Intu, the giant UK retail property company, owner of the Trafford and Lakeside shopping centres, among others, has warned that it could go bust after suffering a £2bn loss last year.
Intu has had to write down its asset values amid structural changes in retailing. Changes in the way people are now doing their shopping, compounded by a major health crisis, means the company is on the brink, almost certain to breach its loan covenants unless it can find support.
Changes in retailing have hit the company hard. Whereas in the past the company could rely on ever-increasing rental income from its successful retail tenants, as well as rising property valuations to underpin its loans, this has all fallen away. Couple this with the onset of coronavirus, with its associated drop in footfall, and the company is in the middle of a perfect storm
The last few months have seen the company in a serious bid to find a major new investor, and the company was planning a £1.3bn plus cash call on its investors, before the current stock market collapse scuppered that move.
The giant shopping centre owner has had a torrid couple of years as the crisis in retail developed. Several of its major tenants have ceased trading or are struggling, rent revaluations are down by well into double figures, and it’s looking like the landlord could become another victim of the UK’s high street woes, along with some of its tenants. The company posted a loss of around £2bn for 2019, added to losses of £1.17bn the previous year.
A spate of its tenant administrations, restructurings and rent downward re-valuations has forced its total property estate valuation down by around 22% to £6.6bn. The company has said it is at risk of breaching its debt covenants after being forced to abandon its fundraising attempts. Intu has warned it could collapse unless it can secure further funding.
Intu’s shares closed down nearly 25% yesterday at 4.5p, having lost over 95% of their value over the past year. It saw its main anchor tenants including Topshop owner Arcadia, House of Fraser and Debenhams fall into difficulties themselves.
The company yesterday announced a “material uncertainty in relation to Intu’s ability to continue as a going concern”. However, it has said it still has other options which include the selling off of more of its assets, the refinancing its £4.5bn debt, seeking waivers on its debt repayments from lenders, and continuing to seek major investors.
Earlier this year the group off-loaded three Spanish shopping centres in a bid to bring down its debt levels, but financial analysts say it needs much more drastic action. This might include disposing of one or more of its flagship shopping centres.
Intu had said:
“We have options including alternative capital structures and further disposals to provide liquidity, and will seek to negotiate covenant waivers where appropriate. These would address potential covenant remedies and the upcoming refinancing activities, with the first material debt maturities in early 2021.”
Analysts at Peel Hunt had said:
“Survival is now the key focus… Dealing with the £4.5bn debt pile will be key to this survival, and with the current backdrop and the looming 2021 maturities this looks challenging.”