In my last blog about Intu I forecast a full year fall in values of nearly 14% even with no further yield shift. Based on the 19% fall in Hammerson’s UK flagship centres there does appear to have been a further market yield shift. I expect a similar fall of close to 20% when Intu announces its results next week.
As I forecast in June, Intu is having to look at an equity raise to cure covenant defaults but finding over £1 billion off a share price of 14p is a tall order even, with a number of large presumably supportive shareholders. In my view that number needs to be closer to £1.5 billion to give some breathing space.
To justify an issue the board must have, in my view, a clear positive upside story for the equity market. That is hard to see right now.
Retailers remain under pressure and supply chains are likely to be affected, later in the year, by the Covid-19 epidemic. Even partially empty shelves will pile more pressure on retail trading.
Business Rate reform is a possibility and that might be helpful to retailers in the medium term. However, the overall tax take is unlikely to fall and there is a real risk that some of the burden is transferred directly to landowners thereby increasing irrecoverable costs for landlords.
The outlook remains uncertain.
Despite that, I think that there is a substantial upside with operational opportunities to reduce costs and to add tens of millions of income from the Intu portfolio, the question is whether the management is visionary enough to spot that.