Intu Properties FY2012

Intu Properties, previously Capital Shopping, previously Liberty Properties, reported results last week. Key points:

• Valuation up 0.6 per cent (IPD down 5.8 per cent)
• Full year dividend 15p
• NAV per share 392p; total financial return for the year 4.1 per cent 
• Debt to assets ratio 49.5 per cent, 6.1 years average debt maturity 
• New debt funding platform, a secured group structure (“SGS”) 
• Branding across malls (Intu)
• 96% occupancy
• 169 new long term leases £44m (+7% reversion)
• Digital strategy (free wi-fi and intu.co.uk)
• Lease expiry profile - 58% expiring beyond 2017 (weighted average expiry 7.8 years)

So is it attractive? Currently trading at a yield of 4.5%. No visible signs of earnings growing significantly, so this is the income stream one will get for the next few years. It's trading at a 17% discount to NAV (at prevailing price of 329p today) so it seems like there is scope for slight yield compression to narrow the discount to NAV (to about 10%). Assuming this convergence occurs this year, GBP return will be 11.5%.

Intu used to trade at a discount to BBB GBP 10 Year corporate bond index yield (from 1994 - 2008). 

BBB GBP 10 Year corporate bond index yield is currently at 3.79%. If Intu had to valued as it was in the 1994-2008 period (say 3.6% yield), then it would be trading at 417p (which is 26% above current prices.)

The share performance since 2009 clearly shows how poorly UK retail has performed. It has been effectively flat over the period, with no clear signs of income growth imminent.