The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Looks like Equity Raising is now coming. This is likely to be:
1. Rights Issue, probably less likely
2. Selling new shares to an investor or group of investors. Capital and Regional recently agreed to sell 51% shares to a South African company at about 30% discount to the NAV. If similar is done for Intu Properties, it is probably a good outcome to reduce the debt in the current market
Thank you, Gewilla. Your reading is better than mine. There was also a story in Telegraph recently about Peel group selling a stake in ports. Maybe, the bid for intu is being prepared. But maybe not
It would be extremely useful to know why Xanadu was taken off the market
The sale of Xanadu only is not going ahead. Asturias and Puerto Venecia are still on.
I also don’t really understand trading activity of JP Morgan and Peel during last month. If someone can explain, it would be appreciated
Let’s look at H1 2019 results of intu:
1. Intu Puerto Venecia: value =266m Euro, annual property income =12.4m Euro, annual yield = 12.4/266=4.7%
2. Intu Trafford Centre: value =1,898m GBP, annual property income =89.9m GBP, annual yield = 89.9/1,898=4.7%.
3. Intu Metrocentre: value =766m GBP, annual property income =45m GBP, yield = 45/766=5.9%
The above are just typical results of annual yield comparisons between intu Spanish and UK properties. It shows that UK current yields are not lower than in Spain. Many UK shopping centers have higher yields than Spanish, based on H1 2019 results.
We also know that the valuations of Spanish centers are real because they’re now in the process of sale.
So, to conclude, it doesn’t look to me that valuations of UK properties is significantly over exaggerated. They are about right to me. To go forward, the valuations can go down in the next half a year but in longer term they will not collapse below net debt value.
This’ll article is not correct in my opinion.
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.
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
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.
With share price under 33p and dropping, looks like Mr Market losing any confidence that Intu can refinance its debts without huge delusion to existing shareholders.
John Whittaker must be watching this with a lot of sadness.
Also, I believe, uncertainty over Brexit makes all investors to sit and wait on sidelines. Nobody wants to commit large sums to the U.K. at this time. As a result, there are no shopping centers buyers, poor sentiment and ..... property valuations go down by a lot.
Brexit created a heaven for short sellers and hedge funds. Sooner the Brexit uncertainty gone, the better it is.
Just thinking, if one or more of intu loans breach covenants and, or there’s D4E swap. How would it work? Will it be likely based on property valuation at that time? If yes, then considering that current share price is only 15% of valuation equity, it’s not bad. Any thoughts please on D4E potential process?
On pound valuation and trade conditions. If there is a deal the pound would rise and that would help retailers to reduce costs, especially import costs in GBP terms. Intu would also benefit.
If there is no deal, ..... well .... not sure:)
Thanks for the advice. Unfortunately, I am invested at about 85p average price. I would wait and see.
Sale of Spanish centers and Brexit (even without a deal) should give some certainty to the market.
Also, hopefully, the valuations will not ho down much further.
Thanks for good discussion
Intu must sell Spanish portfolio to lower the debt. Otherwise, we may reach some debt covenants.
The Spanish shopping centers are holding values very well now. Google search of Spanish news gives references to the sale process currently under way for Asturias and Puerto Venecia. These two are valued for about 425m Euros.
You are right, all Spanish centers are very good but intu are desperate for solid ash now
You are right, the valuations are just numbers that do not necessarily mean firm sale price.
However, if you take as an example Derby Shopping Centre, 50% of which was recently sold for about 185m pounds and apply its NIY to estimate the valuations of people other UK centers you would see that their valuations would come lower but not even 20% lower than H1 2019 valuations. Of course NIY may fall further and valuations would fall further also.
For myself I assumed December 2017 as a base peak and assumed that property valuations would drop by 45% . Following the simple calcs, the intu equity still comes to about 1 bn pounds vs current market valuation of less than 500m.
In respect to EPS, if EPS drops by half from FY 2018 of 14.2p to say half of that, it would still be 7p per share vs 35p share price (PE=5).
Maybe I don’t have enough knowledge, but I cannot see Debt for Equity swap for intu case because selling properties is much more attractive.
Another option is a big international player with access to cheaper finance buying intu on cheap. With low pound value, it’s even better. Note that big REITs in EU have financing (debt) costing less than 2% while intu now pays around 4.3%. It is good time buy Britain for cheap but Brexit certainty is preferred first
How do you see D4E would be done?
Isn’t it better to sell some shopping centers even after loss of some capital valuations?
The market is pricing intu as if it is destined to administration or huge equity delusion. In the last two years or so, the value of intu’s UK shopping centers dropped by about 20-25%. This is a lot. It may not be the bottom yet, but I cannot see the valuation dropping by maximum 15% more. At the end, these are prime shopping centers in good locations, which are well invested and looked after. But share the price is trading at about 85% discount to H1 2019 valuations. No doubt, the debt should be lowered. I cannot see rights issue when they share price is so low. Luckily, intu has real tangible good properties. It just needs to sell few of them (whole Spanish portfolio and say part of Trafford Centre) and the share price should recover a lot. Also, many problems for retailers are connected to weak pound (as they import a lot of stuff). Once Brexit is out of way, hopefully, GBP will recover a bit and help retailers and ,in turn, to intu’s income and valuations. In short we need to sell some properties and get Brexit certainty. After that share price will go up.
Disclosure: long on intu