Shares in Intu Properties, the shopping centre company that owns the Trafford Centre in Manchester and Birmingham’s Merry Hill, have crashed to a record low after it said it might need to raise fresh cash to reduce a £4.7bn debt mountain.
The 30% fall in the share price on Wednesday wiped more than £200m off the company’s market value. It came after Intu reported widening losses, scrapped its dividend and warned that rent from shops would fall for the rest of this year and next.
Intu’s rent income in the first half of 2019 fell by 18% to £205m after a string of retail restructures by major clients including New Look, Topshop’s owner Arcadia, Debenhams and House of Fraser. Its losses rose to £856.4m in the six months to 30 June, from £506.5m in the same period of 2018.
Matthew Roberts, the chief executive, said the first half of the year had been challenging, marked by falling like-for-like rental income and property values. “But we know radical transformation is required,” he said.
Roberts’ new five-year strategy involves transforming parts of Intu’s shopping centre estate into 6,000 homes, seven hotels and hot-desking offices as it tries to turn space left empty by retail collapses into thriving communities.
Intu has applied for planning permission to create more than 1,000 homes at its Lakeside shopping centre in Thurrock, a development that would require the demolition of a House of Fraser store and two car parks.
It is considering building homes at other large out-of-town malls including the Trafford Centre and Braehead in Glasgow. The company also wants to build seven hotels and six flexible working sites as it reduces retail space.
Roberts said: “Regardless of current sentiment, one thing is clear: the physical store is not dying, it is evolving. The right store in the right location still plays a vital role in retailers’ multichannel strategies.”
He said online companies such as the Chinese multinational Alibaba were looking for physical sites as were new leisure brands such as the crazy golf operator Puttshack. “Change will not happen overnight, but I am confident we have the right plan in place and an energised, dynamic team to deliver it,” Roberts said.
Improving the balance sheet was a priority, he said, adding that Intu would keep all options under review, including raising more cash from shareholders. The company has £926m of debt, which matures in 2021. It expects to make “material progress” on reducing that in the next year.
Roberts said raising equity was “the last thing we’ll get to” as the company was focusing on other self-help measures, including a reduction in capital expenditure, the disposal of Spanish assets – which could raise up to £300m – and on removing 45 management posts to give an annual saving of £5m.
Like-for-like net rental income was down by 7.7% and valuations fell by about 10%.
That was well ahead of a 3.1% fall in net rental income reported by Unibail-Rodamco-Westfield, the owner of the Westfield shopping centres in Stratford and Shepherd’s Bush, London, for the six months to 30 June reported on Wednesday. Westfield said 8.7% of its UK retail space was empty after retailer bankruptcies and the delays to signing new leases as Brexit uncertainty “deters new market entrants”.
Analysts at Peel Hunt said it would be in everyone’s interests if a willing partner could be found to take Intu private. Matthew Saperia, a property analyst, said Roberts’ plans were not very radical and investors would be focusing on the company’s debt problems for the foreseeable future.
