Should I Buy Intu Properties Plc?
I'm window shopping for shares again, and there are plenty of goodies for sale. Should I pop Intu Properties (LSE: INTU) into my basket?
What's in a name? Ask Intu Properties, which dropped its shopworn moniker Capital Shopping Centres in February in favour of a fashion makeover in February. Now it hopes to emulate rival Westfield, by including the shiny new Intu brand in the name of its retail centres. It is also lining up a new retail commerce site, Intu.co.uk. Should I buy it?
This should be an exciting time to invest in Intu, as it pours £25m into its rebranding exercise, which also involves introducing free Wi-Fi into its centres to encourage shoppers to stay longer. All 15 directly managed shopping centres -- including Lakeside at Thurrock, Metrocentre in Gateshead and the Trafford Centre in Manchester -- now sport the Intu prefix. The property developer hopes to make its "transactional, fashion-focused, mobile-enabled website" Intu.co.uk a top online retail destination, but it's behind schedule. The site was originally said to be ready in April, but a holding sign states it is still under construction.
Intu is a big retail player, with 10 of the top 25 UK centres, and more than 320 million customer visits a year. The industry has changed massively in recent years. The old ethos of "build a shopping centre and they will come" has developed into "build an all-round dining, drinking, shopping and socialising centre and they will stay and spend a lot more money". Fibre Wi-Fi forms part of that. It seems a wise strategy.
You might enjoy a trip to one of its shopping centres, but investors will have regretted buying its shares. The stock is still 60% down on five years ago, and posted a 4% loss over the past three years, against a 25% rise for the FTSE 100. Intu's footfall is down 1% on 2012 so far this year, and management admits the environment is tough, with retailers cautious about entering into store commitments. Occupancy levels remained fairly robust at 95% (although rival Hammerson boasts 97.7%). It doesn't help that most of Intu's shopping centres are outside cash-rich London, although the 33 new long-term leases signed during the first quarter should produce another £1m of new rent. So that's something.
Drop the shop
Building, refurbishing and running shopping centres isn't cheap. Intu, which is investing £1bn into its pipeline developments, carries £3.5bn of net external debt, equivalent to around 48% of its £7bn assets. It recently refinanced one-third of that debt, to "significantly" extend its long-term maturity. As a real-estate investment trust (Reit), Intu must distribute at least 90% of its taxable income to shareholders every year, which gives a healthy yield of 4.4%. Yet growth prospects look weak, with a forecast of 3% drop in earnings per share (EPS) this year and just 2% growth in 2014, and that could hit future payments. Last week, Credit Suisse cut its target price for Intu by 25p to £3.25 (current price: £3.50), and downgraded the company from neutral to underperform. This is one shopping trip I won't be making.
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