RBC Capital has warned that Intu Properties PLC (LON:INTU) would likely be the worst hit of any of the UK’s shopping centre owners, should more retailers be forced to close stores.
Topshop and Miss Selfridge owner Arcadia is reportedly the latest to consider a CVA – a type of insolvency mechanism which often results in store closures and rent cuts.
READ: Arcadia retail empire considering CVA – media reports
Shopping centre owners have had to deal with a rising number of tenants going bust in recent years.
Patisserie Holdings PLC's (LON:CAKE) Patisserie Valerie collapsed into administration earlier this year, while HMV, Toys ‘R’ Us and a host of others bit the dust in 2018.
Should any more fail this year, RBC analysts think Intu, with its high leverage, will feel the pinch more than its rivals.
“Intu's higher financial gearing amplifies the near-term risks from potential retailer failures,” read a note to clients.
“Any weakness in performance risks increasing negative investor sentiment towards its longer-term prospects in our view.”
Despite the near-term challenges, RBC is actually quite upbeat about the Lakeside and Trafford Centre owner.
Decent long-term prospects
“We expect Intu's centres to benefit from a polarisation in the market longer-term, making a 7.5% net initial rental yield implied by Intu's current share price attractive.”
Still, the number crunchers aren’t convinced there are many gains to be had at the current share price, despite the fact the stock has halved over the past year.
RBC has kicked off its coverage with a ‘sector perform’ rating and a 105p target price, ever so slightly below the current price of 105.8p.