Analysts say Intu is 'running out of options' - report

By

Sandra Halliday

Published
Mar 19, 2020

Retail analysts have reportedly warned that malls giant Intu is running out of time to fix its debt-saddled finances and that a drop in its portfolio value this year similar to 2019’s could be the last straw.

Property Week quoted Mike Prew, real estate analyst at Jefferies, saying another £2 billion portfolio value plunge would be too much for the firm. And given that retail this year is likely to be devastated by the coronavirus, such a fall wouldn’t be a shock.

Yet Intu owns or has stakes in some of the UK's most attractive malls (such as Lakeside and Cribbs Causeway). It's also one of the most forward-thinking mall operators with plenty of experiential innovations having been introduced. And it continues to attract strong tenants, Harrods having chosen Lakeside to to open its new beauty format.

Despite all this, earlier this month, Intu said its portfolio value had fallen by as much as 22% in 2019 and its debt-to-asset ratio rose to 68%.

“The portfolio fell in value by £2 billion to £6.6 billion against net debt of £4.5 billion in 2019,” Prew said. “A similar drop in 2020 would wipe out the equity. In our view, the business has run out of options.”

He added that there have been warning signs for several years with the higher-than-expected pricing of a £350 million convertible bond issuance in 2016 being the starting point.

Given that this was the same year as the Brexit referendum-induced retail downturn and also the point at which online shopping really accelerated, it’s clear that Intu has been batting unstoppable headwinds for almost four years. And the firm’s cancellation of a £1.3 billion equity raise this month was a further sign of its diminishing options.

Intu shares are currently down from £4.20 each a decade ago and £1.11 this time last year. At the time of writing, they’re trading at less than 5p each, giving the firm a market value of less than £60 million.

Property Week also said that “questions are now being asked about who would take control of Intu’s assets in the case of default”. It seems unlikely that the banks would want to manage them and Colm Lauder, real estate analyst at Goodbody, told the trade paper that “we may see an increased degree of co-operation between the banks and Intu.”

But he also suggested that while the banks might be prepared to be more flexible regarding Intu’s loans in the current crisis, the fact that many retailers are seeking rent holidays could further undermine its position.