UK property's crisis cash call tests Boris bounce

Britain’s blue-chip FTSE 100 index is up 5% since Johnson won a majority in the December 12 poll

  
The Canary Wharf financial district is seen from the construction site of 22 Bishopsgate in London, Britain June 25, 2019. Picture taken June 25, 2019.

The Canary Wharf financial district is seen from the construction site of 22 Bishopsgate in London, Britain June 25, 2019. Picture taken June 25, 2019.

REUTERS/Hannah McKay

LONDON - Intu Properties’ equity raise is putting more than just its own shaky prospects on the line. The UK shopping mall operator, which houses retailers like Inditex-owned Zara, needs a big rights issue to sort a debt-laden balance sheet, it flagged on Monday. That will test the durability of Britain’s property and stock market bounce following Prime Minister Boris Johnson’s big win in last month’s general election.

Britain’s blue-chip FTSE 100 index is up 5% since Johnson won a majority in the Dec. 12 poll that removed opacity over whether Britain would leave the European Union. UK property prices have responded. Asking prices in the five weeks to Jan. 11 rose by 2.3% in monthly terms, the biggest increase for that period since the survey started in 2002, Rightmove said.

Intu’s share price has crashed 80% in the past 12 months, leaving the company valued at just 288 million pounds, a fraction of the 8.4 billion pounds its property assets were valued at last June. Worse, it has 4.7 billion pounds of debt, meaning loans constitute 57% of the value of assets. That’s way higher than rival Hammerson’s 37%.

Equity of between 1 billion pounds and 1.5 billion pounds is needed to start fixing things, Kempen analysts reckon. Intu’s somewhat captive audience of shareholders seem willing to assist a capital hike. John Whittaker, the billionaire behind Peel, which has a 27% stake in Intu, is supportive of the fundraising plan, the Sunday Times said.

Yet Intu’s longer-term prospects make Britain’s opaque future relationship with the EU look like a piece of cake. It did sell one of its Spanish shopping centres last month in a deal that raised 203 million pounds. But with few buyers of shopping centres right now, other asset sales are tricky, and like-for-like net rental income for 2019 could be down by around 9%. The retail sector still faces growing online competition, which makes it hard to say how much property the retail industry needs. The asset which accounts for a quarter of Intu’s portfolio value, the Trafford Centre in Manchester, is in urgent need of refinancing before the deadline of October 2021.

If it can raise anything like 1 billion pounds, the UK’s “Boris bounce” will start to seem like more than just a short-lived confidence spike. Don’t count on it, though.

CONTEXT NEWS

- British shopping centre operator Intu Properties said on Jan. 20 that it was in talks with shareholders and potential new investors for an equity raise by the end of February in a bid to shore up its balance sheet.

- The Sunday Times reported on Jan. 19 that Intu was planning to tap 1 billion pounds ($1.3 billion) of emergency cash.

- “Occupancy was stable at 95 per cent and to date 97 per cent of rent has been collected for the first quarter of 2020 demonstrating the lower risk of our existing customer base,” Matthew Roberts, the chief executive of Intu, said. “We are making good progress with fixing the balance sheet, our number one priority.”

- In early November, the owner of Manchester's Trafford Centre said it was considering raising equity, along with the sale of assets, to trim its balance sheet. As of June 30, 2019, Intu has 4.7 billion pounds of debt.

- Shares of Intu were down 4.8% to 21.31 pence at 0912 GMT on Jan. 20, giving Intu a market capitalisation of 288 million pounds.

(Editing by George Hay and Oliver Taslic)

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