The manager of Hong Kong’s Link REIT is in talks with Intu Properties to buy equity in the UK shopping centre landlord, according to an announcement by the London-listed company, as the manager of the real estate investment trust conducts a £1 billion ($1.29 billion) emergency cash call.
The debt-laden UK retail landlord, which holds a portfolio worth £8.4 billion, said it is engaged in “constructive discussions” with existing shareholders as well as new investors including Link REIT over an equity fund raise pegged for the end of February.
Should Link Asset Management Ltd follow through on the equity acquisition it would be its second investment outside of Greater China on behalf of Asia’s largest real estate investment trust, as Intu races to raise cash to help ease a debt pile of close to £5 billion.
Intu’s talks with Link Asset Management come just three weeks after the REIT manager, which looks after a Hong Kong-centric portfolio worth HK$224 billion ($29 billion), confirmed the trust’s first ever purchase outside of Greater China.
Seeing an Opportunity in a Flagging UK Sector
Link REIT is pursuing discussions with Intu as the UK shopping centre landlord is being pushed further into debt with the retail sector across the British Isles struggling to compete with the growing force of e-commerce.
Despite owning a portfolio which includes leading UK shopping destinations such as Lakeside in Essex and Manchester’s Trafford Centre, the retail landlord has seen its profits slashed and its share price plunge 90 percent over the last twelve months.
For the six months ending June 2019, Intu – which is listed as a real estate investment trust in London and Johannesburg – suffered a loss of £832 million. That shortfall represented an increase of more than 39 percent from the £505 million it lost during the same period one year earlier.
Intu blames the situation on falling revenue as some of the UK’s largest retailers, including Topshop owner Arcadia, have closed stores or renegotiated leases in response to competition from online retailers.
According to a report released by PwC last year, 2,868 stores in the UK closed down during the first six months of 2019, marking a five-year high equivalent to 16 shops shuttering up each day.
Rescuing an Ailing Landlord
With Intu weighed down by a growing debt pile, Link REIT’s reported interest in the mall operator comes as the UK group vows to fix its balance sheet through the equity sale.
“Further to recent press speculation, Intu properties PLC continues to make progress in its strategy to fix the balance sheet,” Intu said in a statement issued in late January. “Consistent with previous announcements, this now includes targeting an equity raise alongside its full year results at the end of February,” the company added.
The equity offering follows Intu’s sale last year of nearly £500 million in assets, including its announcement in December that it had exchanged contracts on a proposed €475 million ($520 million) disposal of the Intu Puerto Venecia shopping centre in Spain’s Zaragoza province.
The Times reports that Intu’s share sale is supported by UK property billionaire John Whittaker’s Peel Group, which owns a 27 percent stake in the company, while London-based private equity firm Orion Capital Managers was reported by Reuters in September to be exploring a buyout of Intu.
Easing Link’s Reliance on Hong Kong
Should the talks between Link REIT and Intu come to fruition, it will mark the continuation of a shift in investment strategy for Link, which now says that it will aim to allocate up to 10 percent of its assets into markets outside of Greater China in the coming years.
In its maiden outbound property investment, confirmed just under a month ago, Link REIT is in the process of acquiring a ten-storey office tower in Sydney from funds managed by Blackstone for A$683 million ($457 million).
Based on the gross floor area of 28,385 square metres (305,534 square feet), the REIT is paying A$24,062 per square metre for 100 Market Street as the REIT looks to diversify its portfolio and ease its reliance on Hong Kong.