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Intu plunges into the red after a £650mln write-down on its property portfolio

The write-down is only a paper-based loss but does feed through to what Liberum Capital Markets described as an "awful" decline in net asset value per share
Shoppers milling about
At least the Spanish business had another strong six months with high occupancy and strong letting activity

David Fischel, the chief executive of shopping centres operator Intu properties PLC (LON:INTU) is preparing to check out of the company.

Fischel was going to stand down anyway had the proposed merger with Hammerson not been aborted so the decision may not come as a great surprise.

READ: Intu terminates Hammerson deal, believes in its stand-alone commercial future

Fischel will hang around in the bagging area until a successor is appointed.

The decision was announced alongside Intu's interim results that showed net rental income eased to £223.1mln from £226.2mln the year before.

Underlying earnings were unchanged at £98.5mln from a year earlier and excluded a £650.4mln downward adjustment to the valuation of Intu's property portfolio.

As a result of the huge markdown, the group plunged into the red with a £490mln loss before tax, versus a profit of £190.4mln in the first half of 2017.

"During a period of weakening sentiment in the retail market which has impacted prime shopping centre valuations, Intu has delivered a resilient operational performance in the first half of 2018. This reflects the high quality of our business which was able to perform in a challenging retail environment,” Fischel said.

“Our occupancy level remains high at 97 per cent with aggregate lettings 6 per cent ahead of previous rents.

“Like-for-like net rental income grew for the fourth consecutive year, by 1.3 per cent in the period, driven by new lettings and rent reviews, despite a 0.9 per cent hit from tenant failures,” Fischel added.

Net asset value (NAV) per share slumped to 362p from 349p at the end of 2017.


Liberum Capital Markets described this decline in NAV as “awful”; it had forecast a NAV of 402p.

Underlying earnings per share of 7.3p were unchanged year-on-year but 4% below Liberum's forecast while the interim dividend was also flat at 4.6p, in line with the broker's forecast.

The broker noted that the valuation pressure on Intu's shopping centres was “over and above” that experienced by peers Land Securities and Hammerson.

“A 6.2% property decline was also exacerbated by the group’s high leverage and resulted in NAV -12% to 362p, 10% below our forecast. This impact has further increased the group's LTV [loan-to-value] to 49% and leaves the group in a much tougher position to deliver its investment aspirations without undue risk,” Liberum said.

“The retirement of long-standing CEO David Fischel could present an opportunity for his successor to revisit the group's strategy and help improve the market’s current poor perception of its assets and direction,” Liberum suggested.

The broker kept with its 'hold' rating, saying the 7.8% dividend yield provides support for the shares.

Shares in Intu tumbled 8% to 165.55p.

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