For a second time in 2018 a potential suitor for shopping centre investor Intu Properties (INTU) has taken a good look at the business and is walking away. The shares collapse to 37% to 123p.
A consortium led by near-30% shareholder Peel, chaired by Intu’s deputy chairman John Whittaker, and completed by Canadian real estate investor Brookfield and Saudi Arabia’s Olayan has scrapped plans for a £2.8bn.
There were signs an approach might be scrapped after the deadline for a formal offer was extended more than once and in fairness to Intu the ongoing Brexit uncertainty won’t have helped. All in all its been a rough week (and year) for the company with Mike Ashley moving to shut all 15 of his stores in Intu centres after a row over the rental terms on his recently acquired House of Fraser outlets.
The negative readacross to UK retail property assets sees peer Hammerson (HMSO), which abandoned its own plans to merge with Intu back in April, fall 5.8% to 396.5p. Both companies face structural issues as increasingly retail spend moves online, as well as cyclical pressures from a weak consumer backdrop.
One big advantage Hammerson has over Intu is a stronger balance sheet. In the first half Hammerson’s loan-to-value was 37% against Intu’s most recently reported 50.6% and because the former arguably has higher quality assets it should be better positioned to bolster its finances through disposals. In this context Intu’s decision to slash the full year dividend by an as yet undisclosed amount looks prudent.
ALARM BELLS RINGING
AJ Bell investment director Russ Mould says: ‘The fact both these prospective buyers and Hammerson, which abandoned its own merger plans earlier this year, took a good look at Intu and turned their noses up should ring big alarm bells with shareholders.
‘The company is now left in a difficult position with too much debt, retail assets which would be difficult to sell, and the prospect of losing tenants. On top is the looming departure of chief executive David Fischel.
‘A cut to the dividend will help provide some short-term breathing room for the company but more radical action will be required to ensure the long-term viability of the business.
‘And it is no surprise to see shares in direct peer Hammerson as well as British Land (BLND) and Land Securities (LAND), which also have significant retail exposure, under pressure given what today’s news says about how UK retail assets are perceived.’
Liberum comments: ‘There remains little doubt in our minds that current NAVs for UK shopping centres let off high rents, do not reflect the full reality of both cyclical pressure and long-term structural headwind.
‘Intu is facing a structural headwind with the additional constraints of above average (and inflexible) financial gearing, legacy cash flow liabilities and a portfolio in need of increasingly high maintenance to stay competitive. While cyclical pressures may eventually ease, the company’s limited ability to maintain investment and drive growth justifies the current negative sentiment.’
