Shopping centre landlord Intu Properties (INTU) was already in a really tough place but if shareholders thought things couldn’t get any worse it looks like they were wrong based on today’s update.

The shares sink 8.8% to 107.7p, less than half the 253.9p offered by rival Hammerson (HMSO) in a merger proposal it made and subsequently abandoned in 2018.

Shares in Hammerson and more broad-based UK property investors British Land (BLND) and Land Securities (LAND) are down 3.4% to 364.3p, 1.7% to 573.6p and 1.6% to 867.6p respectively on a negative valuation read-across from Intu's numbers.

The full year results are below already downgraded forecasts, the dividend is cancelled which stabilises the debt situation but at the cost of a big tax bill, and a 13% decline in property values pushes up the loan-to-value ratio.

And there is still no clarity on who will steer the business out of this mess with a replacement for the departing David Fischel yet to be appointed.

The problem for shareholders is it is still difficult to decide where the floor is for retail assets in terms of valuation amid ongoing structural and cyclical challenges.

The company’s failure to pay a dividend means it will incur a tax bill of up to £20m in 2019, according to forecasts from Liberum. Thanks to its REIT (real estate investment trust) status, Intu is exempt from corporation tax but only if it pays out 90% of its taxable income in dividends.

This additional cost means earnings forecasts for 2019 will have to be downgraded. And while borrowings have stabilised they still weigh in at a hefty £4.87bn, while further declines in property values could put debt covenants under pressure.

WHAT ARE THE EXPERTS SAYING?

AJ Bell investment director Russ Mould says: ‘The company is trying to sell assets and has received some unsolicited offers for properties in Spain. Selling assets into a weak market shows how desperate it is. Any buyer would have the upper hand in pricing negotiations.

‘In time Intu could emerge a leaner business but for now it will have to keep taking the headache tablets and do its best to survive the turmoil.’

Liberum analyst David Brockton says: ‘Despite Intu's broader challenges, we believe that many of its retail assets will remain relevant longer-term and that some potential exists within the portfolio to extract value (e.g. maximising the value of surplus land and changing some operational practices).

‘We believe it is also possible to significantly reduce the perceived risk profile of the business via selling partial interests in its crown jewels or a pre-emptive equity raise. This scenario nevertheless requires resolve by a new management team and (crucially) support from its shareholders.’


Issue Date: 20 Feb 2019