In a sign of increased market volatility in the Real Estate sector, the owners of two of the largest shopping malls in the UK have been forced to ask for emergency funding.
Intu Properties, who are the owners of the Lakeside Shopping Centre in Purfleet, Essex, and the Trafford Centre in Manchester, have been unable to raise its minimum funding target of £1.3bn, due in no small part to investors who believe that market conditions at present are too extreme.
To put into context just how badly a position it puts the company in, they’ve admitted that there is now a risk of it breaching bank covenants in July.
Intu have been struggling for some while as consumers look more and more towards online shopping, meaning that retail outlets are backing away from opening branches in the Manchester and Essex locations.
The company were already weighed down with a £4.5bn debt, and have also missed the criteria that would’ve allowed their banks to issue a new £440m revolving credit facility.
On Wednesday, shares in Intu dropped by a huge 40% in early trading to 6.6p - a new all-time low, and that appeared to be the final straw for shareholders and potential investors, whom the company had been talking with over the last few months.
“Following these discussions, Intu has concluded it is unable to proceed with an equity raise at this point,” they said on Wednesday.
“While a number of Intu’s shareholders and potential new investors indicated their support for an equity raise, the board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital into the business and Intu was therefore unable to reach the target quantum at the current time.”
Expressions of Interest
Although Intu will still be looking at various expressions of interest, their position is somewhat weakened by their plummeting valuation. In 2018, the estimated value of its portfolio of shopping centres was worth £8.78bn, but this had gone down to just £6.6bn a year later.
Given that a further fall is expected, by perhaps as much as 10%, this would require Intu to find a £161m repayment on borrowings of its revolving credit facility and a further £113m under group asset-level borrowings.
Net rental income fell 9.1% in 2019, and a further 10% fall would see another £34m of group asset-level borrowings needed in order for Intu to remain within its covenants.
“While it is disappointing that the extreme market conditions have prevented us from moving forward with our planned equity raise, I am pleased that a number of alternative options have presented themselves during the process, which we will now explore further,” said chief executive of Intu, Matthew Roberts.
“We remain focused on fixing our balance sheet in the near term to ensure this business has the financial footing it needs to realise its significant potential.
“We will face further challenges in what has been an extraordinary few months for Intu and the wider sector, but this is a compelling proposition and one that will stand the test of time.
“Operationally, our business is strong, delivering a resilient rental performance despite ongoing pressure from CVAs and administrations, with stable occupancy rates and footfall that consistently outperforms the benchmark.”