Mall Landlord Gets Lucky With Fresh Lockdowns
Restrictions in Europe are bad for business but may help Unibail-Rodamco-Westfield to get backing for a controversial rights issue
Europe’s biggest mall landlord has an interest in talking down its business at the moment. New lockdowns in France and the U.K. could make it easier to persuade investors to approve an unpopular €3.5 billion, equivalent to $4.08 billion, rights issue instead of listening to activists.
Unibail-Rodamco-Westfield, URW -1.95% whose portfolio includes the Westfield malls in the U.S. and London, released much improved quarterly results on Sunday. The company collected 79% of the rent it was owed in the three months through September, up from just over half in the second quarter. Tenant sales also recovered during September at the company’s U.S. and European malls, although they were still down compared with the same month last year.
The improvement is a bit awkward for executives who are trying to convince investors to vote for the rights issue next week. A consortium of unhappy shareholders that own 5% of the stock, including the company’s former boss Leon Bressler and French billionaire Xavier Niel, argue that there’s no rush to issue equity—especially now that the shares are trading at a huge discount to the value of the company’s portfolio net of debt. URW admitted that it has “ample” headroom before it risks breaching debt covenants.
Investors, then, need to make a judgment call about whether URW will continue to have easy access to the bond market. The business must refinance around €3 billion of debt every year between now and 2025. Banks’ credit committees may also become skittish about rolling over a €9 billion credit line if the company’s liabilities remain as debt-skewed as they are today. Unibail is carrying net debt worth 12 times its earnings before interest, taxes, depreciation and amortization over the past year.
Meanwhile, Europe is locking down again: Nonessential retail will be shut for most of November in both France and the U.K., two big URW markets. The company has provisioned €40 million for rent relief due to the new measures. Repeated lockdowns make it harder for tenants to survive the crisis and the outlook for URW’s rental income grows more uncertain.
The company’s investors have had a terrible time. Over €20 billion of shareholder value has been destroyed since late 2017, half of it attributable to the Westfield purchase, the activists argue. Mr. Bressler bought the stock at around €120 in mid-2019 and it now stands at €34. His potential losses were compounded by a margin call, although all of the financing has been repaid.
URW’s current management team has lost a lot of credibility with investors, but they may get what they want. Perversely, the rapidly deteriorating retailing environment in Europe is strengthening the case for the rights issue.