Intu Watford Image courtesy of Intu
Intu shopping centres including Lakeside and the Trafford Centre are today continuing to trade after it was announced this afternoon that the parent company Intu Group has gone into administration.
KPMG is being appointed as administrator to the group after the business was not able to reach a standstill agreement with its creditors on debt arrangements that were due to expire tonight.
Intu Group says that its underlying group operating companies remain unaffected by the news, and that all of its centres are continuing to trade. Intu Group’s relationships with its retail tenants are via these operating companies rather than the companies that are now going into administration. The shopping centres are expected to sign transitional services agreements with the administrators for services that are supplied by the central group. But in an update earlier this week, Intu said one of the questions to be settled was how the operations of individual centres would be funded, given that “some centres have reduced rent collections as a result of Covid-19 and cash trapped under their financing arrangements which restrict their ability to pay for support (such as shopping centre staff) from other entities in the Intu group.”
The news comes soon after this week’s quarter day, June 24. Estimates from commercial property management platform Re-Leased suggest that only 13.8% of retail rents were collected by landlords this week. That’s down from the 19.8% collected on March quarter day, which fell on March 25 – two days after non-essential UK retailers were told to close their shops for the Covid-19 lockdown. However, the Re-Leased analysis, which draws on live rental collection data from more than 10,000 commercial properties and 35,000 leases on its UK platform shows that by 60 days after the deadline, 67% of commercial rent due on March 25 had been paid – compared to 25.3% on quarter day itself. Fewer rents have been paid in retail than for other commercial property or offices.
Property lawyer Vicky Hernandez said this week that Intu’s position was a “stark illustration of the crisis facing the retail sector at the moment”. Hernandez, who is a partner in the real estate team at Royds Withy King and who has previously advised AllSaints, Ladbrokes, The Body Shop and Arcadia Group among others, says that while retail tenants are currently protected by the government from losing their leases until the end of September, landlords appear to have been overlooked – but still have costs and debts of their own to pay.
She said: “Intu is but the tip of the iceberg: retailers and landlords really need to examine their own positions and work to support one another – without one the other cannot exist and the future looks like a much bleaker place.”
Meanwhile, Keith Pearlman, who specialises in commercial property litigation and is a partner at law firm DMH Stallard, said any lack of flexibility by landlords and/or tenants would be another nail in the coffin for retail and the high street – but that flexibility was not easy for landlords given that government intervention now means that tenants are safe from eviction until the end of September at the earliest.
“Landlords, under pressure from lenders, and tenants are having to face the reality of increasing liabilities in the form deferred rent arrears; repayments over agreed future periods; monthly rental payments in arrears; ‘turnover rents’; the abolition of upward only rent reviews,” he said. “The pandemic has brought into sharp focus many of the discussions going on behind the scenes in the commercial property world.”
Today, Andy Halliwell, retail expert at digital consultancy Publicis Sapient, said that the consumer shift to online had played a role in the demise of Intu. “Consumers have adopted online across the board with Covid-19 further accelerating this. Most companies are looking at their plan for the next five to 10 years and now realising that that situation is in fact, now. That means a higher than ever proportion of online, or omni-channel sales. Which for brick and mortar stores means more “experiential” experiences in store, which given current conditions, will probably need to be booked online with scheduled slots (think Lush and their spa-like experiences, or Best Buy and scheduled visits to try out big box goods).
“The economic model for stores will ultimately transform, which will mean needing fewer stores, more flagship-style stores, and the ability to move between online, physical and delivery channels seamlessly. This will obviously mean that footfall will drop in malls, occupancy will drop, and that businesses will chase the “right” geographic distribution, rather than just targeting locations with good footfall or “passing” trade. Locations will also need to support different buying modes, so support for good logistics (for Ship from Store), more space for “mission-driven” click and collect, versus considered purchases which will demand a more premium experiential experience. This in turn will force improved infrastructure like high-speed internet connectivity, power across the shop floor, instrumentation across the store, and customer wi-fi as standard. Unfortunately, many locations in malls are a long way off being fit for purpose for this new store of the future.”