Intu pays down debt as Derby joint venture transaction completes

Intu Properties announced on Tuesday that the conditions for its joint venture for the Intu Derby shopping centre had now been met, and the transaction had completed.

The FTSE 250 retail property investor and operator had announced that it was forming a joint venture with Cale Street Investments - an investment firm backed by the Kuwait Investment Office, the London office of the Kuwait Investment Authority - on 18 April, to own the Intu Derby centre.

It said the closing of the transaction was subject to completing a senior debt financing of the centre and certain other completion conditions, which had now been met.

The consideration payable to Intu by Cale Street was calculated by reference to the December 2018 book value of the centre of £372.5m.

Senior debt finance of £150m was raised in the joint venture with Deutsche Bank, with the consideration amounting to £109m after working capital adjustments.

Intu said the debt raised in the joint venture, along with the consideration, had been used to repay debt, including £210m of the SGS term loan which matures in 2021, leaving £142m of that loan outstanding.

That was in line with the company’s stated strategy to reduce its debt and focus on the near-term refinancing activity.

On a pro-forma basis, the transaction reduced its debt-to-assets ratio by around 1%.

Intu said it would continue to manage the centre on behalf of the joint venture, and receive asset management and brand licence fees for that, which the board said would “further enhance” the company’s return from the transaction.

As it had previously stated, Intu said the preferred equity transaction included a prioritisation waterfall for distributions to the joint venture partners.

That gave Cale Street priority on income and capital distributions from the venture, capped at a high single-digit total return per annum.

While not guaranteed, it protected Cale Street to some extent on the downside, but allowed intu to benefit on the upside.

Under the terms of the joint venture, distributions remained a decision for the joint venture board, allowing Intu and Cale Street to defer dividends to retain cash in the joint venture if deemed required for capital investment or other uses.

“We are pleased to complete this innovative joint venture transaction in what is a challenging investment market in the UK,” said Intu chief executive Matthew Roberts.

“Cale Street's equity represents a flexible and cheaper source of capital than Intu's own equity and other private equity financing sources considering investing in UK shopping centres today.”

That reduced cost was achieved in exchange for a priority of distributions to Cale Street, Roberts explained.

“Whilst the transaction is earnings dilutive, the part-disposal of intu Derby is evidence of our strategy to reduce debt though disposals and part-disposals both in the UK and Spain and the transaction crystallises value significantly above the look-through value of Intu Derby implied by the current share price.”