Breakingviews - Unibail’s self-bailout highlights property dilemma

People walk by Westfield shopping centre in Shepherd's Bush, following the outbreak of the coronavirus disease (COVID-19), London, Britain, May 26, 2020.

LONDON (Reuters Breakingviews) - Preparing for the worst is a tricky way to shore up confidence. But that is the balancing act Unibail-Rodamco-Westfield attempted on Wednesday with a plan to raise 3.5 billion euros from investors and 4 billion euros by selling assets. The self-bailout should help the owner of shopping malls protect its credit rating. But it requires buyers and shareholders to take a more optimistic view.

The so called “reset plan” is about keeping debt costs down. Ever since Unibail-Rodamco bought Australia’s Westfield in 2018, it’s grappled with a debt pile which topped 24 billion euros at the end of June. Chief Executive Christophe Cuvillier reckons the latest deleveraging, combined with further cost-cutting and paying dividends in stock, will reduce debt to around 30% of assets. That’s down from 41% in June and a long way from the 60% that would trigger debt covenants.

A safety buffer is necessary. Shopping malls have endured a torrid time in the pandemic as tenants saw revenue evaporate, while even stronger retailers like Primark stopped paying rents. Shoppers in the Britain and America, two of Unibail’s key markets, have been slow to return. Though footfall in continental Europe is back to 80%-90% of last year’s levels, it’s just 60%-70% in the United Kingdom.

Questions over the future of retailers and prime offices make it hard to flog assets. The company has managed to offload properties during the pandemic. But its stock market value, which fell 7% to just over 5 billion euros on Thursday morning, reflects more caution. Its debt and equity combined are now worth nearly 50% less than the balance sheet value of its assets. Prospective buyers will demand big discounts – or could even force Unibail to offload prime properties like its Westfield centres in London.

Equity investors also face a tough decision, too. While Cuvillier is protecting the company’s balance sheet from further shocks, he must also try to convince shareholders that the long-term future is brighter. In the absence of any tangible disposals, investors will have to take the plan’s success on trust.


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