Just a few weeks ago, it looked like retail property manager Intu Properties (LSE: INTU) might be an early recovery winner. The firm, which owns a number of large retail outlets, including Manchester’s Trafford centre and Lakeside, in Essex, was hit badly by the Covid-19 lockdown. At one stage, the Intu share price was down 90% on the year to date.
Then, at the beginning of June, we saw a sharp upturn, and the shares doubled in price in just three days. But Intu has been struggling with debt for years. It shows in the Intu share price, which has fallen 98.6% over the past five years. If Covid-19 is hurting, then it’s really just the latest straw on the back of a heavily overburdened camel.
Intu share price reversal
The shoots of Intu’s apparent recovery soon withered, and the brief upswing quickly reversed. As I write today, the Intu Properties share price is back down even lower than it was at the beginning of June.
Intu has been in talks with lenders for some time. In the company’s own words, it has been “looking to achieve stability through standstill-based agreements with relevant financial stakeholders“. Intu has a revolving credit facility covenant waiver deadline of 26 June, so things are starting to look a bit urgent.
Any remaining optimism seems to be evaporating, as an update from the company on Tuesday made apparent. What was so gloomy about it?
Well, suppose your doctor said to you “I’ve booked a postmortem, just in case the pills don’t work, but I’m still hoping they will“. That might dent your mood a bit. The latest news sounds a lot like that to me. Intu, it seems, has appointed administrators KPMG, just in case its restructuring talks with creditors aren’t successful.
No easy out
What should shareholders do now? The big problem, as I see it, is that there’s no winning option. If survival talks fail and the company does go bust, the Intu share price will effectively go to zero. But if a successful survival strategy does emerge, it will surely be heavily in favour of lenders, and I fear nothing will be left for shareholders.
At 31 December, Intu’s debt stood at £4.6bn, against a property portfolio valuation of £6.5bn. Since then, the Covid-19 crash won’t have done anything positive for that property valuation. And Intu’s ongoing struggle to collect its rents has clearly made debt servicing even harder. Between debts and assets, I don’t see any real value left for shareholders. And I see an Intu share price that can only head downwards.
Time to dump?
The company’s market capitalisation really brings home the degree of pessimism in the market today. As I write, it stands at a mere £62m. That’s a company that had a total net asset value of £1.9bn just six months ago. At the start of the year, that positive balance might have made Intu Properties a reasonable recovery target. But that was before the pandemic crisis crippled the retail sector.
I wouldn’t go near the Intu share price now. And if I held any shares, I’d sell while they’re at least above zero.
