. I hope intu management is not going to discriminate small investors and not going to sell assets for cheap.
I am puzzled why SP has dropped down from about 34p to 21p in anticipation of the equity raise. Fixing balance sheet for a company with very good tangible underlying assets should be a good thing.
As per my assessment of intu FY-2019:
Adjusted Earnings = about 100 mln
Covenant shartfall penalties could be between 80 and 110 mln assuming a steep 15% further devaluation in H2 , assume 80mln
CapEx = about 70 mln
So, cash flow is going to be negative 100-80-70=-50mln. This is my guestimate but , yes, CapEx and Covenant Penalties are likely to push intu into further money borrowing or relying on disposals.
I hope that H2 devaluation will be less and the cash flow numbers are better.
To check cash flow, we should also deduct capital expenditure (124 mln in H2-2019 reducing to 59 mln in 2020) and now penalties for breaking debt covenants on a number of properties.
Also, the net income is falling due to vacant spaces and rent reductions. On the top of that, disposal of some assets will further reduce income.
Gewillia, thank you for the numbers.
Are you implying that with 10% of capital valuation falls in H2-2019 compared to June 3019 and significant capex outgoings intu will be cash negative for 2019?
When SP that was already depressed further falls more than 25% in few days with no RNS, no news, it is very worrying.
Does anyone knows something that is not in open yet and selling?
H-hi, you are right that Debenhams was stolen from shareholders by debt holders. A large part of debt was bought by hedge funds and refinancing was difficult.
Intu refinancing is also risky , not sure what will happen. However, John W snd Peel are the same shareholders as some of us. I can’t see a way how they can take over Intu from other shareholders.
Will intu’s shopping centers be busy in 10, 20 years? I think, yes
Weaker, subprime shopping areas may close but not prime, well invested places. All intu’s centers are prime. However, intu’s shares are risky because nobody’s knows the property values at the market bottom and there are risks when refinancing the debt given intu’s LTV.
We need some good in the next few months. These can be stabilisation of property values and / or rental income, increase in property transactions, selling of Spanish shopping centers.
Football at intu’s shopping centers during Black Friday weekend increased by 6.9%. If Xmas shopping and football also increase that would maybe turning point. Once sentiment improves intu’s shares can go up significantly.
I also hope that if intu can sell around 1bn of UK shopping centers. That together with sale of three Spanish centers will fix the balance sheet.
I will not sell my shares at the current prices at the time you of such low investor sentiment
Intu has employed PwC to advise and help with its financial situation. Shares fell over last two days
Any thoughts of what PwC appointment mean for intu?
It’s not a good sign for me
Thank you for your thoughts, Umeed.
I am not as calm as you and I keep checking the SP every day:)
However I also believe that intu’s SP will increase and it is worth holding it for long time, because:
1. The bottom of the market should be close as: a/ the property values already fell more than 20%, b/ level of transactions is starting to increase, c/ Brexit uncertainty should be clearing in the next few months; d/ hopefully there will be some good news on business rates; e/ GBP Value should start rising soon, connected to Brexit uncertainty and conditions
2. Intu has really good shopping centers where football is stable and they are well invested. Intu is a good operator of the shopping centers
3. With imminent sale of Spanish shopping centers and probable equity raise, the balance sheet will look better and banks will refinance the debts
I am encouraged that in the last week intu’s SP found support even with no good news
Umdeed,
I am in similar position to you, shareholder suffering paper losses.
I wouldn’t pay too much attention to the analysts SP targets. They move them to follow actual SP. The one for 118p is probably from analyst whose last update was long time ago.
For me, intu’s shares are risky because in falling market landers may not provide further financing to companies with high debts and high LTV ratio. This is the real risk and the SP reflects that. However, if shopping center prices stop falling and start rising , intu’s SP will increase much more than other retail REITs.
I listened to intu’s conf call of few days ago. Here’s the summary :
Slowdown in Q3 letting activity but it picked up in the last weeks;
Net income decrease over two years 19 and 20 combined will be about 15%, 9% in 2019.
Equity raise is likely in 2020 with the aim of bringing LTV to 50% or less at the bottom of the market.
Positive discussions with main tenants.
Negotiations with Xanadu partner are ongoing. If they’re not interested, intu will put Xanadu on market next year to sell when lock out period ends.
Happy with negotiations on sale of Spanish two centers, which should conclude before February 2020.
Happy with the progress on balance sheet fixing.
Trafford Centers refinancing ongoing. But no refinance in 2019.
They are also considering UK disposals.
Intu are not aware that any banks want to sell their debts selling. But some hedge funds may be interested to buy some debt.
New Derby debts is below 4%.
With sensible level of LTV, banks should be interested to refinance and extend the debt.
Separately I read that Sprucefield is now on put on sale
Thank you, Sain
Sain, where did you see the statement from Charlie Barke? Could you send a web link? Thank you
Maverick, your baseless optimism for SP imminent surge does not move the SP up at all
H-hi,
Intu’s debt is high, valuations are falling and the market sentiment is terrible now. But I would not accuse of intu of anything dodg.
I believe both bids were raised because intu’s assets are excellent. But both bids were withdrawn because the wide market was falling and deteriorating
If market sentiment changes tomorrow (not realistic) and valuations start rising, the intu shares will rise a lot. Unfortunately the market is still bad and intu’s debt is a big problem in a falling market
Maverick,
Your post is a ray of sunshine in the cloudy day among pessimism on the board.
There are many risks and uncertainty with intu. It is reflected in the price. The share is for very brave and risky investors.
I am well under the water but will not sell now. Intu has tangible, good quality assets. We will see
There was an intu’s conference call today for investors and analysts. Does anyone know where to access its transcript or recording?
Mehmehmeh, please download intu H1-2019 results presentation and see valuations of each and every shopping center. You can easily calculate the impact of selling assets on LTV.
Asturias and Puerto Venecia ate about 420 million Euros and they should be sold soon
Capital and Regional Loan to Value is about 55% , lower but not so different from Intu.
The quality of intu’s shopping centers are not below those of Capital and Regional.
Also, I keep thinking that intu can sell some of its big UK centers. Would people buy Trafford Centre and Lakeside at a say 20% discount to the current lowered valuation? That would also help a lot
I suggest reading what happened to Capital and Regional company. South African company are buying 51% new equity at a discount about 30% to NAV and double the share price before the above offer.
Assuming the same happens to Intu, 30% discount to NAV is about 120p per share, about 350% to the current SP. That would raise about 1.5 billion pounds and would reduce Loan to Value ratio to decent figure of less than 50%. Coupled with sale of Spanish assets, another say 600 million pounds, it would return intu to a decent balance sheet
Intu management has run the company to the trouble by running very high debt and thinking that valuations will not go down. Can they pull it out? Looks like Mr Market is not optimistic.