Intu Properties plunges after poor 2018 financial results

Intu Properties's share price fell as much as 13.5% on Wednesday, after  a plunge in its full-year net asset value (NAV) per share as UK real estate prices continue to weaken amid Brexit uncertainty. 

The UK and Spanish shopping centre owner reported its  NAV per share had dropped 24% of in the year to December. Intu, which was formed out of a portion of Liberty International's UK property assets a decade ago, saw its diluted NAV per share fell from 411p at the end of December 2017 to 312p at the end of December 2018, annual results released on Wednesday showed.

In morning trading, the company's share price touched R19.03 before recovering to trade 9.5% down at R19.91. 

The company has been under pressure, post the Brexit referendum which took place on 26 June 2016. The uncertainty around the Brexit process through which the UK aims to withdraw from the EU has seen commercial property lose market value. Intu's malls have been devalued along with other commercial property in London, Manchester, Liverpool and other large cities.

A number of bricks and mortar UK retailers have also struggled over the past few years having lost sales to online groups. 

There have also been two failed takeovers of Intu in the past year. JSE-listed UK and European mall owner Hammerson Plc abandoned its plan to buy Intu for £3.4bn in April last year, blaming a deterioration in the British retail property market and concerns about a lengthy merger process.

Then a consortium led by Intu's largest investor, the Peel Group, scrapped their £2.9bn bid in November last year.

Peel Group, which is the vehicle of Intu’s deputy chairman and major investor John Whittaker, the Canadian property firm Brookfield and Saudi Arabia’s Olayan Group cited macroeconomic uncertainty and potential market volatility as the reasons for not submitting a formal offer.

But Intu's board said it was happy with its management team's efforts during the reporting period.

"Intu has had a challenging year with a difficult retail and uncertain economic environment, together with responding to two abortive corporate offers for the company. However, our management team has produced a robust operational performance with increased like-for-like net rental income for the fourth consecutive year, 97% occupancy and has signed 248 new long-term leases," said chairman John Strachan .

CEO David Fischel said Intu's performance was laudable given difficult operating conditions.

"Intu has again delivered a resilient operational performance which demonstrates how our centres differentiate themselves as winning destinations for retailers with their variety and excitement. We own and manage many of the best shopping centres, in some of the strongest Intu Properties locations, in the UK and Spain," he said.

He said 2018 was a challenging year for the whole retail real estate sector,  and that Intu  had reported a 6.2% valuation fall in the period to June 30 and a further 3% fall in the quarter to September 30 with the full year reduction in our assets amounting to 13.3% per cent or GBP1.405bn (R25.9bn).

"This is driven by weakening sentiment in the UK retail property investment market as illustrated by the low levels of transactions. The valuers' assumption is that investors will focus on and seek higher net initial yields," he said.

In the reporting period, Intu's average net initial yield increased by 62 basis points to 4.98%. 

"In the face of this adversity, shareholders have seen the share price decline to a level representing for Intu a virtually unprecedented discount to NAV per share of over 60%," he said.

Intu's board decided not to pay a final dividend for 2018. The total paid for the year was therefore the interim dividend of 4.6p. Intu paid its shareholders a 14.0p total dividend in respect of 2017. 

Fischel had said he would leave his role as chief executive at the end of last year, having been at the helm since 2001. However, he remains in his position as a replacement has not yet been appointed.

Evan Robins, listed-property manager of Old Mutual Investment Group's MacroSolutions boutique said some shareholders were getting agitated at the delays in Fischel's departure and that a new management team might breathe new life into Intu.   

andersona@businesslive.co.za