Trafford Centre owner suffers another major blow as it announces huge write down

The firm which owns the Trafford Centre and the Arndale has suffered another major setback with the announcement that it has posted a huge write-down of its assets with a loss of £1.17bn for 2018.

The company has put the loss down to a revaluation deficit of £1.4bn, which it says is driven by weakening sentiment in the UK retail property investment market, but says it results show a “resilient” performance.

Despite this, the company’s rental income increased by 0.6% over the year.

Intu, which owns shopping centres including Metrocentre in Gateshead, Lakeside in Essex and the Trafford Centre in Manchester, has suffered a dramatic slump in its share price over the past year.

A total of £1.2billion has been wiped off its value following the collapse of two takeover bids.

Rival Hammerson walked away from plans to buy it for £3.4bn and in November Intu suffered a further defeat when a group of investors abandoned a £2.8bn takeover bid.

The collapse of the deal saw the resignation of Intu chief executive David Fischel, who will step down once a replacement is found.

John Strachan, Intu chairman, said: “Intu has had a challenging year with a difficult retail and uncertain economic environment, together with responding to two abortive corporate offers for the company.

“However, our management team has produced a robust operational performance with increased like-for-like net rental income for the fourth consecutive year, 97 per cent occupancy and signed 248 new long-term leases.

“This outcome is testimony to our long-term strategy of investing in our centres and the intu brand, making them different, attractive and exciting so retailers look to our centres as key trading locations.

“Our three core objectives for the year ahead are to continue to deliver strong underlying individual centre performance, continue our strategy of adapting to the changing retail environment and to make smart use of capital.

“We propose to reduce our debt to assets ratio over time back below 50 per cent by further disposals and part-disposals and retaining the cash generated by our activities rather than distributing it as dividend, to enable us to invest in our winning destinations.”

David Fischel, intu Chief Executive, added: “Intu has again delivered a resilient operational performance which demonstrates how our centres differentiate themselves as winning destinations for retailers with their variety and excitement.

“We own and manage many of the best shopping centres, in some of the strongest locations, in the UK and Spain.

“In a difficult year for the whole UK retail real estate sector and with very limited comparable transactional evidence, property valuations declined as sentiment weakened significantly.

“We reported a further three per cent fall in valuations in the final quarter of 2018, additional to the nine per cent fall over the first nine months of the year.

“Although sentiment in the retail sector is at an all-time low, the reality is that around 400 million shoppers visit our centres each year and occupancy is at 97 per cent.

“As some 85 per cent of all retail transactions still touch a physical store, demand from major retailers continues to be positive for our centres.

“New tenants to our centres include Abercrombie & Fitch, Uniqlo, Bershka, and Monki, with established retailers such as Next, Primark, Zara and River Island all upsizing.

“Our tenants invested a record £144 million in their stores over the year, a clear indication that these retailers see great physical space as a key part of a successful multichannel strategy.”

“400 million shoppers visit our centres each year and occupancy is at 97 per cent. As some 85 per cent of all retail transactions still touch a physical store, demand from major retailers continues to be positive for our centres.”

Russ Mould, investment director at Manchester investment firm AJ Bell, said: “What a right mess Intu has got in to.

“Being exposed to the retail sector is a poisoned chalice for property companies at the moment and Intu is in the thick of it with an estate of shopping centres across the UK and Spain.

“The valuation of its properties is declining, which is pushing up its loan-to-value ratio; and shareholders are temporarily being denied a dividend which means it now has a tax liability.

“Real estate investment trusts (REITs) are exempt from corporation tax but are forced to distribute at least 90% of taxable profits as dividends. Intu’s decision not to pay a final dividend for 2018 means it will incur corporate tax payable at 19%.

“The company is trying to sell assets and has received some unsolicited offers for properties in Spain.

“Selling assets into a weak market shows how desperate it is. Any buyer would have the upper hand in pricing negotiations.

“In time Intu could emerge a leaner business, but for now it will have to keep taking the headache tablets and do its best to survive the turmoil.”