Shopping centre giant Intu is facing an uncertain future as it succumbs to the latest of the series of challenges facing the retail sector, the Coronavirus crisis. The company is looking to its lenders to rescue it from administration by offering an 18-month standstill on its vast debt obligations. 

Even if Intu secures this temporary reprieve, this may only act as a sticking-plaster for a more systemic problem that is the decline of the traditional high street and out of town retail outlets. We are likely to see a slew of administrations develop throughout the retail sector as we begin to emerge from the Coronavirus crisis and associated protective measures that have been put in place by the Government to support businesses during this time, including a prohibition on landlords commencing forfeiture proceedings for non-payment of rent and lenders commencing possession proceedings. 

As the knock-on effect from tenant CVAs to landlord rental income begins to materialise, retail property owners are likely to breach the covenant tests (income and loan to value) in their loan facilities. Lenders will not only have to consider enforcement action, but also question the long term liquidity of retail property debt; how much the collateral of their retail loan is actually worth in this changing climate.

Financial standstills mainly serve to delay the inevitable and unless Intu uses the pause to majorly overhaul its asset models, they will continue to devalue. Now is the time for owners, investors and lenders to act: repurposing the deflated assets to mixed use spaces may inject a new dynamic to the valuation matrix providing a sustainable future for owning and financing high street and outlet property.