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Intu jilted again

And now the dividend is going to be chopped
November 29, 2018

Shares in Intu (INTU) collapsed by more than a third after the latest takeover proposal from a consortium comprising top shareholder Peel Group, the Olayan Group and Brookfield Property was withdrawn. For while nothing untoward had arisen from due diligence, the consortium blamed the uncertainty surrounding current macroeconomic conditions as the reason for not proceeding.  

IC TIP: Sell at 120p

Intu owns eight of the top-20 UK shopping centres and three in Spain’s top 10. However, rental growth has slowed to virtually nothing, and subject to no further tenant failures, Intu expects full-year growth of between 1 per cent and zero, with tenant failures trimming 1.5 per cent off rental growth. That is also before taking into account House of Fraser entering administration - four stores on Intu sites will close, further reducing rental income and increasing vacancy costs still further.

Intu’s property portfolio has lost value by 9 per cent in the nine months to September, reducing net asset value per share to 344p. It is also nursing a relatively high loan-to-value ratio of 50.6 per cent, and steps to reduce this through asset disposals will be difficult because weakness in retail assets has reduced the pool of potential buyers at anything apart from deeply discounted prices. So, in order to pay down debt, Intu is proposing to reduce dividend payments by a substantial amount starting with the final dividend for 2018.

Analysts at Peel Hunt estimate that in order to bring the LTV rate back to a more manageable 35 per cent, Intu would have to sell around 40 per cent of its portfolio.