Its shares on the JSE, until recently a favourite among local investors seeking offshore exposure, fell sharply by 7.26percent to R17.26 on Friday morning. The share closed at R17.85.
Newly appointed CE Matthew Roberts said on Friday that the group, which owns some of the most highly rated shopping centres in the UK and Spain, had adjusted downwards its guidance for year-end rental income due to the higher-than-expected company voluntary arrangements (CVAs).
An example of a recent high profile CVA is Debenhams, which accounts for 3percent of intu’s rent roll, and which announced a CVA last week, and the closure of 22 out of 166 stores (none of which is in intu centres).
Generally, intu has been a beneficiary of CVAs, as the stores at its centres were among the best performing, said Roberts.
In addition, market uncertainty had caused some retailers to defer decision-making on opening new stores, he said. intu’s income guidance was lowered to minus 4 to 6percent, where previously it had guided for rental income to decline by 1 to 2percent.
Markets.com chief market analyst Neil Wilson described the profit warning as a “nasty surprise”, which showed that intu was “struggling more than thought” with the slowdown in the UK commercial property market.
The profit warning underlined the pressure in the UK retail sector. In March, Simon Wolfson, the chief executive of clothing retailer Next, warned that the structural decline leading to fewer stores on the high street would lead to a fall in rentals.
“It may not be the last time that the company has to disappoint the market,” said Wolfson.
“More worrying is the lack of new tenants coming to town, which seem to be down to a broad decline in sentiment, and we may also suggest it is part of the big structural shift that will see fewer stores on the high street forever,” he added.
True North Enhanced Property Fund portfolio manager Wim Prinsloo said the operating environment that intu operated in, affected by uncertainties such as Brexit, e-commerce and softer consumer spend, “continues to be quite severe” and the group might need to consider selling some property assets to stabilise its balance sheet and reduce debt.
In spite of the warning about the year ahead, Roberts said they had experienced “good’’ letting activity in the first quarter, with 53 long-term leases signed worth £6million (R113m) annually in rental income.
“These include new types of tenants such as Metro Bank at Manchester Arndale, exciting new catering concepts with Market Halls at intu Lakeside, and an expanding leisure attraction at intu Metrocentre with Namco’s mini golf and a climbing attraction.”
Roberts said his priority in his new position was to reduce the loan to value from 53.1percent at December 31, 2018 to below 50percent, and plans to achieve this were under way. The recent sale of a 50percent stake in intu Derby represented a positive first step, he added.
Other plans to reduce debt include reducing capital expenditure priorities, retaining cash inside the business with no dividends paid for 2018, and considering disposals and part-disposals in the UK and Spain.
Mixed-use opportunities would also continue to be evaluated, which includes residential, hotels and other uses, such as offices and flexible working spaces.
For example, a detailed review of the property portfolio had been done to identify hotel opportunities and seven potential sites with the potential for 850 rooms had been identified.
In the first quarter, tenants had invested about £16m (R302m) on store fit-outs, following a record year of investment in 2018.