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Did Brexit Really Kill The Intu Takeover Deal?

Dec. 05, 2018 9:31 AM ETintu properties plc (CCRGF)
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  • A consortium comprising of Brookfield Property Group, Peel Group and Olayan Group abandoned its plans to acquire shopping center REIT Intu Properties for £2.85 billion.
  • Besides sluggish consumption, Intu faces structural challenges from rising e-commerce competition and other societal changes.
  • Intu intends to reduce its dividend payment, starting with its final payout for 2018.

Abandoned takeover deal

On November 29, 2018, a consortium comprising of Brookfield Property Group, Peel Group and Olayan Group abandoned its plans to acquire British shopping center REIT Intu Properties (OTC:CCRGF) for £2.85 billion ($3.63 billion). With the consortium citing “uncertainty around current macroeconomic conditions and the potential near-term volatility across markets” as the reason for not going through with the takeover, it comes to no surprise that many analysts are blaming the failure of the deal on Brexit jitters.

Of course, Brexit uncertainty hasn’t helped with the pressures affecting the retail sector and the impact that has had on rents and property valuations. Only a day before the consortium withdrew from takeover talks did the Bank of England warn that a disorderly Brexit scenario could cause UK commercial property prices to plummet as much as 48%, a potentially much bigger drop than in the aftermath of the last recession. But it’s also clear that many of Intu’s problems go beyond Brexit.

Structural headwinds

The British shopping center group has long been rocked by a combination of structural and operational headwinds. As it is happening elsewhere in the developed world, the brick-and-mortar retail scene in the UK is confronting the challenges of growing overhead costs, rising e-commerce competition and changing consumer preferences.

Tenant failures are the most direct effect of the challenging trading environment, driving down both rents and occupancy. And with a string of UK retailers having gone bust in recent months, market conditions will likely get a lot tougher for retail REITs.

Intu, which has greater exposure to smaller town center shopping districts compared to most large-cap REITs in the sector, is particularly more exposed to the pressures affecting the troubled UK retail market. Many of these smaller town center shopping districts are more susceptible to the growing lure of online

This article was written by

Junius profile picture
An anonymous contributor who would like to share some of his ideas. My choice for the pseudonym "Junius" has been inspired by an 18th century British political writer who wrote a series of letters promoting individual freedom and liberty, and whose identity has been a source of mystery ever since. I'm a top-down investor who prefers to examine longer-term themes and wider economic trends before reviewing the individual attributes of a given company. My focus is on value, but not ignoring opportunities that offer growth at a reasonable price. And in pursuit of the best investment candidates, my search often takes me beyond domestic markets.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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