Troubled UK REIT Intu has confirmed in an announcement that it is seeking 'standstill' arrangements with its creditors for the next 18 months in order to stave off the risk of bankruptcy.
As the value of its shopping centres continues to fall, the UK-focused REIT, which also owns centres in Spain, is asking lenders for relief from financial covenant testing, debt amortisation and facility maturity payments with interest switching to 'pay if you can'.
According to investment bank Goodbody, this would likely provide an opportunity for refinancing debt arrangements to hold off on bankruptcy.
Colm Lauder, real estate analyst at Goodbody commented: 'Intu's decision to seek standstill arrangements from its creditors is believed to be the best course of action moving forward by allowing asset valuations and portfolio performance to stabilise, while at the same time ensuring that risks can be appropriately priced.'
The latest MSCI UK Monthly Index data for April show that shopping centre values declined by 4.7% month-on-month, having now fallen by 12.1% over the last three months, and 23.6% over the last year.
At present, Intu has secured waivers on its covenant tests in respect of its revolving credit facility until 26th June.
'We will likely see increasing flexibility from lenders in the coming months,' Lauder added. 'With the investment market effectively closed for asset sales, it is changing how lenders see and manage assets, and ultimately forcing them to be more flexible.
'The current situation casts too much uncertainty for lenders to assess where the true value of assets lies, and given the asset management intensity of shopping centres, it is likely that Intu are better placed than most creditors to continue operating and managing its centres – at least until the dust settles on Covid-19,' Lauder concluded.
