This article is from the Property Week website. See the full article here: https://www.propertyweek.com/finance/distress-risk-hangs-over-200-shopping-centres/5098361.article?sm=5098361
More than 200 shopping centres worth around £7bn may be in danger of breaching debt covenants and falling into administration or receivership if their owners cannot secure fresh equity for refinancing and “much-needed redevelopment”, warns asset management firm APAM.
In 2006 Callendar Square Shopping Centre in Falkirk was valued at more than £25m – but last year it was quietly sold at auction through Acuitus for little more than £1m.
The figure had jumped about 75% from £4bn since the firm started tracking the market a year ago – driven by the increasing number of CVAs and falling market values, said APAM.
The firm’s estimates are based partly on an analysis of transactions that took place using debt, mainly between 2012 and 2015, and are now coming towards the end of normal bank financing periods. On a weighted average basis, the centres, which are spread across the UK from Inverness to Torquay, last changed hands or were refinanced three and a half years ago.
At the time, a number of US private equity firms made large acquisitions, attracted by the prospects of high income returns and a recovery in pricing. However, for many such investors, the investments have backfired.
“What’s happened is that net operating income has fallen and yields have gone out further,” said APAM executive director Simon Cooke.
A particularly stark example was Callendar Square shopping centre in Falkirk, Stirlingshire, which was acquired by Colony Northstar in 2015 as part of a £311m portfolio once owned by Glenn Maud’s PropInvest. In 2006, the centre was valued at more than £25m but it sold for little more than £1m at auction last year.
Cooke said private equity owners “have sat on the income and haven’t been reinvesting”. He argued that many of the woes shopping centres and retailers alike faced were down to the nature of their ownership and that “bricks-and-mortar retailing was far from dead”.
The sector would benefit from the entry of more long-term investors, he added, describing the growing number of councils acquiring their local centres as a potentially welcome development.
Cooke said he could see why councils “borrowing money to invest in town centres to generate rates and economic activity was a good thing”.
APAM hired Daniel Mead from Queensberry as head of shopping centre asset management earlier this year as part of a drive to help local authority landlords reposition their shopping centres.
NewRiver REIT has also set up a third-party asset management arm with a view to assisting local council shopping centre owners.