An incoming chief executive often likes to carry out a ‘kitchen-sinking exercise’ when they first take over, getting any issues out in the open and rebasing expectations while they still have some credit in the bank.

However, whether shopping centre landlord Intu Properties’ (INTU) new chief executive Matthew Roberts had any choice but to unveil such a gloomy statement is open to question.

The company warns on profit, blaming a higher-than-expected level of insolvencies and a slowdown in new lettings amid Brexit uncertainty and its shares are down 8.4% to 91.8p, a fresh all-time low.

'The change from the guidance given at the year-end is due to a higher expected level of CVAs in the rest of 2019 and a slow-down in completing new lettings,' the company adds. Like-for-like net rental income for 2019 is expected to be down by 4% to 6% compared with previous guidance for a decline of 1% to 2%.

An update on Roberts plan to turnaround the business, having stepped up from his previous role as finance chief of the firm, is expected to accompany first half results in July. He faces a huge challenge amid falling rents, declining asset values and a troublingly large debt pile.

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AJ Bell investment director Russ Mould says: ‘The amount of retailers undergoing CVAs (company voluntary agreements) is really hurting Intu, so too a slowdown in new lettings as companies remain cautious about the political and retail landscape.

‘CVA is an insolvency process that allows financially challenged companies to renegotiate debts with creditors including landlords. It inevitably sees landlords having to accept lower rents to avoid vacant lots.

‘Intu’s pains are far from over as many retail companies are still struggling to stay afloat. The company expects CVAs to run at a higher level than in 2018.’

Liberum Capital anticipates where Roberts might and where he needs to take action. ‘We believe Intu faces immediate challenge to reduce its financial gearing to avoid the risk of covenant breach from falling asset values for retail properties.

‘A small £1m equity cure would be required in the event of a further 10% decline in capital values, rising to £43m in the event of a 20% decline in capital values and more beyond that level.

‘We believe the group subsequently needs to decide which of its properties in the UK and Spain can generate an acceptable long-term risk-adjusted return, with appropriate leverage, given a structural decline for retail footfall which is pressuring rents, optimal tenant mix and likely necessitating higher maintenance capex requirement.’

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Issue Date: 03 May 2019