Intu left on the shelf as fear factor grows

COMMENT Impossible gifts are at the heart of this year’s Christmas ad campaign from intu. But in 2019 the make-believe land of TV is very different to the hard-nosed reality of retail. And gifting a drone so a stop-motion duckling can realise its dream and fly is a whole lot easier than selling a retail landlord right now. This morning the consortium formed by Brookfield, Olayan and existing part-owner John Whitaker’s Peel Group confirmed it would not be bidding for intu, despite three extensions to the offer period. Intu’s share price opened 25% down on the news and continued heading south in morning trading. It is of course the second time intu has been jilted in just seven months. When Hammerson withdrew in April it said: “The heightened risks to the intu acquisition now outweigh the longer-term benefits.” In an environment where Brexit-related uncertainty has heightened risk further, the consortium clearly reached the same conclusion: “Given the uncertainty around current macroeconomic conditions and the potential near-term volatility across markets, the consortium is not able to proceed with an offer within a timeframe which is manageable.” Intu acknowledged more micro considerations too, saying: “Market sentiment towards retail and retail property remains negative.” It was quite the understatement. With value destruction ripping through the sector, intu’s property values have reduced by around 9% in the first nine months of 2018. It’s impossible to imagine that that’s the end of the sector’s writedowns. The market quickly endorsed that view, wiping a third off intu’s value by lunchtime on Thursday. Intu may point out that the fall was not dissimilar to the 26% rise in October, when news of the interest from the consortium – broken by EG – first emerged. But there’s no getting away from the fact that it is now languishing at its lowest price since the company was formed. Local factors But there are local, intu-related factors at play here too. Intu is expecting like-for-like net rental income growth of no more than 1% this year – “subject to no new material tenant failures”. However, this excludes the impact of Mike Ashley’s decision to close House of Fraser stores at four intu centres in early 2019. Intu acknowledges this will reduce rental income and increase vacancy costs next year but points to plans to “re‑engineer and repurpose these stores with new and exciting alternatives already under consideration”. No doubt these spaces will contribute to the opportunities the company is eyeing in the residential, hotel, office and flexible working sectors. It has already identified the potential for around 5,000 residential units and nearly 600 hotel bedrooms. But that’s a long-term bet – medium-term at best – and investors are nothing if not impatient. We’ll see what response that impatience prompts from intu. “Back to business as usual” was chief executive David Fischel’s response to the news. I’m not sure the market will be prepared to take the same view. Fischel may want to watch last year’s intu Christmas advert again, which offered a guide to “Christmassing” – which starts early and “for some means sorting stuff out”. In the wake of another failed sale, he may want to avoid 2016’s ad altogether. That one began: “In a place not far from here, a last-minute shopper has the fear.”   To send feedback, e-mail damian.wild@egi.co.uk or tweet @DamianWild or @estatesgazette