Shares in Intu continued to fall today, one day after the indebted shopping centre owner confirmed it would push ahead with a cash call thought to be valued at as much as £1bn.
Intu, which owns shopping centres including the Trafford Centre in Manchester and Lakeside in Essex, plus centres in Spain, said it would attempt to ask investors for funds alongside its full-year results at the end of the February, confirming widespread reports.
The company has been hit by the weak backdrop for high street retailers, with struggling groups including Arcadia and Debenhams occupying a lot of space in its centres, and while Intu did not confirm how much it intended to raise, the figure is thought to be around £1bn.
“Further to recent press speculation, Intu properties plc continues to make progress in its strategy to fix the balance sheet,” the company said in a market announcement on Monday.
“Consistent with previous announcements, this now includes targeting an equity raise alongside its full year results at the end of February. The company is currently engaged in constructive discussions with both shareholders and potential new investors on the proposed equity raise.”
Intu’s share price has plunged more than 80% over the past 12 months, slashing its market value to £290m, representing just a fraction of the £8bn at which its properties are officially valued.
While Intu’s chief executive, Matthew Roberts, said the company’s occupancy rate remained “stable” at about 95%, it has been affected by cuts in rental payments by some of its key tenants that have undergone emergency financial restructuring.
Intu is struggling with £5bn of debt and has been trying to sell properties to try to lighten the load.
Roberts said: “We are making good progress with fixing the balance sheet, our number one priority, and are confident we have the right strategy in place to enable us to prosper as we see continued polarisation between the best destinations and the rest.”
Last month Union Investment and Generali Real Estate formed a 50:50 joint venture to buy the Puerto Venecia shopping resort in Zaragozza, Spain for around €475m.
Sellers Intu Properties and Canada Pension Plan Investment Board (CPPIB) invested €451m in 2015 to buy the 120,000 sq m shopping centre and retail park in Zaragoza, which has 193 shops and a retail park and receives around 19m visitors a year.
Announcing the deal, Union Investment said it was to acquire its 50% share for the open-ended real estate fund, Unilmmo: Deutschland. Generali Real Estate acquired its 50% on behalf of Generali Shopping Center Fund SCS.
Henrike Waldburg, head of investment management retail at Union Investment Real Estate, said: “Puerto Venecia is a shopping area with a high leisure value and a correspondingly high attraction factor for the people in the Aragonia region.
“It is by far the leading shopping destination in this region and therefore fits perfectly with our investment strategy, which focuses on best performing shopping centres and well-structured retail parks.”
Aldo Mazzocco, CEO at Generali Real Estate, said: “This is the first investment of our pan-European Shopping Center Fund, launched in May 2019 and supported by our dedicated boutique Axis with a precise strategy of cherry-picking of prime retail in Europe.”
RPA Perspective We are at a point where investors are so spooked about retail that NAV means nothing. Inevitably, yesterday's intu announcement that it is seeking to raise £1bn in additional equity sent its shares down sharply (before a smaller bounce back).
This means that right now a book value of £8bn against debt of £5bn is valued at about £300m. Ouch. That's a hell of a disconnect.
So what is fair value? Listed retail owners have been guilty of clutching on to NAV pricing that the City, through their share valuations, simply doesn't believe. In fact, they clearly see those values as laughable.
By contrast, those City valuations continue to assess a landlord like intu as a retail-only player sitting on a ticking time-bomb of declining retail.
More pertinent is what percentage of intu's space is given over to traditional retail compared with sectors such as F&B and leisure, and soon residential. While the share pricing reflects a City view of further retail decline, new names are coming into malls. OK, not at the same rate as exit, but it's not a one-way street.
Investors will be persuaded not by vacancy rates or rent rolls but by understanding that Lakeside is not a shopping centre but a mixed destination, less exposed to legacy retail. It's the challenge of 2020.
