British mall owner signals further drop in asset values

Bloomberg

Intu Properties Plc has written down the value of one of the UK’s largest malls, offering a glimpse at its parlous finances ahead of a planned equity raise.
The company notified holders of 485 million pounds ($631 million) of bonds secured against Intu Metrocentre, a large mall in northeast England, that the debt secured against the property now accounts for 71% of its total value, compared with the agreed 70% maximum, according to a statement. That implies the property’s value fell by almost 11% to about 683 million pounds in the six months through December, according to company filings and Bloomberg calculations.
Intu reports full-year results next month in which it will disclose a revised valuation across its 8 billion-pound property portfolio and details of a likely equity raise designed to help
fix its balance sheet, it said.
The landlord is struggling against a tide of rent cuts and store closures as the UK’s retailers attempt to adapt to a world where more than a fifth of consumer spending now takes place online. That’s hit retail property values, forcing up Intu’s relative level of indebtedness and prompting the company to sell about 600 million pounds of assets since the start of 2019, including two of its Spanish malls.
The company has also stopped paying a dividend — sacrificing its status as a real-estate investment trust — and cut costs. It will also face restrictions on how to use its cash if it fails to bring down its loan-to-value on Metrocentre.
A spokeswoman for Intu declined to comment on the writedown and the covenant.
“The breach, if allowed to continue for a few months, would require excess cash to be trapped in the structure and potentially require a property manager to be appointed,” according to a Barclays Plc note.
Fitch Ratings downgraded the Metrocentre bond in November after the mall’s rent fell by 8% in the year through June. The notes, due December 2023, are indicated at 93 pence on the pound, according to data compiled by Bloomberg.
Still, if the latest Metrocentre writedown is roughly in line with the rest of Intu’s portfolio, then the “valuation plunge may not be as dire as many predict,” Bloomberg Intelligence senior analyst Sue Munden said.