Intu trouble – retail giant collapses into administration
Friday 3rd July 2020
Shopping centre owner Intu Properties plc announced on the 26th June that it has called in administrators after failing to reach an agreement with lenders to ensure its survival. Their 17 shopping centres across the UK, including the Trafford Centre and Lakeside complex, remain open at present under appointed administrators KPMG, despite the £4.6bn owed to creditors. With their share price plummeting more than 97% over the past year, the firm had been in trouble even before the coronavirus pandemic compounded the challenges facing the struggling retail industry.
The firm approached investors back in January in an attempt to raise £1bn after a lengthy struggle against the backdrop of the high street’s decline and an online shopping revolution. Their expansion to become the biggest shopping centre owner in the UK, once worth an estimated £13bn in 2006, failed to appreciate the changing retail habits of the public, with tough trading conditions and an oversupply of retail stores exerting downward pressure on rent rates and capital values. It has suffered from many of its high-profile retail tenants, such as House of Fraser and Debenhams, closing stores and seeking to negotiate rent reductions, and its failure to diversify its business model in response to evolving consumer behaviour has been fatal.
Chief executive Matthew Roberts stated in January that the occupancy rate was “stable” and that the 97% of rent collected from tenants for the first quarter of 2020 demonstrated a “lower risk” customer base, following a successful Christmas trading period. Despite this, shares dropped to an all-time low of 1.2 pence, a stark contrast to the almost 900 pence in 2009, with the impact of the coronavirus outbreak being the final nail in the coffin.
Subsequent to people being urged to stay at home and the mandatory closure of all non-essential shops in March, the struggles that Intu faced were exacerbated by the national lockdown. According to the Office for National Statistics, online sales surged to record levels, with e-commerce accounting for 33.4% of total retail sales in May. Although investment markets were effectively closed with landlords unable to sell assets, this dramatic shift in consumer behaviour has left the company unable to avoid administration. A recent analysis by commercial property management platform Re-Leased found that across the industry, landlords with retail properties were paid just 13.8% of the rent they were owed this June quarter, which undoubtedly compounded Intu’s financial difficulties.
The accountancy firm KPMG has been appointed to handle its insolvency; due to the complex corporate structure of Intu, the shopping centres remain open, with asset managers being drafted in to run the centres. Each of the 17 shopping centres are owned by special purpose vehicles, which are subsidiaries created by the parent company to isolate financial risk and ensure that they each remain operational in case of insolvency. However, failing to secure funding from creditors could lead to temporary closures; it is unlikely in the current market that buyers will be flocking to secure the centres, especially the smaller, less successful of the 17. There is also widespread concern amongst competitors that a fire sale of assets at a low price would have a negative ripple effect through the industry by devaluing the assets of retail property landlords.
This collapse places over 2,000 direct employees at risk, with uncertainty surrounding the firm’s wider supply chain which supports 130,000 jobs. It highlights the unprecedented crisis that the retail industry is currently facing, but Intu may just be the tip of the iceberg. Intu’s rival Hammerson, who own shopping centres including the Birmingham Bullring, have also experienced a plunge in share prices over the last year. However, as retailers reopen their doors to the public once again, shares have risen in value, offering a glimmer of hope for the industry.
Despite this, the combined impact of the e-commerce boom and coronavirus indicates tough times ahead, with footfall in usually crowded shopping centres taking a hit; the post-COVID shopping experience, which now includes stringent social distancing and hygiene measures, may deter shoppers. It will be especially challenging for retail property landlords, who can no longer monopolise uniting consumers and retailers due to the accessibility and convenience of online shopping. With the implications of the pandemic likely to transform the way consumers shop forever, more casualties are predicted across the UK retail industry.
