mall owner Intu could have saved himself years ago | Nils Pratley


IIf you want to see how complicated it is to make financing for a mall owner complicated, take a look at Intu’s annual report for 2019, which could be the last if the cutting edge talks with lenders go wrong in the next few days. .

Avoid photos of happy shoppers at the Trafford Center, Metrocentre and Lakeside, of course. And definitely ignore the hype of “surprising the visitors of tomorrow and delighting the customers of tomorrow”. Intu’s crisis is in the here and now.

Four major real estate companies sit under Intu plc, which is basically a holding company, but there are other vehicles. The list of subsidiaries, joint ventures and associates is four and a half densely printed pages. The group’s total borrowings of £ 4.5 billion include the set of 21 separate instruments, with most of the debt secured on individual or multiple properties.

Thus, when Intu spoke on Tuesday of seeking the agreement of “financial players concerned in its structures, both at the level of assets and of the group”, he referred to a large number of investors.

In theory, you would assume that they would have a common interest in avoiding administration and seeking an orderly debt-for-equity swap. For example, it would be counter-intuitive to disconnect when non-essential businesses reopen; Intu’s projections already assume a 37% drop to £ 310million in rent collection this fiscal year in 14 centers.

In practice, nothing should be taken for granted. One problem is that the cash in one game of Intu often cannot be used elsewhere; this may cause some lenders to try to remove their assets from the business structure. Then you have to consider the usual debt games; opportunistic hedge funds may prefer a quick resolution rather than a standstill period on debt repayments of more than a year.

Talks could fail, in other words, which is just to state the obvious given that the current waiver of covenants on a vital £ 600million credit facility, provided by seven major banks, expires on Friday.

Whatever happens, the Intu crisis cannot be blamed on Covid-19. It’s been preparing for years. The company owns nine of the 20 largest shopping centers in the UK, as management frequently points out. It’s all about boasting about the underlying value of assets, even in the age of online shopping. In reality, however, this is an indictment of the failure to correct an over-indebted balance sheet when the opportunity existed.

Intu could have saved himself years ago, when the stock price was stable at 300p-ish from 2010 to 17, down from 4.4p today. Only members of the board of directors – especially Vice Chairman John Whittaker, of which Peel Holdings is a 27% shareholder – can explain why equity was never raised or why more assets weren’t raised. sold earlier to reduce risk. The desperate (and failed) race to find over £ 1billion earlier this year has come far too late.

From the outside, one can only diagnose the delusional belief that a portfolio of malls could never lose a fifth in value, as Intu did last year. Others are guilty of excessive optimism, but Intu’s unique contribution has been an extreme financial leverage. The debt-to-asset ratio was 68% at the end of last year in a market where 40% is usually considered racy. The crisis started in the boardroom.

The wage revolt looms at Tesco

Tesco’s annual meeting falls on Friday and it is possible that the salary report will be rejected. Otherwise, the rebellion will be considerable. Investors (or some of them) tend to hate any movement of the goalposts for bonus purposes, and Tesco’s maneuver was cheeky.

The compensation committee simply pulled Ocado, and its skyrocketing price, from a peer comparison group as part of a long-term incentive program. The effect was to increase CEO Dave Lewis’ pot by £ 1.6million and CFO Alan Stewart’s by £ 900,000.

In the end, it doesn’t matter whether the revolt is 45% or 55% or whatever number. Voting is an empty advisory matter, which means Tesco is free to ignore it, in addition to uttering equally empty words about maintaining good investor relations.

The elegant thing for Lewis at this point, however, would be to surrender. He did a better job than Tesco’s pedestrian share price would suggest, but he was also paid £ 29million over his six years of service. He doesn’t need to take the last serving under dire circumstances.

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