Intu Properties’ equity raise is putting more than just its own shaky prospects on the line. The UK shopping mall operator, which houses retailers like Inditex-owned Zara, needs a big rights issue to sort a debt-laden balance sheet, it flagged on Monday. That will test the durability of Britain’s property and stock market bounce following Prime Minister Boris Johnson’s big win in last month’s general election.
Britain’s blue-chip FTSE 100 index is up 5 per cent since Johnson won a majority in the December 12 poll that removed opacity over whether Britain would leave the European Union. UK property prices have responded. Asking prices in the five weeks to January 11 rose by 2.3 per cent in monthly terms, the biggest increase for that period since the survey started in 2002, Rightmove said.
Intu’s share price has crashed 80 per cent in the past 12 months, leaving the company valued at just 288 million pounds, a fraction of the 8.4 billion pounds its property assets were valued at last June. Worse, it has 4.7 billion pounds of debt, meaning loans constitute 57 per cent of the value of assets. That’s way higher than rival Hammerson’s 37 per cent.
Equity of between 1 billion pounds and 1.5 billion pounds is needed to start fixing things, Kempen analysts reckon. Intu’s somewhat captive audience of shareholders seem willing to assist a capital hike. John Whittaker, the billionaire behind Peel, which has a 27 per cent stake in Intu, is supportive of the fundraising plan, the Sunday Times said.
Yet Intu’s longer-term prospects make Britain’s opaque future relationship with the EU look like a piece of cake. It did sell one of its Spanish shopping centres last month in a deal that raised 203 million pounds. But with few buyers of shopping centres right now, other asset sales are tricky, and like-for-like net rental income for 2019 could be down by around 9 per cent.
The retail sector still faces growing online competition, which makes it hard to say how much property the retail industry needs. The asset which accounts for a quarter of Intu’s portfolio value, the Trafford Centre in Manchester, is in urgent need of refinancing before the deadline of October 2021.
If it can raise anything like 1 billion pounds, the UK’s “Boris bounce” will start to seem like more than just a short-lived confidence spike. Don’t count on it, though. — Reuters
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