Brookfield prepares bid for £2.1bn intu

Investment giant Brookfield is preparing a bid for beleaguered shopping centre owner intu Properties, EG can reveal.

It is understood that no formal offer has yet been made but Brookfield has been working on a prospective deal for more than two months and touring its assets.

Intu is the largest owner of shopping centres and owns some of the country’s biggest malls, including the Metrocentre in Gateshead, Merry Hill in Dudley and the Trafford Centre in Manchester.

At the time of writing, intu has as market cap of nearly £2.1bn based on a share price of 150p. It trades at a discount of around 45% to its net asset value, meaning the market is valuing the company’s assets at almost half of their book value of £9.8bn, due in part to negative sentiment in the retail sector.

At the end of last year, intu accepted a 253.9p per share offer from listed rival Hammerson, which saw the company valued at £3.4bn. Hammerson was subsequently unsuccessfully courted by European giant Klépierre and the Hammerson-intu deal fell apart in April amid a lack of support from Hammerson shareholders.

Hammerson said it had decided not to proceed with the bid because the equity market’s perception of UK retail property had deteriorated since it first made its offer and the “heightened risks to the intu acquisition now outweigh the longer-term benefits”.

Since the time of the Hammerson bid, intu’s share price has fallen by more than 40% and it is possible that if Brookfield was to make a bid that it may not have to do so at the level Hammerson did for it to be accepted. Any deal would need the blessing of intu’s major shareholder John Whittaker, who holds a stake of around 26.6%.

The process is being led by managing director of Brookfield’s Property Group, Brad Hyler, who relocated to London from New York in 2015 and has been at the centre of many of the company’s most high-profile corporate transactions including the $2.8bn sale of Gazeley last year to Global Logistic Properties.

Despite the structural changes facing the retail sector globally, particularly from the ever-growing dominance of online firms such as Amazon, Brookfield has been making bold counter-cyclical calls on malls.

In August, Brookfield Asset Management completed the $15bn take-private of GGP, the second-largest shopping centre owner in the US. It owns almost 150m sq ft of retail in the US.

Brookfield’s retail holdings in the UK are negligible and an intu acquisition would add almost 18m sq ft to its portfolio.

With the retail sector seen as untouchable by many investors due to weaknesses in the occupational market and oversupply across the UK as a whole, pricing of assets has come down dramatically. If Brookfield was to buy intu it would be able to deploy capital into the assets in order to modernise them and, in some instances, introduce alternative uses.

Brookfield’s plans are likely to be seen by the market as a relative boon for the retail sector, with one of the world’s largest and most respected investors – which in 2012 bought the bulk of Hammerson’s office portfolio for a bargainous £518m – determining that in some instances pricing may have reached a nadir.

Brookfield and intu declined to comment.

There is still value in prime retail

James Child, Retail Analyst, EG

“The longstanding narrative that retail is dead is a fallacy which has been disproved by this mooted move.

Despite this year being tumultuous for individual retailer chains, we have already seen the validation from investors that there is still room on their books for prime retail assets.

The shopping centre market has slowed over the past couple of years, with investors holding on to core portfolio assets as the continued uncertainly of Brexit plays out.

However, many traditional REITs are reacting to changing consumer demands by shedding out-of-town assets to consolidate and focus predominantly on inner-city shopping centres.

There is still huge value at the top end of retail; rental values continue to climb as overall vacancy rates decrease, pushing yields inwards. Both Kleppiere’s bid for Hammerson and Hammerson’s own bid for intu this year prove that. And with prime retail schemes continuing to evolve they are a safe bet for the future.”

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