Mall Giant Intu Warns of Bankruptcy: First, the Meltdown of Brick & Mortar Retail, Now COVID-19

Local governments end up buying dying malls to keep them from becoming dead zones.

By Nick Corbishley, for WOLF STREET:

Intu Properties which owns dozens of malls in the UK, including nine of the 20 biggest, as well as a handful in Spain, warned this week that it is on the brink of bankruptcy after declaring losses of £2 billion for 2019 and a debt of £4.5 billion. Its portfolio of properties is still valued on its books at £6.6 billion, down 33% from December 2017. Its shares are now worth just four pennies a piece. Two and a half years ago, before many of its high-profile tenants began dropping like flies, the company was worth more than £2 billion; today it’s worth just £55 million.

Like-for-like net rental income was also down by 9% in 2019, to £401 million, due in large part to some of its once-thriving tenants entering administration or company voluntary arrangements (a form of bankruptcy), as well as an increased vacancy rate.

Now, to stave off its own bankruptcy, Intu desperately needs to raise new funds. Intu’s original plan to raise fresh equity capital, unveiled less than two months ago, already failed. It wanted to raise at least £1.3 billion to fortify its shaky finances, keep its creditors at bay, and avoid defaulting on its huge debt pile. But trying to convince already skeptical investors to inject fresh funds, after its shares have already collapsed to almost zero, at a time when the UK’s retail sector is in the deepest of doldrums, was always going to be a tough sale.

The first major investor to pull out of the equity raise was Hong Kong-based Link Real Estate Investment Trust. Others quickly followed and by last week Intu conceded that its plan had been a complete flop, which it nonetheless blamed on “extreme market conditions,” meaning the coronavirus, which is expected to further decimate store traffic in the coming weeks.

Unless another solution is found, Intu will soon breach multiple debt covenants. This could cause lenders, including HSBC and Royal Bank of Scotland, to take control of its assets — assets they would rather not have and will probably quickly sell.

The company has £190 million of debt maturing and £93 million of swaps payable within the next 12 months, compared to £168 million of cash and £129 million of other available funding facilities. Things get particularly hairy thereafter, with £920 million of debt coming due in 2021, followed by £780 million in 2022, £1.03 billion in 2023 and £670 million in 2024.

Intu’s CEO Matthew Roberts insists that while “a material uncertainty exists that may cast significant doubt on the group and company’s ability to continue as a going concern,” the company still has “options.” Those apparently include “negotiat[ing] covenant waivers” and “alternative capital structures and further disposals to provide liquidity.”

It has already sold a number of properties, including two of its three Spanish properties, in a bid to raise cash and bring down its debt, but now pressure is rising on it to offload some of its most valuable UK properties. But once Intu sells those, it will have precious little left of real value with which to generate income.

Matters are hardly helped by the anemic demand for brick-and-mortar malls in the UK: 2019 saw the lowest level of shopping center transactions since 1993. Many of those belonged to Intu’s rival, Hammerson plc, which offloaded all of its out-of-town retail parks for the knockdown price of £455 million.

In the absence of private-sector buyers, some of those retail parks were bought, at discount, by local and city councils, which last year spent £232 million purchasing shopping centers, accounting for 36% of all shopping center deals according to data from Knight Frank.

Yet even as local governments step in to bail out commercial real estate owners or their creditors and keep local shopping centers alive a little longer or try to transform them into something more socially useful or appealing, the decline-and-fall of bricks-and-mortar retail in the UK continues a pace. Footfall fell in every single month of last year, according to Springboard figures. More and more of the retail spending that does occur is migrating online, where sales now account for 19% of retail sales.

Last year alone, 14,500 stores ending up closing. And that is having a direct impact on both city centers and retail malls, as well as the investors that own them. Open-ended property funds sustained the largest withdrawals on record in 2019, with total outflows of £2.2 billion. In December, the giant UK fund manager M&G suffered a run on its £2.5 billion M&G Property Portfolio and forced it to suspend redemptions. Four months later, the “temporary” ban remains in place.

For Intu, the fallout of the UK’s bricks-and-mortar retail crisis has so far translated into lower occupancy, lower rents, lower revenues, lower valuations, ever-bigger losses and an unpayable debt stack. And that was before the arrival of Covid-19, which threatens to decimate retailers’ supply chains as well as deter or prevent people from going to the mall. By Nick Corbishley, for WOLF STREET.

Oops, the rot runs even deeper than Muddy Waters could have imagined. Read…  First Enron of 2020: Muddy Waters’ Short-Target NMC Health Just “Discovered” $2.7 Billion Undisclosed Debt

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  48 comments for “Mall Giant Intu Warns of Bankruptcy: First, the Meltdown of Brick & Mortar Retail, Now COVID-19

  1. stan6565 says:

    It looks as Intu is stuck in flogging the already dead horse of its shopping malls and trying to find greater fools to prop up the expired business model.

    Have they made any attempts to diversify the existing assets, turn the retail coat-rail and shelve spaces into something more meaningful? Kid’s entertainment, schools, doctors and dental surgeries, business hubs. Residential even.

    Lazy, just lazy.

    Unless of course the bought the assets at way over mark price, in which case, one can only reward stupidity by making it terminal.

    • char says:

      Intu own the best, biggest, nicest, etc. malls. The one you have visited in Manchester while you live in London. The mall closest to you you can survive with filling it with dentists. Those super malls can’t but it was expected that they would survive. Covid-19 may kill them.

      ps. This is a debt problem but Intu was IMHO for a real estate company conservatively financed (only 50% debt or so)

      • joe saba says:

        good emergency wards

        • Shiloh1 says:

          Perhaps Governor Newsom can commandeer the California malls and convert them for the virus patients. Include store and food court signs from 70s and 80s for the Boomers’ nostalgia. Fast Times At Ridgemont High!

    • Mike says:

      Reportedly, the draconian Beijing quarantine has gotten stricter and stricter over time until now. Our economy will soon be on the same down escalator with massive bankruptcies or gigantic bailouts or more likely, both.

  2. Beardawg says:

    Which US companies = Intu ? Also – do these local UK governments have plans for the ghost malls?

    • Suzie Alcatrez says:

      Simon Property Group is a REIT (SPG) that owns the most malls in the United States.

      • char says:

        You should see INTU as the owner of the “Mall of America”. INTU does not one the “mom&pop” malls but only a few, but biggest, nicest etc malls.

      • Shiloh1 says:

        SPG owns the Orland Square Mall in Orland Park, IL. At one time 80s – 00s that location drew a high-income clientele from the south and southwest suburbs of Chicago. Now street gangs and shootings abound. Somehow they lured Von Maur about 6 months ago. They must have received a sweet rent deal, but I don’t see much of a future for business there.

  3. Greg Hamilton says:

    Remember, as H. L. Mencken said: “The whole aim of practical politics is to keep the populace alarmed — and hence clamorous to be led to safety — by menacing it with an endless series of hobgoblins, all of them imaginary.” And, “The urge to save humanity is almost always only a false face for the urge to rule it.”

    • Nik Wassiliew says:

      Change..False Face to False Flag..and its Contemporary to the Max..funny,were it not also so Tragic!

  4. Eddie Schumacher says:

    Carl Icon told CNBC on Friday that he was shorting the insurance companies that sell policies to mall in the event they go bankrupt. He said it was like selling a life insurance policy to a man headed for the electric chair.

  5. Deanna Johnston Clark says:

    Why are businesses and individuals constantly assuming the past was the “old old days”?
    Why can’t change be a welcoming of improvement?
    Remember the Star Trek episode when a young boy’s Mother died and an alien culture decided to show mercy by cloning the Mother physically and keeping the boy’s room exactly the same as a shrine to their home?

    The crew of the Enterprise had a real job on their hands to wean the boy from this doppelganger life and help him see the emotional, intellectual bond of love between the two, which was forever and ongoing.
    The episode was a sort of homage to Queen Victoria’s retreat into her past with Albert…refusing to move even his razor or comb.
    Wonderful writing…
    Is that Star Trek about us today? A creature dies when it stops growing…

  6. Bob Hoye says:


    Well, the first step would be to change the name of the company.

    • Tanstaafl says:

      @Bob Hoye,
      You mean, change the name Intu Darkness? Or maybe Intu the Abyss?

      I think they wish they were just caught between a rock and a hard place; that would be easier than dealing with the Virus, the B&M meltdown, and indebted customers.

    • WES says:


  7. Dave Kunkel says:

    It looks like the coronavirus will be the last nail in the coffin of brick and mortar retail.

  8. Say It Aint So says:

    There were and are many businesses that were operating on a week to week basis…and they were all vulnerable…prior to Covid-19…many failing businesses are going to get pass…not a free pass but a pass…on businesses that were operating irrationally…especially those that were borrowing the cheap money and buying back their own shares.

  9. Tony of CA says:

    What this virus has laid bear is the need for continual Brick Mortar. It still by far the most efficient way to distributes key goods. Amazon needs to be dismantle quickly. The global supply chain will be re-center very quickly. Globalism is finally finished. Also, what is killing most of the business is predatory capital in the form of Private Equity. Things are going to change. We are all going to be socialist now.

  10. Michael Gorback says:

    Why are you focusing so much on the doom and gloom? The price of an escort for the night and hotel room has dropped dramatically.

    Seriously though, I’m not sure if it’s economically feasible to convert retail stores to other purposes. Think about Home Depot or Randall’s. A zillion sf and two lavatories. Doesn’t lend itself well to housing.

    Personally I’d like to see funding to convert them to hydroponic farms. No pesticides or herbicides, incredible production density (I can grow 16 spinach or lettuce plants in 4 square feet) . I’ve been growing my own veggies for years and when I get home all I have to do is pluck a few items from the plants, maybe add some pre-cooked chicken strips and I have dinner.

    Throw a solar array on the roof and use LED lights. Water is cheap as are the nutrients. Seed to harvest is about a month. With some crops such as spinach it has to be cool. I live in Houston and while you can’t grow spinach outside most of the year, inside my house it’s nice and cool. I have spinach year round. I’ve already given away half my crop because it’s growing like crazy.

    At home you can use the Kratky method to grow lettuce and tomatoes. All you need is a Rubbermaid tub, some net pots, water, and a few oz of nutrient. Then sit back and watch it grow.

    If I knew how to convert malls to hydro farms and get financing I’d quit medicine in a heartbeat. I’d even consider subdividing and renting space for private farms.

    • Jonathan Vause says:

      the value of the crops you grow will be a fraction of costs. we grow food in large areas of empty countryside for a reason

  11. WES says:

    They were prepared for catching falling knives … instead the kitchen sink fell!

    Just another case of fools being separated from their money!

  12. Paulo says:

    Empty malls would make decent emergency hospitals, just saying.

  13. ThePetabyte says:

    Emergency rate cut to ZERO and 700B in QE. $#!7 has officially hit the fan. Are we in the endgame now?

  14. Michael Engel says:

    1) How much the gov is willing to pay to save a dying mall.
    2) How much the gov will pay to save the cruise ship industry, airlines, or Boing.
    4) The normal risk for a 50Y person for contracting a disease and dying painlessly within a week is 1 : 1,000.
    5) How much much will u ask to treat sick people, for 5 min, if the
    if the risk of dying without pain next week is 4 : 1,000 :
    $2,000 for 5 min, not bad.
    6) How much will u ask to be around covid 19 victims, if the risk of
    dying painlessly within a week is 5 : 1,000.
    $100,000 for 5 min. Most people will avoid the risk.
    7) The risk increased from 0.004 to 0.005, but the fee from
    $2,000 to $100,000 because coronavirus is more vivid.
    8) Nobody care about death from mosquito bites, car accident,
    drugs overdose, heart attacks, but the breaking news about 60
    people in US who died from the virus, is all over the place, the virus is alive.

  15. VeryAmused says:

    The fed just went full panic mode. Futures hit limit down not even 30 minutes in to trading.

    This is bad.

    This is very bad.

    I feel queasy.

  16. SteveK9 says:

    I view these stories as sad. One more public space gone. Pretty soon people will spend ALL their time, doing what I am doing now.

  17. Delikon Threetree says:

    NEWS FLASH!!! The Fed today lowered the interest rate to ZERO percent and started $700 billion QE program! Here we go AGAIN!! SAVE ME SAVE ME!!! TBTF!!! TBTF!!!

  18. Michael Engel says:

    1) Zero rates destroy banks. The economy will never recover..
    2) Fred : the 3M was in a zero plus trading range long time ago :
    0,15% in 1934 to 0.56% in Apr 1937 til 1949.
    3) 1932(L) might have been negative, but there is no info. Fred don’t cover 1932.
    4) 1942 was a sign of weakness @ 0.02% monthly (C).
    5) Apr 1953, a jump to a higher high @ 2.19% from 0.38 plataue.
    6) Oct 1957, after Sputnik, the 3M @ 3.58%. The Dow was taking off vertically for x2 years, on rockets building & electronics.
    7) After JFK election, on Dec 1959, 4.49%.
    7) June 1966 , before Suez canal closing, 5.37%.
    8) Man & Fed flying to the moon, in Jan 1970 @ 7.87%. The Fed mission, on the way to 3M bubble peak lasted 10 more years.

  19. sierra7 says:

    FED just cut itself off at the knees.
    Yes, futures plummet. Really?

  20. exiter says:

    The party is over.
    I was invited in to play , many years ago. I played miserably; could not agree the unwritten rules and deceit. Got thru the next 60 yearson a modest rollercoaster ride. But it’s been worth it to find me.

    • pauleaston says:

      What do you mean?

      What party is over? Financial, social, or existential?

      Why is it over?

      If you found yourself, what could the problem be?

  21. Chris Coles says:

    Personally I have no sympathy at all; all those years of upwards only rent reviews have at last come home to roost. Yet, with all that income, they saddled themselves with massive debt.

  22. ML says:

    Comments generally highlight a lack of understanding of Intu’s problem. It is nothing to do with the shopping popularity of the malls and/or that some retailers have gone bust. A reading of Intu’s statement will confirm that. It is all about what is known as yield compression and its converse yield expansion.

    Yield compression is the relationship between investor sentiment and interest rates. It is not as simple as this but where a property’s value is based on 10% when interest rates are 10% then the value would be double if interest rates are 5%. Property yield is a reflection of growth prospects so in my opinion, interest rates shouldn’t figure so heavily in the valuation but they do. Basically the value of the property has become affected by the cost of borrowing. When debt is cheap to finance, the borrower can load up on debt and buy more property. Intu is a quoted public company so every so often its properties are revalued and the net asset value adjusted. But the asset is collateral for the loan so there must be enough equity to bridge the gap between the amount of loan and the asset value.

    Equity is how much of the value as belongs to the borrower. Loans are fixed which means the only flexibility is the equity. The loan is for a percentage of the value. When yields expand, as they have, because investors do not share the valuer’s opinion of the value of the property, the amount of equity diminishes.

    Intu is close to breaching the loan to value covenant. The GBP 2 Bn loss is not an actual loss but the difference between the net asset value before the revaluation and the current revaluation. In practice, Intu does not have enough equity to bridge the gap which is why the lenders could foreclose.

    I don’t think the lenders would foreclose, they would have nothing to gain and everything to lose. It is not just Intu to which the banks are lending but every other property company. The market cannot afford for the true value of the property to be tested en-masse as the whole lot would come tumbling down. A few orderly sales at around 20% less than book value is enough.

    I have said that it is not the popularity of the malls that is the problem. It is however the willingness of retailers to commit to long leases as in the past that makes for difficulties in valuation. An investor would want a higher yield where the lease is 5 years, compared to 15 years.

    The solution in my opinion is to move away from opinion valuation that requires evidence of transactions into a formulaic sliding scale valuation based upon revenue alone. The fact that the market value could be higher if the market were tested should be of no consequence.

    • MC01 says:

      I understand and applaud your analysis but the problem is very simple: who is going to buy these assets off Intu’s hands, even at a 20% discount?

      The appeal of mall-related financial products used to be in the excellent coupons they paid. But coupons have become progressively smaller. And the underlying assets have started to come under closer scrutiny: too many malls, meaning too much competition, meaning tenants hold the knife by the handle when it comes to leases. Mall owners like Intu have to swallow hard and offer good conditions to win tenants over: short lease terms, free utilities (meaning Intu pays for them), perhaps even help them out with moving costs… perhaps Intu is still too large and popular to feel the effects, but this affects revenues.

      Buying malls these days means not just enter a sector that’s increasingly frowned upon by consumers, but also a saturated sector that faces a lot of pain down the road. That’s why I feel malls are very overvalued, and their “real” value is likely to slip lower and lower as investors finally comes to grip with reality.
      Of course “the market” (read: banks) may try to prop up valuations with a few inflated and/or phony deals: say a 15% discount where 30% would be closer to the truth. It’s the same trick Italian and Spanish banks are pulling off to avoid a massive revaluation of the local residential market. It only works until they have enough people willingly committing to overpaying for an asset class in return for a promise of favors down the road. When they ran out all that’s left are inflated book values and a mountain of debt.

    • Wolf Richter says:


      “…. Intu’s problem. It is nothing to do with the shopping popularity of the malls and/or that some retailers have gone bust…. It is all about what is known as yield compression and its converse yield expansion.”

      Clearly, this statement is clueless about what a mall landlord faces in the real world.

      Intu’s tenants are going out of business, stores at its malls are closing… and new tenants cannot be found. In other words, Intu’s business model is falling apart. So what happens: revenues plunge. And losses pile up. Ha, you think yield compression is important? Yield compression is tertiary when your business model collapses. Investors look at the tenant situation, and at the endless sea of losses in the future, refuse to throw good money after bad, and just say goodbye.

    • char says:

      We are talking about real estate. revenue income is even easier to manipulate

  23. ML says:

    “Clearly, this statement is clueless about what a mall landlord faces in the real world.”

    So the more than 45 years experience of the retail property market that I have as a professional adviser counts for nothing? Intu is attracting new tenants, so too is Hammerson. Read their statements if you don’t believe me. Yield compression is relevant because Intu’s problem is a debt problem. There are buyers for the investments, just not as many as there were.

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