Inside £ 360million bet on empty Toys R Us property gone bad for everyone

Even then, it seemed like a bold move.

In 2019, a Lancashire-based real estate company incurred £ 363million in debt and other liabilities related to a portfolio of big-box commercial properties once occupied by Toys R Us. The fallen retailer giant was under administration for a year, properties were empty and the retail market was in a bloodbath.

Nonetheless, the company bet it could sell the assets for more than the debt it incurred.

But a recently filed set of financial accounts shows the bet is unlikely to pay off, with Covid-19 making already depreciated assets even harder to sell. The investor, a company called Aceparc, said sales of the assets mean he is unlikely to make a profit. And the accounts show that the portfolio’s lenders, including the US fund giant PIMCO, could also suffer a loss.

Acepark is controlled by Tim knowles, the Lancashire based investor, and in addition to investing, he also provides property management and loan recovery services.

In 2019 it took on £ 363million in liabilities, including £ 252million in home loans and £ 111million in other loans and debts, secured by a portfolio of 25 properties, including 24 stores and a center distribution box, previously leased to Toys R Us.

The portfolio previously belonged to a consortium of KKR, Vornado and Bain Capital, which bought Toys R Us’s US and UK operations for $ 6.6 billion leveraged buyout in 2005.

In 2013, the consortium refinanced a portfolio of 31 properties with a £ 263million loan which was then securitized, with PIMCO buying the bulk of the bonds secured by the portfolio.

But over the years, Toys R Us sales have steadily declined, with online platforms taking a big chunk of the toy retail market. In February 2018, the retailer went into receivership and the ad hoc vehicle that held the securitized portfolio, Toys R Us Properties (UK), was placed in receivership.

At that time, the portfolio was managed by Solutus, a subsidiary of Acepark, on behalf of bondholders. Six of the 31 properties were sold for £ 31million in June 2018. But Acepark took full control of the portfolio in 2019, buying the shares of Toys R US Properties (UK) SPV which held the assets and taking full control of the portfolio in 2019. charges liabilities of £ 363 million.

At this point the wallet had a vacant possession value of £ 177million and, taking into account liquidity in the bank, the company’s assets were valued at £ 140million less than its liabilities. But describing his rationale for the deal in his 2019 annual report, Acepark said he believed he could lease vacant assets and sell properties or refinance them at a level such that lenders would be paid off and that would turn a profit.

But it did not happen that way. In his 2020 annual report, filed in February, he said 17 of the 31 original properties had now been sold for total proceeds of £ 109million.

“It now seems unlikely that sufficient funds will be made available to achieve an overall benefit for the group,” the report said.

In fact, as it stands, lenders, including PIMCO, are losing out as well. According to the Toys R Us Properties (UK) annual report, also filed in February, the value of the portfolio was £ 125million before the coronavirus pandemic began, and it has likely fallen further since. He had around £ 40million in cash in the bank and total liabilities of £ 344million at the 2020 annual report, meaning his assets were worth £ 177million less than his liabilities.

There is £ 207million of senior debt outstanding on the properties, owed to PIMCO and its fellow bondholders, meaning the level of senior debt is significantly higher than the value of the properties. The loan was due to be repaid in 2019 and the 7% interest is still accruing.

Acepark could not be contacted directly for comments and inquiries FI Property Management and Solutus, both owned by Acepark, have not received a response.

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