Intu Properties (lon:intu)
INTU – As I Feared A Small Downturn Is Getting Serious.

Intu Properties Financials

ItemCurrent PeriodPrevious Period
Year20192018
Period6 Months6 Months
Revenue£205m£223m
Earnings
Adjusted Earnings£66m£98m
EBITDA
Adjusted EBITDA
Statutory Profit(£829m)(£486m)
Adjusted Profit
Total Debt
Net Debt£4714m£4867m

Commentary History
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Title: INTU – As I Feared A Small Downturn Is Getting Serious.
Company: INTU - Intu Properties
Share Price Then: 43p
Author: Ian Smith
Date: Sun 04 Aug 2019
Comments: Last time I looked at INTU I was really worried about debt and covenants but less so about their ability to generate rents.

The latest 6 monthly report has seen another £872 million wiped of their property valuation but equally worrying a drop in rents from £233 million to £205 million.

The drop in income doesn’t seem to be related to tenants wanting slightly lower rents but chains entering administration or CVAs and asking for zero rents or vacating completely.

It is possible, but only possible that House Of Fraser, Debenhams and other chains may re-emerge as viable large multi site tenants over the next few years, remember that INTU is mostly large premium shopping centres not dying high streets.

One of the strengths of INTU is that most of their centres are large enough to offer stores that are as big or as small as wanted, so Debenhams etc could take 50% of their previous space and the remaining space would still be viable to let out. Or they could decide their problem was that they were too small and take even more space.

Click and Collect is proving popular generally and organisations such as Amazon and Ebay may decide that some retail presence is actually desirable. There is also the possibility that they have the muscle to say to businesses who sell on-line you can sell via our physical stores but it will cost you. B&M are reported as doing well and they are a "bit of everything" store.

Whilst the property valuations are a bit academic as shopping centres don’t change hands often, they are getting worryingly close to some debt covenant limits.

The management recognises this and talks about To reduce net external debt and create liquidity to deal with the upcoming refinancing activity, with the first material debt maturities in early 2021

To do this dividends are being suspended which doesn’t seem surprising but INTU is a REIT, so suspending dividends means that corporation tax will be due instead.

Selling some assetsdisposal and part-disposal of assets in the UK and Spain, reducing the capital expenditure pipeline sounds fine but INTU are in the business of letting out assets which need to be in tip top shape. This sounds a bit like Debenhams saying sales are terrible so we are going to cut back on improving our shops.

The plus would be getting rid of the overseas and the worst performing UK centres would allow management and money to be concentrated on the core portfolio.

So is a fund raising exercise likely, at current price of 43p INTU has a market cap of £587 million?

Any fundraising that does take place would go into paying of debt, INTU's debt is for the purchase of assets so if you believe that their property is now close to a trough in term of valuation then it may be attractive.

The new money would mean lower interest payments and a greater ownership of its properties rather that paying off things already bought and used up.

I could easily see 2 for 1 at around 40p raising about £1,000 million being a success, although gettting market feedback on 4 for 1 at around 40p raising about £2,000 million would be sensible.

As INTU are talking about converting some of its space into residential and hotels they could continue to be very high quality assets, mini communities with “local shops” being national chains, or they could be white elephants.

Note the numbers shown below are for a six month period.
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