Local governments end up buying dying malls to keep them from becoming dead zones.
Intu Properties which owns dozens of malls in the UK, including nine of the 20 biggest, as well as a handful in Spain, warned this week that it is on the brink of bankruptcy after declaring losses of £2 billion for 2019 and a debt of £4.5 billion. Its portfolio of properties is still valued on its books at £6.6 billion, down 33% from December 2017. Its shares are now worth just four pennies a piece. Two and a half years ago, before many of its high-profile tenants began dropping like flies, the company was worth more than £2 billion; today it’s worth just £55 million.
Like-for-like net rental income was also down by 9% in 2019, to £401 million, due in large part to some of its once-thriving tenants entering administration or company voluntary arrangements (a form of bankruptcy), as well as an increased vacancy rate.
Now, to stave off its own bankruptcy, Intu desperately needs to raise new funds. Intu’s original plan to raise fresh equity capital, unveiled less than two months ago, already failed. It wanted to raise at least £1.3 billion to fortify its shaky finances, keep its creditors at bay, and avoid defaulting on its huge debt pile. But trying to convince already skeptical investors to inject fresh funds, after its shares have already collapsed to almost zero, at a time when the UK’s retail sector is in the deepest of doldrums, was always going to be a tough sale.
The first major investor to pull out of the equity raise was Hong Kong-based Link Real Estate Investment Trust. Others quickly followed and by last week Intu conceded that its plan had been a complete flop, which it nonetheless blamed on “extreme market conditions,” meaning the coronavirus, which is expected to further decimate store traffic in the coming weeks.
Unless another solution is found, Intu will soon breach multiple debt covenants. This could cause lenders, including HSBC and Royal Bank of Scotland, to take control of its assets — assets they would rather not have and will probably quickly sell.
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