Turkish Builder Torunlar Looks at Dorms as Shopping Malls Falter

(Bloomberg) -- Turkish shopping mall builder Torunlar is taking a dramatic measure to try and reverse poor performance after its profit dropped by more than 60 percent last year.

The company will convert a section of the Torium mall in Istanbul's working-class district of Esenyurt to a student dormitory, Chairman Aziz Torun said at an analyst conference in Istanbul on Thursday. The move comes as Turkey's real estate sector flashes warning signs after a decade of construction-driven growth marked by a proliferation of giant shopping malls.

With a gross leasable area of 88,455 square meters, or about 1.5 times as large as the Louvre in Paris, Torium is Turkey's ninth biggest shopping mall, according to Torunlar's investor presentation. At a full capacity of 1,300 students, the planned dormitory there would yield 10 million liras ($2.6 million) in annual income after an investment of 46.7 million liras, Torun said.

“The shopping mall investor should be able to manage the mall,” he told Bloomberg after the conference. “Today's industry necessitates an investor that reacts rapidly to new situations and makes renovations.”

Cutting Debt

Torunlar reported 455.1 million liras in profit for 2017, down from 1.17 billion liras the previous year. The company predicts a rebound to 1.27 billion liras in 2018, contingent on a projection of a nearly sixfold surge in sales of residences and offices.

To reduce its net debt of 3 billion liras, Torunlar also wants to conclude a block sale in its 625-unit Torun Center project, also in Istanbul. The company isn't yet in talks with any investors, but would be looking to sell for more than its construction costs of $5,000 per square meter, Torun said.

Only 39 shopping malls out of 57 planned were opened in 2017 in Turkey, according to a report by the Association of Real Estate and Real Estate Investment Companies, or GYODER. “The predicted leasable area increase in the period ahead could be at risk,” it said.

An index tracking Turkish real estate investment trusts has declined by 6 percent over the past 12 months, compared with a 32 percent gain in the overall Borsa Istanbul 100 Index. Turkey's state-run banks have stepped in to prop up the cooling residential real estate market, providing 85 percent of new mortgage loans over the past 18 months.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net.

To contact the editors responsible for this story: Shaji Mathew at shajimathew@bloomberg.net, Benjamin Harvey, John Viljoen

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