Intu Properties aims to develop hotels and residential units around its malls
The shopping centre landlord, which posted abysmal six-month results, has shifted its focus away from retail assets
Intu Properties, which owns 17 malls in the UK and three in Spain, will start developing non-retail assets to support its shopping centres that continue to struggle in the wake of 2016’s Brexit referendum and competition from online retail.
The company plans to develop about 6,000 residential units including apartments and houses. The first project was launched at Intu Lakeside in Essex.
The company, which recently appointed a new CEO and CFO, on Wednesday released an abysmal set of financial results for the six months to June, missing analysts’ estimates and providing a worse-than-expected outlook for the rest of 2019.
Intu’s shares plunged 32.1% to a record low following the release of its financials on a day when the share prices of numerous other property groups and JSE-listed companies invested in Britain also took a beating.
The valuations of JSE-listed Intu, Capital & Counties, Capital & Regional, RDI Reit and Hammerson have declined since the UK voted to leave the EU. That event sparked a prolonged period of uncertainty at a time when online retailing was gaining momentum.
Keillen Ndlovu, head of listed property funds at Stanlib, said Intu’s decision to develop non-retail assets is on trend.
“This is where retail is heading to. Extra space in or space around malls is being converted to other uses such as residential, storage, hotels and schools, event space as well as flexible work space,” he said.
Matthew Roberts, who was promoted to CEO from CFO at the end of April, said Intu could turn its fortunes around but “it was caught in a perfect storm of challenges” including tenant insolvencies, rent reversions and political uncertainty.
“The first half of 2019 has been incredibly difficult. Valuations are weak for property companies and the investment market is under severe strain. We have also seen too many cases where tenants have either gone insolvent or entered into company voluntary agreements [CVAs],” Roberts said.
CVAs are signed between landlords and tenants to avoid companies being liquidated. Landlords are offered more than if the tenant were to enter a terminal insolvency process. Often in terms of these agreements a tenant would pay rent for certain stores and the landlord would receive some rent, as opposed to not receiving any rent.
Roberts said some tenants have abused the CVA system to obtain rent reductions, which placed undue pressure on Intu and other landlords.
Net rental income fell 17.9% in the reporting period while underlying earnings in the first half slid 32.1% to £66.4mas tax and finance costs rose. Net external debt also edged up to £4.9bn.
The landlord, which halted dividend payments at the end of 2018, said it will not pay an interim dividend so that it could retain cash.
Roberts said Intu is making “the right changes to its balance sheet” that includes putting its three Spanish malls up for sale to decrease its debt and to position itself for a British economic recovery “hopefully in 2021”.