Intu shares lost almost a third of their value on Tuesday after Link Real Estate Investment Trust said it would no longer participate in the troubled retail landlord’s £1bn emergency cash call.
It emerged yesterday that Link was in talks with Intu, which owns the Trafford Centre, over potentially becoming a “cornerstone” investor in the fundraising, but in an update to the stock exchange today Intu said the Hong Kong-based trust had performed a U-turn and would no longer back the raise.
“Intu remains engaged with shareholders and potential new investors in relation to a proposed equity raise,” it said in a statement.
A spokesperson for Link said: “Link remains interested in opportunities in the UK, but our negotiations with Intu have not reached an agreement.”
City A.M. understands that Link still sees the UK as a key expansion market, with a more stable currency environment after the election adding to the attraction, and that the trust thinks the UK is currently at the bottom of the consumer confidence cycle.
Intu’s shares crashed following the update, and ended the day just over 30 per cent down. The fall wiped almost a third — roughly £70m — off Intu’s market cap.
Intu is struggling under a £4.7bn debt pile while many of its tenants are closing stores in response to rising costs and customers turning away from brick and mortar shops in favour of online shopping.
The real estate giant had previously said it would announce a cash call alongside its annual results later this month.
Peel Group, which owns an almost 28 per cent stake in Intu, is expected to support the equity raise.
“It seems like investors are getting cold feet about the long term potential of the business because clearly they had relied on [Link] for some of the equity,” said Jonathan de Mello, head of retail consultancy at Harper Dennis Hobbs.
He added that Intu’s debt was making the landlord less attractive to investors, and that the company may need to sell off more assets in addition to the equity raise.
“It’s hard to see why anyone would put any money into it at this point, until the issue of the debt is rectified,” de Mello added.
Today’s share price plunge also makes it more likely that another business could seek to takeover Intu entirely, he said, adding: “If there’s not a big business that will come in and buy the whole thing, I can see them having to sell more and more”.
Intu said in November that fixing its balance sheet is its “number one priority”, and it was considering all options including disposing of assets and raising equity, which it said was “likely to form part of the solution”.
In the trading update, the landlord warned that it expected to report a sharp drop in rental income for 2019 after a higher-than-anticipated number of its occupants declared insolvency.
“Intu is on a life machine and we just started hearing a long beep when Link walked away,” said Jasper Lawler, head of research at London Capital Group.
“The outlook is really grim for retail and Intu’s debt is just unmanageable under current terms.”
Intu declined to comment.