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UK's Intu Properties in recovery play

Posted On Monday, 18 March 2013 05:01 Published by eProp Commercial Property News
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The share price of Intu Properties, the UK’s biggest mall owner, has been under pressure in recent weeks, creating a buying opportunity for investors looking for offshore diversification.

David FischelIntu was until recently known as Capital Shopping Centres and before that as Liberty International, which was founded by SA insurance tycoon Donald Gordon in the 1980s.

Intu’s share price was up nearly 18% in the three months to early January. But the dual-listed stock has since weakened on the back of a £280m (R3,82bn) share placing. Coronation Fund Managers property analyst Anton de Goede says the placing and subsequent share price drop has created an opportunity for investors to buy Intu at a discount — currently around 12% to net asset value.

Short-term price movements aside, De Goede says Intu remains a good longerterm bet. That’s despite UK retailers facing a still-tough trading environment with more tenant failures expected this year. “Intu’s £7bn portfolio includes 10 of the UK’s top 25 shopping centres, so it’s well-placed to benefit from any uplift in retail sales and rentals. The counter offers good potential for share price upside over the next three years.’’

De Goede says Intu’s management is known for sweating its assets and creating value through a hands-on management approach, which is substantiated by the company’s hefty development pipeline of £1bn over the next 10 years. The rebranding and transformation of the group’s digital proposition, which was announced earlier this year to improve the experience of the 30m shoppers who visit Intu’s centres annually, should also boost footfall and sales over time, says De Goede.

Besides Intu’s £25m rebranding exercise, there have been a number of other interesting announcements in recent weeks. These include the acquisition of a shopping centre in Milton Keynes for £250,5m as well as the creation of a new debt funding platform. The latter will enable Intu to access the capital markets alongside bank debt, thereby diversifying the group’s sources of funds and lengthening its loan term maturities.

Intu last week already raised £800m through a debut bond issue, which forms the bulk of the £1,150bn needed to refinance debt relating to four of the group’s shopping centres. Intu chief executive David Fischel said on a visit to SA last week that acquiring the 42000m² Midsummer Place in Milton Keynes on auction was quite a coup for the group, as opportunities to build new malls in the UK are few and far between. The centre’s rentals are still priced well below the national average, even though the centre is relatively new and needs little money spent on it.

Fischel said that means there’s plenty of scope for rental growth over the next few years, particularly given the centre’s upmarket tenant composition including fashion retailers Debenhams and H&M.

“Milton Keynes, located between London, Birmingham, Oxford and Cambridge, is one of the UK’s fastest growing cities, with an affluent population that hasn’t been as affected by the recession as many other parts of the UK.”

Fischel said Intu’s income streams will be further boosted over the next few years by the group’s £1bn development pipeline, which will result in the addition of 230000m² of new retail, restaurant and leisure space at a number of Intu’s existing malls including the likes of the Victoria Centre in Nottingham, Eldon Square in Newcastle and Barton Square at Trafford Centre near Manchester.

Fischel says a key project in this regard is the redevelopment of The Harlequin centre and the adjoining Charter Place in Watford. Intu recently reached an agreement to acquire Charter Place from the local council.

About £80m will be spent to rebuild and link Charter Place with The Harlequin, creating a 140000m² regional centre that will be known as Intu Watford. Fischel says there’s already keen interest from retailers to expand stores in the redeveloped Charter Place as the centre was badly neglected by the previous owners.

Intu is currently offering a hard currency income yield of just over 4%, which is attractive given the quality and scarcity value of its assets.

Source: FM

Last modified on Friday, 18 April 2014 10:37

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