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U.K. Mall Owner Intu Collapses Into Administration As Talks Fail

U.K. Mall Owner Intu Collapses Into Administration As Talks Fail

British mall-owner Intu Properties Plc has collapsed into administration after failing to agree a reprieve from lenders.

The company, which owns nine of the U.K’s top 20 malls, has applied to appoint three administrators from KMPG LLP, according to a statement on Friday. The shopping centers will continue to trade, it said.

“Discussions have been ongoing with financial stakeholders to achieving standstill-based agreements,” Intu said in the statement. “However, insufficient alignment and agreement in relation to the terms of such standstill-based agreements has been achieved with financial stakeholders.”

Intu warned earlier on Friday that it would likely appoint administrators after failing to align its myriad creditors, and was now considering how to protect stakeholders. Its shares, which are now suspended, tumbled almost 70% in London.

Intu was already reeling from plunging U.K. store rents and collapsing values before the coronavirus outbreak forced most of its tenants to close. The lockdown contributed as retailers withheld rent and the pandemic shut off rescue options including a capital raise as it sought to reduce its 4.5 billion-pound ($5.6 billion) debt pile.

The administration threatens the jobs of about 2,500 Intu staff and of the thousands more who work in the stores inside its malls. The company issued a warning on Tuesday, the day before rents for the next quarter were due, that it would require additional funding to keep the centers running in the event it was forced into administration.

Fire Sale

The move paves the way for the potential sale of some of the U.K.’s most-visited malls, including the Trafford Centre near Manchester and Lakeside in Essex. The company’s lenders have initiated talks with a range of asset managers to take over the running of its properties in the event it failed, React News reported Thursday.

“There remains a danger of a fire sale by administrators that would cause negative ripples across the sector,” Colm Lauder, an analyst at Goodbody Stockbrokers, wrote in a note to clients on Friday.

After obtaining an agreement to waive terms governing its revolving facility until June 26, the company tried to buy additional time by asking creditors to postpone covenant testing, debt repayment and maturity payments for loans coming due before the end of 2021.

Intu had appointed David Hargrave, a former partner in the restructuring practices PricewaterhouseCoopers and Ernst & Young, as chief restructuring officer, in May to help negotiate with lenders. It has also lined up KPMG as financial administrator in case it failed to reach a standstill agreement with creditors.

Intu’s acknowledgement that administrators may be appointed today is likely to set off a mall-grab for the management of its more prestigious shopping centers such as intu Trafford, intu Lakeside, intu Metrocentre and Manchester’s Arndale, in our view, which may enable them to stay open. -- Sue Munden, BI real estate analyst

The company forecast in June it would collect 37% less rent this year, after getting just 40% of what it was owed for the second quarter. Earlier in March, its auditors warned it may struggle to continue operating due to high debts and plunging asset values.

The value of the company’s properties has plunged by more than 30% since their peak in 2017 as retailers underwent restructuring processes that enabled them to shutter stores and slash rents in the face of growing online consumption. That forced up Intu’s relative indebtedness faster than the company was able to sell assets into a market where investors willing to buy malls without sharp discounts were in short supply.

Read more: U.K. Landlords Prepare for Cashflow Crisis in Fallout from Virus

It caps a turbulent period for the company which was the target of an aborted takeover deal by rival Hammerson Plc in 2018 and another by a consortium, which included its largest shareholder John Whittaker, later that year.

©2020 Bloomberg L.P.