Mall owner Intu faces FTSE 100 relegation on retail woes
Retail property owners are being hit by pessimism over the fortunes of their tenants
Intu Properties, the shopping centre owner, faces relegation from the FTSE 100 index next week in the latest sign of investor pessimism over the retail sector.
The performance of the real estate investment trust’s share price places it on track to be relegated in the review to be announced on May 31, according to analysts at Numis Securities. Its stock would need to rise about 11 per cent to save it from falling out of the FTSE 100.
Shares in Intu, which owns shopping centres including Lakeside in Essex, are trading at a 32 per cent discount to the book price of its properties, which reflects investor pessimism about the retail sector, said Robert Duncan, analyst at Numis.
“The pace of change in retail is only going one way and it’s not getting any slower . . . I can see no reason at this time to invest in retail property,” he said.
Retailers have been under pressure this year from burgeoning inflation and low real wage growth, which has added to the impact of e-commerce on the profitability of stores. This in turn has led to worries about rents and occupancy of retail property.
Like several international retail property groups, Intu has drawn attention from short-sellers. It is subject to $468m of short positions, according to data from S3 Partners.
Membership of the FTSE 100 index is mainly based on market capitalisation, but entrants must also meet criteria in areas such as liquidity and free float. The annual review, to be unveiled on May 31 and implemented on June 16, sparks reactive trading by index trackers, estimated to make up 8 to 10 per cent of the market.
Intu may be replaced in the blue-chip index by G4S, the security group that has been implementing a turnround plan since it was ejected in 2015.
But another contender is Segro, the industrial property group that has benefited from the same e-commerce trend that has hurt companies like Intu. Segro provides warehouse space to host the types of online sellers that are taking market share from traditional high street retailers.
In a further reflection of this trend, Debenhams risks relegation from the FTSE 250 amid worries that department stores are being particularly hard hit by online competition.
Debenhams said last month it would shift towards services like cafés and beauty salons within its stores. But John Stevenson, analyst at Peel Hunt, said: “Debenhams needs a fairly radical overhaul in order to be relevant to consumers and to drive sales.”
Also in the FTSE 250 relegation zone are Restaurant Group, owner of Chiquito and Garfunkel’s, Scottish Investment Trust, Keller Group, a ground engineering company, and Allied Minds, which specialises in turning research inventions into start-ups. BH Macro, a vehicle of the hedge fund Brevan Howard, and the private equity group SVG Capital are also in danger of falling out of the FTSE 250.
Lining up to replace them are companies such as the corporate buyer Melrose Industries, the newly London-listed hedge fund Pershing Square Holdings, Sirius Minerals and the thread manufacturer Coats Group.
Also in line for promotion to the FTSE 250 are Stobart Group, an infrastructure and support services business, the IT services provider FDM Group, the Georgian bank TBC and the waste managers Renewi.