intu warns that it may go bust after UK tumble
UK-BASED intu, which made a staggering £2 billion (R41.45bn) loss in 2019 after its malls were valued downwards in the aftermath of Brexit and changes to consumer shopping behaviour, has warned it may go bust.
A “material uncertainty in relation to intu’s ability to continue as a going concern” was noted in the results yesterday. However, the group, originally founded by South African entrepreneur Donald Gordon, said it still had options, including selling off more assets, refinancing its £4.5bn debt and negotiating with lenders and bringing in new partners at its centres.
The share price – already under massive pressure after plunging from R20.53 a year ago and from almost R50 a share three years ago – plunged 20.17 percent to close at 95 cents on the JSE yesterday, in a market that was well down globally.
Last week, intu opted to abandon a cash raise, because “extreme” market conditions had left it likely to be unable to raise its minimum target of £1.3bn from investors.
One uncertainty was the coronavirus. South African shopping centre chief executives have said they do not yet know what impact the virus will have on their operations.
intu directors said yesterday that they were “closely monitoring the impact of the coronavirus pandemic on our centres. However, the number of visitors was broadly unchanged in the first 10 weeks of 2020.”
“We have said before that we will consider bringing partners into our larger centres – we own 100 percent of four of our biggest assets, which gives us a great deal of flexibility – as well as disposing of some of our smaller centres,” the group said. “We had some significant expressions of interest at both the PLC and asset level during the equity process and we will take time to continue those conversations,” it said.
Net external debt of £4.5bn decreased by £368.8 million in 2019. Within the next 12 months, about £190m of borrowings were due to be repaid or refinanced.
“We will also be seeking to take timely mitigating actions to deal with any potential covenant breaches at the next testing date in July 2020. In our facilities we have the ability to prepay debt to manage LTV against the relevant covenant ratio. Since year end, we have utilised £50m from available resources to pay down debt in a small number of our facilities,” the group said.
Like-for-like rental income was down 9.1 percent in 2019, with more than half the change coming from retailers in financial distress, the weak consumer environment and political and economic uncertainties.
The property devaluation came to £1.98bn.
In 2019, intu was affected by administrations and CVAs at 167 stores at its shopping centres, which equated to about 9 percent of intu’s passing rent. Some 51 percent of these had no impact on rent received as the stores were kept open, while 40 percent were trading on discounted rents, and 9 percent had closed.
“We anticipate 2020 like-for-like net rental income to decline further, but at a slower rate than in 2019.”
The UK shopping centre investment market had the lowest level of transactions in 2019 sine 1993, resulting from factors including political and economic uncertainty in the UK and the challenges facing retailers.