Europe’s biggest mall owner Unibail-Rodamco-Westfield unveiled a €9bn plan to shore up its balance sheet, including a proposed €3.5bn capital raise, a stark sign of how the Covid-19 pandemic has upended the commercial property sector.
The French company, which owns 89 high-end malls in 12 countries such as Westfield London and the Carrousel du Louvre in Paris, also said it would aim to sell €4bn in assets — both retail and office properties — by the end of next year. To further save cash, Unibail will also cut its capital expenditures, and limit cash dividends for the next two years by lowering the payout or paying in shares.
The moves are intended to cut the company’s €24bn debt load, much of which was incurred in 2018 when it bought Australian mall operator Westfield for $24.7bn to create what was at the time the world’s second-biggest mall owner by market value.
Unibail’s attempts to reduce its leverage highlight broader challenges for owners of commercial property, and particularly mall landlords, whose rental income has plummeted as a result of coronavirus.
In the group’s key markets of the UK, US and Europe, many retailers were unable to or refused to pay rent after being forced to close by Covid-19 lockdowns. That has worsened the position of retail landlords, which in some cases was precarious before the current crisis, and put their covenants with lenders under strain.
Unibail must secure the approval of its shareholders before the planned share sale. If it gets their backing, it will sell shares worth roughly two-thirds of its pre-announcement market capitalisation, potentially diluting existing shareholders.
Given uncertainty around the economic recovery amid the coronavirus pandemic, Unibail wanted to ensure it staved off any cut to its credit rating and ensured that it maintained access to debt markets, said chief executive Christophe Cuvillier in an interview.
“We had discussions with our shareholders for years about how to handle the debt after the Westfield deal, and we think this holistic plan will answer their concerns about the balance sheet,” he said. “It is the right move to take the decisive and proactive action now, rather than wait and have an overhang of uncertainty.”
“I have confidence that the market will receive this positively,” he added.
Unibail shares fell almost 8 per cent by midday trading in Paris, adding to an already dire 70 per cent decline in the shares’ value this year.
In the UK, shopping centre owner Intu collapsed into administration in June after breaching agreements with its lenders.
Rival mall owner Hammerson launched a rights issue in August in order to bolster its own balance sheet and bring its loan to value ratio down. Hammerson’s share price has fallen precipitously over the course of this year, from £1.41 to 22p today.
“I would not put [Unibail] in the same category as Intu and Hammerson — they are a lot more diversified,” said Marie-Aude Vialle, an analyst at S&P Global Ratings. “The UK centres have been badly impacted but that’s only 7 per cent of the portfolio; continental Europe is performing better.”
Unibail’s aim was to deleverage, but trying to push down the company’s loan-to-value ratio was a challenge when shopping centre valuations were falling fast, she said. Unibail’s portfolio fell in value by 5 per cent in the first half of the year, and Ms Vialle expected it to fall another 7 per cent by the end of 2020.
“There is a worry that they may struggle to do the disposals . . . but they have quite prime shopping centres and are well located. They should be the type of assets that should attract people in the long term.”