Intu – the retail landlord laid low by coronavirus

Shopping-centre owner Intu’s stock plunged below 2p as the company filed for administration last Friday. It has become becoming the “latest casualty” of a pandemic that has “inflicted severe pain on the country’s struggling retail sector”, says George Hammond in the Financial Times. With 14 wholly owned centres and three joint ventures, Intu is the UK’s largest shopping-centre group, employing 3,000 direct staff while a further 100,000 work in the centres’ shops. The bankruptcy is the culmination of a “difficult decade” for a company that hit a peak market value of £4.9bn in early 2015.

While Intu was “already reeling” before the current crisis, the pandemic has proved to be the final straw, says Bloomberg. Owing to the lockdown and the subsequent government moratorium on evictions, most retailers have postponed rent payments, leaving Intu without enough cash flow to pay interest.

At the same time, the market disruption caused by the crisis has scuppered plans to raise fresh equity that could be used to pay down its £4.5bn debt pile. With its creditors balking at a request to grant a moratorium on debt payments until the end of next year, administration was the only option.

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Missed opportunities

Still, it’s wrong to blame Intu’s woes solely on the Covid-19 pandemic, as they have “been years in the making”, says Nils Pratley in The Guardian. The company missed several opportunities to fix an “overleveraged balance sheet” between 2010 and 2017, when the share price “was steady at 300p-ish”. Instead, based on the “delusional belief” that the value of the assets in its portfolio could never fall, the board endorsed a strategy of “extreme financial leverage”, only engaging in a “desperate scramble” for extra cash at the start of this year when it was already “far too late” to save the company.

Intu is unlikely to be the only landlord to face extinction, says Sam Chambers in The Sunday Times. Hammerson’s shares have fallen to 82p, a far cry from the 700p they cost five years ago. The company was forced to write down the value of its assets by a fifth last year, and received just 37% of the rent due in March. It will have to raise more money, either through a new equity offering or via asset sales. If this fails it will then be forced to throw itself on the mercy of creditors.

Even if landlords such as Hammerson cling on, their future looks bleak, says Tom Stevenson in The Daily Telegraph. While low bonds yields makes prime property superficially attractive, the definition of what constitutes “prime property” has changed. After all, the glitz of the destination shopping centre “seems less important when the anchor tenant can no longer pay its bills”, while the “prestige City address” is much less alluring “when the traders are sitting at home in their shorts”. Property investment is set to become “more like stock-picking than the exercise in asset allocation it has traditionally been”.