Intu on the brink as analysts warn it has ‘run out of options’

Last week, the retail landlord reported a 22% drop in the value of its portfolio and that its debt-to-asset ratio had increased to 68%.

“The portfolio fell in value by £2bn to £6.6bn against net debt of £4.5bn in 2019,” said Mike Prew, real estate analyst at Jefferies. “A similar drop in 2020 would wipe out the equity. In our view, the business has run out of options.”

The warning signs had been there for years, said Prew. He pointed to the above-expected pricing of a £350m convertible bond issuance in 2016 as the start of intu’s downfall.

Prew also highlighted the 2019 sale of 50% of the intu Derby centre, which left the company with an expensive mezzanine loan. The final nail in the coffin was the last-ditch £1.3bn equity raise, which was called off last week.

Intu’s share price has tumbled 98% in the past five years, and currently sits at 5.42p, a 97% discount to reported net asset value.

Peel Hunt said in a note to clients two weeks ago that “existing equity is looking increasingly worthless”, and short sellers had begun closing up their positions to protect their profits.

Questions are now being asked about who would take control of intu’s assets in the case of default.

Colm Lauder, real estate analyst at Goodbody, warned that the banks would not want to be managing these retail assets themselves.

“There is a limited pool of very strong knowledge among these experienced property managers, such as Hammerson and intu,” he said. “We therefore may see an increased degree of co-operation between the banks and intu.”

The rapid escalation of the coronavirus crisis could mean that banks are willing to be more flexible with intu’s loans, which Lauder said could soon be classed as non-performing (a loan that is in default, or looks close to it).

However, “retail groups are pushing for a three-month rent freeze for tenants, which will have a significant impact on intu’s earnings,” he added.

“If cashflow is weak, there will be added difficulty in paying lenders. The banks may give intu more breathing room, but this only really drags out the end.”