Shares in Intu (INTU) jumped more than 30 per cent after a consortium of funds managed by Brookfield Property revealed that it is in the preliminary stages of considering a possible cash offer for the retail property landlord. Investors in the consortium, not including Brookfield, already own 29.9 per cent of Intu’s share capital.
Last December, Intu agreed to a subsequently withdrawn offer from Hammerson (HMSO) worth 253.9p a share. Given that this represented a 34 per cent discount to its adjusted net asset value (NAV) and applying this to Intu’s now lower NAV of 362p would give an offer price of 239p. The consortium has until 1 November to make a firm offer, and much depends on how much value the consortium attaches to Intu’s assets. Most analysts are forecasting a significant downgrading to asset values, with adjusted NAV estimates as low as 200p per share.
Since news of a possible bid was revealed, the shares have come back significantly from their high point of 204p, and now trade at 185p. Intu’s property portfolio is worth around £10bn and comprises 12 of the UK’s top 30 ranked shopping centres. However, Intu has been slow to reduce its financial gearing, and with weakening asset values, this could push the loan-to-value ratio to above 60 per cent.
In addition, the portfolio will incur increased maintenance costs at a time when there are cyclical pressures on the retail sector. Many tenants are experiencing tough trading, which will put more pressure on the landlord to agree lower terms as leases expire. Its ability to raise additional funding would probably be most viable through the sale of assets, although other options include a deeply discounted equity raise or a cut in the dividend.
