Real Estate

Landlord Intu finds itself at centre of retail storm


For 18-year-old Lauren Westpfel, flipping through racks of heavily discounted clothing at Topshop in Essex’s Lakeside shopping centre is an unfamiliar experience.

“I always buy online because I’m quite impatient. I’m here today more to be social — it’s a bit of a day out,” said the student. Ms Westpfel prefers to shop on her phone even though she works in a retail park nearby. And as for Topshop, “I used to like it . . . it’s a bit overpriced.”

Shoppers like Ms Westpfel are at the heart of a crisis in UK retail that has brought a series of fashion chains to their knees as stores lose out to online purchases, in turn placing landlords such as Lakeside’s owner, Intu, in a perilous position.

As one of the UK’s largest shopping centre landlords, Intu has been among the most heavily exposed to retail failures.

Sir Philip Green’s Arcadia, which owns Topshop and is Intu’s largest tenant, forced through steep rent cuts last month, having previously accounted for 4 per cent of the group’s rent roll. The landlord was also the biggest victim of a “company voluntary arrangement” insolvency process at clothing and accessories chain Monsoon this month, and almost lost four House of Fraser stores in a dispute over rent cuts with the troubled retailer’s new owner, Mike Ashley’s Sports Direct.

Intu — which owns £9bn of properties — is not taking the disruption lightly. The listed landlord refused to back the Arcadia CVA although the retailer said it was crucial to its survival. Intu stood firm even as Arcadia won enough support elsewhere to push the CVA through, slashing the rent on the Lakeside Topshop store by more than a third.

But with more retail failures expected and a heavy debt burden forcing Intu into what one analyst called a “strategic straitjacket”, the property group now faces its biggest challenge since it demerged from Liberty International after the financial crisis.

Declines in retail property values have pushed up loan-to-value ratios — a key risk metric — on Intu’s extensive debt. The company maintains it has “significant” headroom before it hits loan-to-value ceilings agreed with lenders, which would place it officially in default.

But even below those limits, Intu could lose operating control of some shopping centres if property values fell far enough, according to company documents. Meanwhile some £3.7bn of debt, much of it secured against individual assets, will need refinancing by the end of 2024.

“The company is in a very deep hole . . . the longer it waits to take corrective action, the fewer options it will have,” said Robert Duncan, an analyst at Numis.

Intu in its current form dates from 2010 when it demerged from Liberty, then acquired Manchester’s Trafford Centre from Peel Group, the Manchester-based conglomerate founded by billionaire John Whittaker. The deal in exchange for shares made Peel one of Intu’s largest investors, while Mr Whittaker himself is another.

In the past 18 months there have been two failed takeover approaches for the property group — last year’s attempt by Peel, Saudi investors and Canada’s Brookfield to take the company private for 210.4p per share, and an earlier all-share offer from rival Hammerson, worth an even higher 253.9p.

Since then, Intu’s situation has worsened. It scrapped its dividend, and at the start of this month its share price was trading at 76.9p, a 76 per cent discount to net asset value, according to RBC Capital Markets.

The company wants to sell stakes in shopping centres to cut its borrowing; an auction process is under way for stakes in two of its Spanish properties.

However, any sales or refinancings of UK shopping centres, which make up most of Intu’s portfolio, would take place in a nervous market. Banks and investors are cutting retail property exposure. Sales of shopping centres have hit record lows and the cost of retail property debt is rising.

Kuwaiti investors bought half of Intu’s Derby shopping centre this year, but secured a structured deal giving them preferential access to its income.

Matthew Roberts, who took over as Intu’s chief executive in April, nonetheless said the quality of the company’s portfolio of large regional shopping centres meant he had “some good cards to play”.

“I’m very happy with what I have inherited from a bricks-and-mortar point of view,” he said.

Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, agreed that Intu had “good malls in strong locations . . . though there is a divergence between the strongest, like the Trafford Centre, and some of the others.”

Footfall across Intu’s portfolio in the first quarter was down 0.2 per cent, a much narrower fall than the national decline of 2.1 per cent. But shopping centres are having to work hard to stay relevant. At Lakeside, a £72m extension will include a Nickelodeon family entertainment centre. A Travelodge hotel opened there in 2017, and Intu wants to build more than 1,000 homes on the site.

Landlords also want to create “experiences” that will lure shoppers into malls, while turning retail destinations into more fashionable mixed-use sites.

Among Intu’s reasons for opposing the Arcadia CVA was the likely backlash from other tenants still paying full rents. Mr De Mello said Intu had “aggressively” driven up rents across its portfolio in recent years.

Mr Roberts will update the market on the company’s strategy at the end of this month. He is consulting with tenants and offering staff extra mental health support amid the sector’s turmoil.

Back at Lakeside, Ms Westpfel remained unconvinced. She was frustrated by the inability to “filter” clothes in a store, as you would online, and did not know if her day out at the mall would result in any purchases. What would persuade her to buy? With a shrug, she suggests: “More discounts.”



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