Intu – the retail landlord laid low by coronavirus

Covid-19 has plunged shopping-centre owner Intu into administration. But this crisis was years in the making. Matthew Partridge reports.

A shopping centre © Getty
Shopping centres seem less glitzy when the tenants can’t pay their bills © Getty
(Image credit: A shopping centre © Getty)

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri