Intu Properties, the owner of shopping malls including the Trafford Centre in Manchester and Lakeside in Essex, has warned it could collapse if it is unable to raise further funds.
The struggling shopping centre giant, another victim of the UK’s retail sector woes, posted a loss of £2bn for 2019, up from £1.17bn the year before.
A spate of retailer administrations and restructurings forced Intu to write down the value of its centres by nearly £2bn. The estimated value of its property portfolio dropped 22% to £6.6bn.
Intu’s shares have lost almost 90% of their value over the past year, as its so-called anchor tenants including Debenhams, House of Fraser and Topshop’s owner, Arcadia, have struggled.
Thursday saw another day of steep falls following the release of its results, leaving the shares down about 25% to just over 4p.
The company flagged a “material uncertainty in relation to Intu’s ability to continue as a going concern”. However, it said it had options, including selling off more assets, refinancing its £4.5bn debt and seeking waivers on its debt repayments from lenders.
The group has already sold some assets during 2020, such as two of its three Spanish shopping centres, in a bid to raise cash and bring down its debt, but some analysts believe it needs to take more drastic action, such as selling some of its top-rated centres.
In a statement to the stock exchange, Intu 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.”
Intu said last week it was at risk of breaching its debt covenants after it was forced to abandon an emergency cash call because what it called extreme market conditions left it unable to raise its minimum target of £1.3bn from investors.
“Survival is now the key focus,” said analysts at Peel Hunt. “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.”
Changes in the retail landscape have struck the heart of the company’s business model as an owner and operator of shopping centres. In the past it could have relied on ever-rising rental income from the firms that rent space in its centres, as well as the increasing value of its property portfolio.
If Intu’s property values fall by a further 10% in 2020, the group would be forced to find £113m to avoid breaching its covenants, and would require a £161m repayment on its rolling credit facility. It also has £190m of debt expiring and £93m of swaps payable within the next 12 months. This compares with £168m of cash and £129m of other available funding facilities.
In addition, Intu said it expected its net rental income to fall further this year on a like-for-like basis, but by a lower amount than in 2019.
Rob Virdee, an analyst at the property consultancy Green Street Advisors, believes Intu will struggle with its debt repayments if the value of its property portfolio declines further.
“Crunch time for Intu will be in the summer at the next property revaluation, and it doesn’t have much wriggle room if the market continues to deteriorate,” Virdee said.
Analysts believe that if Intu breaches its debt covenants, the banks may ask for the keys back to their centres, and could choose to sell them on.
Intu has told investors it is closely monitoring the impact of the coronavirus pandemic on its centres, and noted that the “situation is rapidly evolving”. It said the number of visitors to its centres was broadly unchanged in the first 10 weeks of 2020.
Analysts are, however, concerned about the impact on shopping centres if the Covid-19 outbreak causes people to shun visits to crowded places, or if there are large-scale closures of shops and restaurants, as in Italy.