Intu Properties ripe for a takeover, fund managers say
Tough operating environment for UK retailers weighs on shopping mall owner
A number of fund managers believe UK and Spain shopping-centre owner Intu Properties, which has written down assets as tenant problems weigh on the group, needs new hands to steer the company so it can compete with other large European mall owners.
Intu has been a takeover target for more than year with Hammerson, which owns shopping malls and retail parks in Europe, trying to acquire it earlier in 2018. Hammerson abandoned its £3.4bn bid in April, blaming a deterioration in the UK retail property market and concerns about a lengthy merger process.
Intu is now considering a £2.9bn takeover cash offer, made earlier in October, from a consortium that includes UK billionaire John Whittaker, Saudi investment group Olayan and diversified global real-estate group Brookfield Property Group.
Peter Clark, a portfolio manager at Investec Asset Management, said the offer would benefit shareholders were it accepted.
"The potential cash offer is certainly welcomed as an opportunity to realise value in the shares in an environment with a challenging fundamental backdrop. The sentiment towards UK retail remains highly negative, which is further compounded by the high level of gearing in Intu," he said.
Intu, which was formed out of a portion of financial services group Liberty's UK property assets nearly a decade ago, saw its asset base fall from £9.83bn in June to £9.58bn in the three months to the end of September, with management blaming “current negative sentiment towards UK retail property”.
Problems with its tenants House of Fraser and insolvent fashion retailer Coast meant Intu had to trim its performance forecasts and write down the value of its assets.
A number of UK mall owners have suffered from devaluations in their properties since the Brexit vote took place in June 2016. They are also under pressure as some department stores groups are competing with online retailers.
The group detailed the fall in its property valuations and its projected rental income in a trading statement for the period July 1 to October 23, which it released on Tuesday. In the statement, it said its net asset value per share fell nearly 5% from 362 UK pence to 344p.
Intu said it anticipated full-year like-for-like net rental income growth for the year to December 2018 to be in the range of 0% to 1%, down from the 1.5% to 2.5% guidance given earlier in 2018.
Outgoing CEO David Fischel said the company had still performed well in a difficult environment.
"We agreed 84 long-term leases in the period at rental levels 8% above previous passing rent and have increased occupancy by 0.4% to 97%," he said.
He said key fashion retailers continued to be attracted to Intu's malls, with the likes of Monki, Bershka and Ralph Lauren signing up in the period. "In September, Intu opened the £180m retail and leisure extension of Intu Watford, 90% let or in advanced negotiations, as we constantly innovate and invest to ensure our business anticipates and adapts to changing consumer trends.”
Fischel is set to leave Intu at the end of 2018, having been CEO since 2001.
Evan Robins, listed-property manager of Old Mutual Investment Group's MacroSolutions boutique, said some critics believed Fischel needed to make way for new blood. But his exit had been prolonged by the consortium's takeover offer.
"The CEO has resigned but it staying on until a replacement is found. I guess they are holding off on that pending the outcome of this potential deal," he said.