Shopping centre owner’s shares nosedive after it ditches £1.5bn cash call

Shares in Intu, the owner of Merry Hill shopping centre, almost halved this morning following the news it has abandoned plans to hold a £1.5bn equity raise.

The group’s shares plunged as much as 43% to an all-time low in early trading.

By mid-morning, shares were trading down more than 26% at 7.78p. The company’s share price has been falling consistently for more than two years, losing 95% of its value since the start of 2018.

Intu said that its decision to abandon plans for the £1.5bn cash call was due to the “current uncertainty” in equity and retail property investment markets, saying it is exploring alternative options to raise funds.

The shopping centre owner had been put under pressure by its lenders last month to raise at least £1.3bn on the stock market.

The decision casts doubt over a £440m credit facility signed just a few days ago which was dependent on Intu raising the equity. The facility would replace an existing £600 million RCF which is due to expire in October 2021.

It has also emerged that the market value of Intu Merry Hill has decreased significantly. The centre is now worth £587m, down from £777.2m in 2018.

An independent valuation of Intu’s portfolio at 31 December 2019 delivered a valuation deficit of £2bn for 2019. The firm, which has been engaged in efforts to fix its balance sheet for some time, said this was due to “weak sentiment rather than hard transactional evidence.”

The company said this morning: “Intu has, over the past several months, engaged in extensive discussions with its shareholders and potential new investors regarding a possible equity raise of between £1 billion and £1.5 billion. Following these discussions intu has concluded it is unable to proceed with an equity raise at this point.

“While a number of intu’s shareholders and potential new investors indicated their support for an equity raise, the board believes the current uncertainty in the equity markets and retail property investment markets precluded a number of potential investors from committing capital into the business and intu was therefore unable to reach the target quantum at the current time.”

However, it said that during this process, it received several expressions of interest to “explore alternative capital structures and asset disposals”.

“Accordingly, intu will continue and broaden its conversations with its stakeholders with a view to discussing the range of options available to the company to demonstrate the equity value of the business and to utilise its assets to provide further liquidity. These include alternative capital structures and solutions and further disposals. intu will also continue to keep under review the feasibility of an equity raise.”

Despite the damaging news, Intu says it delivered a “robust” operational performance in 2019 given the challenges facing the retail sector.

Matthew Roberts, chief executive of intu, said: “We remain focused on fixing our balance sheet in the near term to ensure this business has the financial footing it needs to realise its significant potential. While it is disappointing that the extreme market conditions have prevented us from moving forward with our planned equity raise, I am pleased that a number of alternative options have presented themselves during the process which we will now explore further.

“We have a concentrated and well-invested portfolio of many of the UK’s best retail and leisure destinations where both shoppers and customers want to be. Operationally our business is strong, delivering a resilient rental performance despite ongoing pressure from CVAs and administrations, with stable occupancy rates and footfall that consistently outperforms the benchmark. Our centres are the best performers in the regions in which we are present and independent research shows that stores with intu outperform retailers’ average sales by nearly 30 per cent. This is a compelling proposition and one that will stand the test of time.

“We will face further challenges in what has been an extraordinary few months for intu and the wider sector, but I am confident that we will face these head on and emerge a leaner, fitter and more focused business.”

Intu – which has been hit by the downturn in the retail sector and a wave of administrations – has debts of £4.7bn.

Many of Intu’s biggest tenants including Debenhams, House of Fraser and Arcadia, have been closing stores or asking for rent reductions.

The firm has started selling off some of its shopping centres to raise cash.

Russ Mould, AJ Bell investment director, said: “The global markets sell-off is bad for more than just investors who may have seen a decline in their value of their portfolio. It is also negative for companies trying to raise money as institutional investors will be very cautious towards putting cash into new stock when there is so much uncertainty over whether we’ve seen the worst of the market fall.

“Shopping centres owner Intu is now feeling this pain as it abandons plans to raise at least £1 billion on the stock market.

“Sentiment was already weak towards the business thanks to ongoing woes in the retail market and falling retail property valuations. Therefore Intu’s equity raise was always going to be a tough one, potentially resulting in new shares being issued at a very large discount to the market price as a way of compensating investors for the risks they would be taking on.

“The fact that the equity raise has been scrapped altogether leaves Intu in a very difficult situation. There is no solid plan B and so the market will now be asking big questions as to how Intu might be able to crawl out from under the significant weight of its £4.5 billion net debt position.

“Intu’s only plausible solution is to sell more assets but that may simply tide it over temporarily rather than create a long-lasting fix to its sticky situation. Its future is looking far from bright.”