UK-based intu, the shopping centre landlord, has sold a 50% stake in its Derby mall to Kuwait-backed Cale Street Investments in an attempt to reduce its debt.
The deal follows a difficult two years for Intu, marked by two failed takeover offers, a sharp drop in its share price and sliding values across its portfolio because of declining footfall in its stores and shrinking demand for space.
The Derby shopping centre includes retailers M&S, Debenhams, which recently fell into administration, and Next. It was purchased by Intu in 2014 for £390m, according to the company.
On Thursday last week Intu said the site received 22m annual visitors, and generated £25.2m of net rental income in 2018. The Trafford Centre landlord will receive £186.3m in cash for the stake, in line with a December 2018 valuation, and follows several months of seeking a buyer.
Cale Street Partners LLP is a European-focused real estate capital provider that advises Cale Street Investments LP in providing creative, “one-stop” solutions to developers, operators, and institutions.
The partnerships were founded in 2014 and seeded with approximately $1.5 billion from a sovereign wealth investor with a long term patient approach to investing. Cale Street has a flexible mandate which includes both senior and mezzanine debt finance as well as joint venture equity investment.
RPA Perspective Liberum analyst James Ashley said the deal “provides some confidence in Intu’s ability to dispose of assets in what is a tough backdrop — at a price which is supportive of current valuations”. Retail property values have fallen steeply over the past year as a string of high-profile retailers have collapsed and others have cut rents and closed stores as shoppers move online.
UK retail property values slid 5.7 per cent during 2018, according to the MSCI’s industry benchmark, the largest decline since 2009. Intu is trading at a discount to net asset value of 68%, according to Numis, signalling deep investor pessimism over the outlook for the sector.
Numis analyst Robbie Duncan said the group’s problems remained “significant” even though the deal reduced its loan to value by 1%.
“Substantial further corrective action will be required to put it back on the front foot,” he added.
Intu suffered a £1.4bn writedown on the value of its properties in 2018 and recorded a £1.2bn loss, down from a £203m profit the year before. Net external debt stood at £4.87bn as of February’s annual report.
Falling demand for retail space and the collapse of a number of major retailers such as House of Fraser were cited as reasons for the sharp dip in its property portfolio. The company was the subject of two takeover bids last year, one from its rival Hammerson, as shares in the company traded at a hefty discount to its net asset value.
Earlier in April it was announced that the company’s former chief finance officer Matthew Roberts will take over as chief executive, following an eight-month search for a successor to David Fischel.
Roberts said: “In what is a challenging investment market, this innovative transaction, which is in line with the December 2018 valuation, shows Intu is delivering on its strategy of reducing loan to value through disposals and part-disposals.”
