Shopping centre owner Intu expected to enter administration

Fri, 26 Jun 2020 | ADMINISTRATION

Intu, the company behind some of the UK’s biggest shopping centres, has warned that it is likely to enter administration after failing to reach an agreement with creditors. The company has racked up debts in excess of £4.5 billion and said it was unable to secure a debt repayment holiday before a Friday deadline.

The company operates 17 shopping centres across the UK, nine of which are among the UK’s top 20, including Manchester’s Trafford Centre, Lakeside in Essex and the Metrocentre in Gateshead. It also operates several smaller regional malls and has shopping centres in Spain.

It had been seeking an 18 month “standstill” agreement to provide relief on its debts. Intu had revealed earlier in the week that it would enter administration if it failed to reach an agreement with its creditors and that it had appointed KPMG to oversee the process.

In a statement today, Intu said: “Since that update, discussions have continued with the Intu Group’s creditors in relation to the terms of standstill-based agreements. Unfortunately, insufficient alignment and agreement has been achieved on such terms.”

“The board is therefore considering the position of Intu with a view to protecting the interests of its stakeholders. This is likely to involve the appointment of administrators.”

Due to its complex financial situation, Intu’s administrators would have to be paid up front. If the company were unable to fund this it said malls may be forced to temporarily close.

Intu employs around 2,500 staff directly in its malls and head office. 60 per cent of its mall employees and 20 per cent of head office staff have been furloughed during the coronavirus pandemic. The company and its wider supply chain involves around 132,000 jobs.

Despite the impact of coronavirus, Intu’s problems pre-date the pandemic, as it struggled with its £4.5bn debts and some major tenants, including Topshop and Debenhams, closing stores or seeking rent cuts. COVID-19 exacerbated these issues, with vacancies increasing as companies collapsed, while others demanded reduced rent, impacting attempts to repay debts.

Brian Burke, director at business advisory firm Quantuma, commented:

“Invariably, Intu have had issues for some time, which have been intensified in recent months, and there can be no doubt that the coronavirus pandemic has swiftly intensified the position."

“The significant impact on its cash position is not unexpected. The business will have been hit hard by the partial closure of its centres when non-essential retailers closed their doors and the resulting meagre rent receipts for the March and June quarters."

“Having put KPMG on standby earlier this month, it is telling that they are reportedly seeking funding in order to operate the business during administration. Their reported requirement of £12m is notable given without it they would be unable to operate certain centres, and the approach to bondholders of Metrocentre and Trafford Centre is sensible."

“The strategy, one assumes, will be to trade the business and ensure the centres re-open fully as we exit lockdown. This will generate cash and assist to preserve property values, although given the impact upon tenants it is difficult to see how this will look compared to historic performance."

“In addition to many retailers having to consider their need to restructure their businesses in light of the pandemic, many are having to evaluate their store base. With Intu being a prominent landlord, there will undoubtedly be negotiations with many of their leaseholders, who will be seeking waivers and concessions. it will be interesting to see how the administrators deal with these and whether any conflicts arise where they have advised retailers in their portfolio."

“Ultimately, the focus will be on preserving value and jobs. They will seek to generate the best outcome for Intu’s creditors and to achieve this, the business needs to be functioning. In turn, this will offer sufficient flexibility to allow the Intu portfolio to create an effective work out that may result in the portfolio being carved up and sold.”

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