Intu drops equity raise plan as volatile markets dent efforts to deal with debt
Under-pressure property giant Intu issued a trading update on Wednesday, but importantly also gave us an update on the talks it's been conducting in order to fix its heavily indebted balance sheet. And the result?
Well, it wasn't good news. Over the past few months, the owner of Lakeside, Merry Hill, Metrocentre and more has been in extensive talks with shareholders and potential new investors regarding a possible equity raise of between £1 billion and £1.5 billion. The big story on Wednesday was that “following these discussions, Intu has concluded it is unable to proceed with an equity raise at this point”.
Its shares crashed to 6p at one point in early trading and while they have recovered a little, the firm's market value is now under £106 million, compared with almost 50 times that five years ago and 25 times that in autumn 2018.
The company said its plans had received a certain amount of support but “the board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital and Intu was therefore unable to reach the target quantum at the current time”.
Given how important raising this money is to the company, what happens now? It said it has “received several expressions of interest to explore alternative capital structures and asset disposals”. That means the talks are continuing and options "include alternative capital structures and solutions and further disposals,” while it will “continue to keep under review the feasibility of an equity raise”.
So it's clear that the failure isn't going to mean a radical change in the short term. But it’s also clear that the company needs to do something relatively quickly.
Its results are due on March 12, but for now its trading update said “outside the challenges caused by tenant CVAs and administrations, Intu delivered a robust operational performance in 2019 and income has been resilient in what has been a challenging year for retail and retail property”. But that upbeat assessment still came with signs that the company is struggling and isn't exactly in the position it would want to be at present.
2019 footfall in its centres increased by 0.3%, but was flat in its UK properties (and with its Spanish properties being sold, the UK is more of a focus for the firm). Flat footfall may have significantly outperformed the Springboard footfall monitor (which was down on average by 2.5%), but is far from being a huge success. That said, footfall in the first eight weeks of 2020 increased by 0.9%, although given the increasing worries over the coronavirus in Britain, we don't know whether that rate will be sustained.
Further news was less encouraging. It added that full-year 2019 like-for-like net rental income was in line with guidance, that is, down by 9.1%. For 2020 it expects a further decline but at a slower rate than 2019.
Some 205 leases were signed last year, representing a 1% increase against the previous passing rent and occupancy at year-end was “stable at 95% in line with June and September 2019 [but] a reduction against December 2018” when it was 97%. That was due to units closed in H1 2019, mainly as a result of CVAs.
But the company is still optimistic regarding its overall prospects saying that underlying rental income “remains resilient, despite ongoing pressure from CVAs and administrations, demonstrating continued occupier demand for Intu's space”. It also has “a strong pipeline of negotiations which continue to underpin occupancy going forwards”.
It added that according to Market Data, retailers trading in Intu's centres typically outperform their UK chain average sales by 28% and outside London and the South East, it has the majority of the best-performing malls in terms of sales productivity in each region.
CEO Matthew Roberts, said: "We remain focused on fixing our balance sheet in the near term to ensure this business has the financial footing it needs to realise its significant potential. While it is disappointing that the extreme market conditions have prevented us from moving forward with our planned equity raise, I am pleased that a number of alternative options have presented themselves during the process which we will now explore further.
“We have a concentrated and well-invested portfolio of many of the UK's best retail and leisure destinations where both shoppers and customers want to be. Operationally our business is strong, delivering a resilient rental performance despite ongoing pressure from CVAs and administrations, with stable occupancy rates and footfall that consistently outperforms the benchmark. Our centres are the best performers in the regions in which we are present. This is a compelling proposition and one that will stand the test of time.”
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