Intu needs to “move quickly” to dispose assets after a failed attempt to raise equity has left the shopping centre owner in a “precarious situation”, experts have told Drapers.
Intu Properties has abandoned its planned equity raise after failing to reach a minimum target of £1.3bn from investors. This means Intu, owner of Manchester’s Trafford Centre and Lakeside in Essex, has missed the criteria set by banks to receive a four-year revolving credit facility of £440m.
The company is now at risk of breaching certain debt covenants in July 2020, depending on the ongoing performance of the business.
“Intu’s failure [to secure the equity] is an absolute hammer blow and [it] is very likely as a result to breach debt covenants in July,” said Jonathan De Mello, head of retail consultancy at property agency Harper Dennis Hobbs. “Unless something drastic happens and either someone magically provides them with the equity they need, or buys a majority stake in the business (both of which are unlikely) then Intu is in real trouble. It is imperative that it sells some of its malls as soon as possible and review investment in ongoing developments such as Intu Costa Del Sol and Intu Broadmarsh, if it is to survive longer term.”
Retail analyst Richard Lim agreed: “Its future hangs in the balance and it will need to move quickly. It puts it into a really precarious situation. The demand for retail property and investor sentiment is pretty much at a 10-year low.”
An Intu spokesman said: “Intu will not be moving ‘quickly’ to sell assets – this would neither be helpful to Intu or the wider market. Disposals or part disposals will likely form part of Intu’s plans to increase liquidity, but any such action will be done in an orderly way to maximise value for stakeholders.”
He added that Intu currently has available cash of £170m and continues to be profitable.
Lim also flagged the potential danger of Intu’s collapse could have on other landlords: “If we were to see a situation where Intu were to fail, the risk would be that a lot of the debt is held by institutional investors. This could make institutional investors more nervous about exposure to other assets of the same ilk and might force them to start taking a different risk profile for other landlords.”
In a recent trading update Intu blamed company voluntary arrangements at Arcadia Group and Monsoon for “more than half” of its 9% reduction in full-year like-for-like net rental income for the three months to 30 September.
“Its portfolio is very mid-market in terms of [tenant] mix and that’s where the carnage is in terms of CVAs”, said one property source. “As a result, whenever a CVA hits it gets hit harder than most other [landlords]. It is a reflection of it occupying a particular sector of the market.”
“Intu is doing some good innovation including incubators for brands, but it doesn’t deal with the fundamental and structural issues. It’s probably a scary lesson to everyone of what can happen.”