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Orion And Whittaker Decide Whether To Stick Or Twist On Intu

Orion And Whittaker Decide Whether To Stick Or Twist On Intu
John Whittaker

Two of the best-regarded names in British and European real estate have a big decision to make on the fate of an investment which, so far, has them sitting on a big loss.

Shopping centre REIT Intu Monday confirmed a weekend report that it is planning to raise up to £1B in an emergency rights issue to shore up its heavily indebted balance sheet. It said the rights issue could be unveiled alongside its financial results in February.

That makes it high noon for two of the company’s biggest shareholders, private equity firm Orion Capital and John Whittaker’s Peel Holdings. They need to decide whether to support the rights issue, pursue a previously mooted takeover bid or simply walk away.

Orion is relatively new to the Intu story. It started buying shares in the company in January last year, and between then and June it spent about £123M building up a 9% stake in the REIT.

With Intu’s share price having plunged from 112p to 21p, Orion is sitting on a paper loss of about £100M.

Peel and Whittaker’s losses are even greater. The Isle of Man-based investor took a stake of 20% in Intu when he exchanged the Trafford Centre scheme for £1.6B in shares and debt in Intu. Over time he built that stake to 26%.

Given the shares over that period have fallen from 355p, his £1.6B is today worth less than £80M. He has had to sell other parts of his business to repay debt secured by his shares in Intu, according to The Times.

The same paper reported last year that Orion and Peel could join up to bid for Intu. Peel had previously teamed up with Brookfield for a bid for the company at 210p a share, before the Canadian giant walked away.

Orion has bought some of Intu’s debt to try and give itself a strong position in any restructuring of the company. Last August analysts at Green Street said Intu’s assets could be worth less than the value of the loans secured against them.

Orion and Peel will need to decide whether there is any point stumping up about £90M and £250M, respectively, to fund a rescue rights issue, or if they should just make a bid for the company, and if they do make a bid, the price at which a deal would get over the line.

A bid would have the benefit of taking Intu out of the spotlight of being a list company. A private owner would be able to sell or refinance individual assets more slowly over time. The Trafford Centre is in the process of a refinancing that could see it valued at more than £2B.

Potential upside from the deal would be provided from Intu’s Spanish development portfolio. Its planned scheme in Malaga on the Costa del Sol could be worth more than £800M once built, but the company can’t currently finance the scheme. Orion has made a killing on Spanish shopping centres in the past, and both it and Whittaker have worked with Intu’s Spanish joint venture partner, Ian Sandford’s Eurofund Group, in the past.

Intu has just sold its Puerto Venecia scheme in Zaragoza, which it bought from Orion, for £405M, and is selling a second Spanish scheme in Asturias for £500M.

The downside of taking the company private is if the assets are indeed worth less than the debt, private market owners would be on the hook for all the losses.