(Bloomberg) --
U.K. mall landlord Intu Properties Plc may struggle to continue operating due to high debts and plunging asset values, its auditors warned.
Intu shares declined as much as 16% Thursday, bringing their loss for the year to 83%. Its unsecured bonds due 2022 fell 7 pence on the pound to 30 pence, the lowest level on record, according to data compiled by Bloomberg.
The company is already highly indebted and expects further declines in rents and property values, according to a company statement Thursday. In addition, there's the looming threat of the coronavirus outbreak, which has already forced store closures in countries including Italy.
“A material uncertainty exists which may cast significant doubt on the group and company's ability to continue as a going concern,” the auditors said, in a note accompanying Intu's full-year earnings statement.
Brick and mortar retailers are struggling against a sluggish economy and online giants like Amazon.com Inc. That's pushing down mall values, forcing up Intu's relative indebtedness. The value of Intu's malls and stores plunged by 2 billion pounds ($2.6 billion) in 2019, meaning they are now 33% below their 2017 peak.
After shelving a share sale last week, Intu is now examining alternative capital structures and asset sales, while seeking to negotiate with lenders to waive certain loan terms, Chief Executive Officer Matthew Roberts said in the statement. Its first significant credit lines come due next year, he said.
Read More: Day of Reckoning Nears for Intu After It Pulls Share Sale
Intu's debt to asset ratio has climbed to 67.8%. It has drawn down about 50 million pounds of available cash this year to avoid breaching terms on multiple loan facilities.
“While the group is in compliance with all its covenants, in certain of the group's financing arrangements additional operational and financial restrictions” have been imposed “as the group approaches the maximum loan to value ratios under those arrangements,” the auditors' note added.
The spread of the coronavirus now threatens to complicate Intu's hopes. The company's full-year results do not take into account the impact of the virus outbreak “so are largely academic,” Citigroup Inc. analyst Aaron Guy wrote in a note Thursday. Guy has a price target of 1 pence.
--With assistance from Luca Casiraghi.
To contact the reporter on this story: Jack Sidders in London at jsidders@bloomberg.net
To contact the editors responsible for this story: Shelley Robinson at ssmith118@bloomberg.net, James Hertling, Chris Bourke
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