Intu needs a buyer – and quickly
Dealreporter
For a stock trading at 36% of book value, Intu’s [LON:INTU] latest deal looks like a good one. The real estate investment trust (REIT) is selling 50% of its Intu Derby shopping mall for GBP 186m, a sale which equates to 100% of the asset’s book value.
But Intu might need to go further if it wants to address mounting concerns over its GBP 4.9bn debt load: a capital hike – and even a refinancing – may be its only option if market chatter around a buyout fails to materialise.
Shares in Intu are down 51% over the past 12 months driven by its exposure to the UK’s weakening economy, structural concerns around High Street retailers – which are its key customers – and high levels of debt. And there is a growing consensus that, if Intu does not find a buyer soon, it will need to raise equity. Intu would need between GBP 1.5bn and GBP 2bn of new equity in order to bring its loan-to-value (LTV) ratio in line with peers Hammerson [LON:HMSO] and Land Securities [LON:LAND], analysts at Dealreporter’s sister service Debtwire argued in January.
A refinancing, including an equity injection, could be required in 2019, Deutsche Bank analysts argued on 26 March, because of a worsening appetite from banks to lend to the sector. Intu will struggle during 2018, Deutsche Bank’s analysts said, because assets sales are unlikely to be sufficient to see Intu hit its target LTV.
Debtwire’s analysts calculated asset sales worth around GBP 2.5bn would be needed for LTV to be brought in line with peers. Placed in this perspective, disposals like Derby barely move the dial. Even if Intu succeeds in its plan to sell its Spanish assets, which have a market value of GBP 861m, according to its annual report, it is a long way short of achieving that outcome. Intu's debt does not have a credit rating from the main agencies S&P, Moody’s and Fitch.
Buyout prospects are also arguably diminished by Intu’s latest deal. Bringing in joint venture partners, like Kuwait Investment Office at Derby, complicates Intu’s capital structure and reduces the rationale for potential bidders. Intu has also recently appointed a new CEO, albeit on an interim basis, after spending the better part of a year searching for a replacement for outgoing boss David Fischel. Positives for the buyout case include a recent stakebuild by private equity fund Orion Capital.
After two failed deals in two years and a bleak commercial outlook, the clock is ticking for Intu to secure a deal or face the consequences: potentially through a refinancing and equity raise.
Intu has a market capitalisation of GBP 1.3bn.