Intu is using a mixture of debt and equity to fund its £867.8m purchase of interests in two regional shopping centres and a retail park from Westfield.
A two-for-seven rights issue, which will raise around £488m of net equity, has provoked some comment because of the pricing: at 180p, the discount is 42.5% of the share price and 36.7% of the theoretical ex-rights price (TERP).
The TERP discount is not far off those seen in the 2009 financial crisis, when other UK REITs, such as Hammerson and British Land, were forced to bolster their balance sheets.
Intu’s issue is fully under-written and its two major shareholders – John Whittaker’s Peel Group and the Gordon family – are committed to taking up 24% of the new shares.
The retail REIT’s finance director, Matthew Roberts, said: “Around 35% is entirely normal for UK discounts on rights issues.”
New debt facilities will provide another £423.8m of finance for the acquisitions. There are three separate facilities, each secured on a property.
Deutsche Bank and HSBC are providing £191.3m for a 50% stake in Merry Hill, Westfield’s super-regional West Midlands shopping centre.
The other 50% of the mall is owned by Australian superfund Queensland Investment Corporation, which issued a CMBS that is secured against its stake.
This matures in September 2016 with an option to extend for a year; it is expected that both QIC and intu will each be refinancing their debt individually through borrowing secured on Merry Hill.
Intu is financing its 100% acquisition of the second Westfield centre, in Derby, with a £202.5m facility from Lloyds Bank and UBS.
This matures in October 2016 and will be refinanced through intu’s central funding platform, the secured group structure that issues investment- grade debt.
HSBC is also lending intu £30m, secured against the third property being acquired, Sprucefield retail park in Northern Ireland. This facility also matures in 2016.
The three facilities have a weighted average all-in annual cost of 2.5% for the first year.
They all also have a margin step-up after 12 months – 50bps for Merry Hill and Derby and 15bps for Sprucefield – and further step-ups after each additional six-month period.
The combined loan-to-value ratio on the Westfield acquisition is 49%, broadly in line with the group’s LTV level at the end of last year, intu said.