Page 30 - April 2020

MARK FAITHFULL

Following

the Money

Mark Faithfull crunches the numbers as he looks at
analysis and expansion that reflects changing markets

pimco chief beLieves What do We do With a probLem
investors WiLL buy Like intu?
the drop mid the global impact of Covid-19, the
t the Pension Real Estate Asso- traumatic results announced by intu
ciation (PREA) spring conference Ahave been somewhat overshadowed. The
Ain Los Angeles, PIMCO Chief struggling shopping centre giant, another victim of
Executive Mohamed El-Erian outlined the UK’s retail sector woes, posted a loss of £2bn
four stages of what a downturn for real for 2019, up from £1.17bn the year before.
estate would look like: sudden economic A spate of retailer administrations and
shocks (now); financial contagion; restructurings forced intu to write down the value
bottoming out; and a new normal. of its centres by nearly £2bn and the estimated
Bottoming out - or buying the drop value of its property portfolio dropped 22 per cent
– means that once weakness is seen to £6.6bn. intu’s shares have lost almost 90 per
in prices, some investors will think cent of their value over the past year, as anchor
about coming back to the market. tenants including Debenhams, House of Fraser and
The bigger the fall, the more investors Topshop’s owner, Arcadia, have struggled.
that will look at conditions and The company flagged a “material uncertainty
consider jumping back in to scoop up in relation to intu’s ability to continue as a going
investments at a relative bargain. concern” and the group has already sold some assets
For commercial real estate, the during 2020, such as two of its three Spanish shopping
price declines needed to inspire centres, in a bid to raise cash and bring down its debt.
buyers to come back to the market However, some analysts believe it needs to
need not be as extreme as the 22 per take more drastic action, such as selling some of
cent drop in the Real Capital Analytics its top-rated centres after intu said it was at risk
CPPI seen from 2007 to 2010 during of breaching its debt covenants after abandoning
the global financial crisis. an emergency cash call because extreme market
The conclusion of El-Erian’s conditions left it unable to raise its minimum target
presentation involved advice on how of £1.3bn from investors.
we should all think about structuring If intu’s property values fall by a further 10 per
investments in the future. One key cent in 2020, the group would be forced to find
message was to not extrapolate the £113M to avoid breaching its covenants, and would With the further impact of the pandemic, right
experiences of the last 24 months into require a £161M repayment on its rolling credit now it seems difficult to foresee a way that the
the coming 12 months. There has clearly facility. It also has £190M of debt expiring and £93M company can continue as a viable concern, unless
been a change in the global economy, of swaps payable within the next 12 months. This it finds willing investors. However, it owns a strong
and we will see changes in all investment compares with £168M of cash and £129M of other set of shopping centres and no doubt buyers are
classes, even commercial real estate. available funding facilities. prepared to swoop should the price be right.

Laura ashLey first victim of pandemic
erhaps no great surprise that Laura Ashley became the first high-
profile retail failure of the coronavirus fallout after the fashion and
Phomewares chain called in administrators as it failed to secure funding.
Although business improved in the seven weeks to 13 March, “the Covid-19
outbreak has had an immediate and significant impact on trading”, it said in a
statement as it confirmed the administration. The group still has 153 stores in
the UK, along with concessions overseas, and employs about 2,700 staff.
The group said that while it had been in discussions about third-party debt
funding, “it will not be in a position to draw down additional funds from third party
lenders in a timely manner sufficient to support working capital requirements.”
MUI Asia, the majority shareholder since 1998, has also said it is unable
to provide financial support in the required time and that accordingly it has
filed a notice of intent to appoint two partners from PwC as administrators.
The retailer, founded by Laura and Bernard Ashley in 1954, has been in difficulty
for some time. In February, after issuing three profit warnings, it needed an
intervention from MUI in order to make further drawdowns under its working
capital facility. Same-store sales were down 10 per cent in the half-year to 31
December, although it said that there had been some improvement since then.
Last year, it had losses of £9.8M before tax and exceptional items and
repaid debt using the proceeds of property sales.
50 RETAIL & LEISURE INTERNATIONAL NOVEMBER 2018