Shopping centre developer Intu's share price fell 6.7 per cent this morning as it warned 2019 losses may be worse than expected this morning as the troubled property firm battles with a challenging retail environment.
The company, which welcomed former finance boss Matthew Roberts as its new chief executive on Monday, said a higher-than-expected level of insolvencies and a slowdown in new lettings as tenants delay business decisions because of Brexit uncertainty and the current barren landscape for retailers.
The firm said it had revised its figure for net rental income for the year to minus four to six per cent, to factor in more Company Voluntary Arrangements (CVAs) – a type of insolvency procedure which prompts rent negotiations – than it previously expected among retailers.
Nonetheless, Roberts told shareholders the firm’s operational performance had been stable in the quarter, with 53 long-term leases signed amounting to £6m of annual rent, at an average of one per cent above previous passing rent.
This included new types of tenants, such as Metro Bank, which opened a branch at Manchester’s Arndale shopping centre.
Last month Intu looked to cut its debt by selling a 50 per cent stake in its Derby shopping centre to Cale Street Investments, a Kuwait-backed real estate investment firm.
The stake was acquired for £186.3m as the two firms entered a joint venture at the East Midlands shopping centre, which is visited by 22m people each year.
The level of occupancy in the firm’s shopping centres fell 1.1 per cent to 95.6 per cent in the first quarter, compared to the final three months of 2018.
Emma-Lou Montgomery, associate director at Fidelity, said Intu has “a battle on its hands”.
“The war zone that the retails sector has become has handed new chief executive Matthew Roberts the unenviable – but vital – task of reducing loans to value to below 50 per cent,” she said.
“The question has long been what to do about the rout of the high street. For the retailers the answer is adapt – or die. For landlords, like Intu, it’s exactly the same. Cue a string of new, non-retail tenants from Metro Bank at Manchester’s Arndale Centre to a new communal dining offering at Lakeside.”
Last year, a £2.9bn takeover bid for the shopping centre was abandoned amid Brexit-related concerns. A consortium comprising shareholders Peel Group and Saudi Arabia’s Olayan Group, together with the Canadian firm Brookfield Property, had tabled a 210.4p per share offer. Bullring owner Hammerson also abandoned a bid for the firm in April last year.
Roberts today said: “Despite the current operating environment, I believe we have a very good business and am confident we can meet the challenges we are facing head on. I look forward to updating the market on strategy alongside our interim results in July.”
“As previously disclosed, my priority is to reduce our loan to value to below 50 per cent and our plans to achieve this are underway. Our recent sale of a 50 per cent interest in intu Derby at book value is a positive first step in this regard.”