Intu Properties, the owner of 17 shopping centers in the U.K. and three in Spain, has put one of Great Britain’s biggest malls up for sale.
PJT Partners, acting as M&A advisor, and CBRE, acting as commercial agent, will be advising on a sales process after being appointed by KPMG, which oversaw the company’s administration process—the equivalency of bankruptcy in the U.S.
A spokesperson for the joint administrators of Intu Properties confirmed the move to Sourcing Journal: “All parties are working constructively together to maximize value for this highly attractive asset.”
The Trafford Centre, located in Manchester, England, is the fourth-largest mall operator in the U.K. and was last publicly valued by Intu at close to 1.7 billion pounds ($2.2 billion). The joint administrators expect Trafford to attract “considerable interest” from the U.K. and international investment community.
But the property is expected by analysts to be sold for at least 20 percent less than that valuation if a buyer can be found at an attractive price, according to Sky News.
On June 26, Intu collapsed into administration after weeks of speculation when it failed to come to the financial agreement with its lenders necessary to forestall insolvency. Intu’s creditors have agreed to pay up the 12 million pounds ($15.1 million) to KPMG required to keep the company’s malls open as the administration process plays out.
KPMG has managed to secure funding to continue managing Intu’s portfolio of sites for a six-month period.
At the time of KPMG’s appointment, Intu directly employed nearly 3,000 staff, with a further 102,000 working in its U.K. shopping centers. Another 30,000 are employed in its supply chain. During the pandemic, the company put about 60 percent of shopping center staff and approximately 20 percent of head office employees on furlough.
Intu had net debt of nearly 4.69 billion pounds ($5.8 billion) before the COVID-19 lockdown hit rent payments, piling pressure on the shopping center operator’s finances. According to its annual report published in March, debts were worth 68 percent of its assets, a jump from 53 percent a year earlier.
The company’s rough shape prior to the pandemic didn’t help matters when the crisis hit. Intu saw losses of more than 2 billion pounds ($2.51 billion) in 2019, which prevented it from getting access to the U.K. government’s COVID Corporate Finance Facility (CCFF), a program that offers a lifeline to large firms that can prove they were in sound financial health prior to the pandemic.
As a landlord, Intu isn’t necessarily alone in this crisis. Earlier this month, another major U.K.-based shopping center operator, Hammerson, confirmed it would seek to raise more than 800 million pounds ($1.04 billion)—274 million pounds ($375.1 million) from the sale of its 50 percent stake in its European outlet business and 552 million pounds ($719.6 million) from a rights issue, in which the company offers more of its shares to current shareholders to raise capital.
If Hammerson fails to raise the cash—which equates to almost double its current market capitalization of 435 million pounds ($567 million)—it risks breaching covenants with lenders.
Negotiations between landlords and their retail tenants have been tough in the months since the pandemic, given that most U.K. brands demanded deeper rent cuts as they seek some form of restructuring. Hammerson struggled to recoup rent it was owed by tenants, which include department stores John Lewis and insolvent Debenhams. The company has collected 72 percent of the rent owed for the first half of the year, and just one-third of what is owed for the third quarter—which is paid in advance by tenants. In June alone, Hammerson’s U.K. portfolio lost more than 20 percent of its value.
Among those that have launched company voluntary arrangements (CVAs) to cut or restructure their rent bills and offload loss-making stores are New Look and AllSaints, while another fashion retailer, Select, is reportedly planning the launch of a third CVA in as many years to slash rent amid the pandemic. These CVAs help out the retailers, and often require approval from landlords, which may still get less money in individual payments than they would have initially hoped.
Many of the issues encountered by Intu and Hammerson have been seen in the U.S. among major real estate investment trusts as well, but it appears the biggest one is on better footing. Simon Property Group has collected approximately 51 percent of its contractual billed rent for April and May combined, approximately 69 percent for June, and approximately 73 percent for July, CEO David Simon said in an earnings call.
With approximately 91 percent of tenants back open for business, net income still reaching $254.2 million in the second quarter and $8.5 billion remaining in liqudity, the Simon example indicates that the major REIT players in the U.S. have had a much better time handling the rent situation relative to their British counterparts.
According to Sky News, a formal sale process for Intu is expected to attract the interest of John Whittaker, the property tycoon who initially sold Trafford Centre to the shopping center operator in 2011.
PJT had been advising the Canada Pension Plan Investment Board (CPPIB), the single-biggest lender in the Trafford Centre capital structure, before Intu called in administrators.