Unibail Rodamco prepare AU$14.55bn Rescue plan for Global Malls

17 September 2020

Unibail-Rodamco-Westfield (“URW”), the premier global developer and operator of Flagship destinations, announced a €9.0+ Bn “RESET” plan this week to strengthen its balance sheet to execute its long-term strategy.

The proceeds of the capital raise would be used to immediately reduce leverage. Pro forma for the capital raise, LTV would decrease to 35.7%(8) from 41.5% as at June 2020.

Key highlights of the “RESET” plan and its five strategic priorities are:

RESTORE financial strength through a €9.0+ Bn deleveraging plan consisting of:

  • A fully underwritten €3.5 Bn capital raise to be used to immediately reduce leverage; o Limiting cash dividends through scrip and/or a lower payout ratio, resulting in €1.0 Bn cash savings over the next two years
  • A further €0.8 Bn reduction in development and non-essential operating capex; and
  • €4.0 Bn of disposals expected to be completed by year-end 2021.

This plan is designed to enable the Group to preserve the Group’s strong investment grade credit rating, with an expected rating of A- (3) / Baa1(4) , and maintain a sustainable capital structure with an LTV(5) below 40% and net debt / EBITDA(6) below 9x.

EXECUTE the €4.0 Bn asset disposal programme (European assets, c.50% retail/50% offices & others) by yearend 2021

  • Acceleration of the previously announced disposal plan by outright sales of non-strategic assets across all asset classes, on the back of the Group’s proven track record (€4.8 Bn disposals completed since June 2018 at a 5% premium to book value, including the disposal of five French retail assets in the middle of the COVID-19 crisis in line with the prior unaffected appraisal);
  • A €6.0+ Bn(7) identified pool of assets;
  • €1.0 Bn of disposals are well advanced; and
  • JV stakes in most liquid and mature assets to reduce capital obligations and leverage.

STREAMLINE operations and footprint to enhance agility and optimize use of resources

  • Further reduce capex by c.€800 Mn, of which c.€600 Mn of development capex and c.€200 Mn of non-essential operating capex. The development pipeline has been reduced by €2.2 Bn compared to FY-2019, and by a further c.€0.6 Bn compared to H1-2020;
  • Downsize the US Regional mall footprint in the near-term; and
  • Simplify structure and reduce gross admin expenses further.

EMBRACE a changing environment o

  • Strengthen the appeal of URW’s portfolio as structural dynamic changes in retail are increasing: Accelerate its Flagship destination strategy; ▪ Capture the mixed-use potential embedded within the portfolio, leveraging URW’s multidisciplinary platform and third-party capital; and ▪ Capitalise on a highly diversified and flexible pipeline.

THRIVE by harnessing URW’s powerful portfolio to grow new revenue streams

  • Increase appeal and audience of URW’s Flagship destinations;
  • Monetize the value proposition and Flagship destination audience by developing digital and omnichannel services;
  • Generate new non-rent based revenues of €150 Mn per year by 2025; and
  • Develop additional revenues by developing “asset light” and “capital light” partnerships building on the Westfield brand

Commenting on the announcement, Christophe Cuvillier, Group Chief Executive Officer, said: “URW’s immediate priority, as announced on July 29, is to deleverage, primarily through asset disposals. However, given the uncertainties around the duration of the COVID-19 pandemic and the recovery, we have decided, as a matter of prudent management, to substantially strengthen our balance sheet, in order to maintain a robust investment grade credit rating and to ensure flexibility in a world that is unpredictable and requires agility. Our €9+ Bn “RESET” plan is designed to allow URW to fully embrace the changing retail environment through our Flagship destination strategy and capitalise on our unmatched portfolio quality’s mixed-use potential. On the operational front, we see continued improvement in footfall and tenant sales, and are making steady progress in our tenant negotiations. As the environment remains challenging, we believe today’s announcement, including the fully underwritten capital raise, is an important step to ensure URW is best positioned for the future.”

Footfall and sales

The footfall recovery is encouraging, with most Continental European regions as of now trending in the range of 80 – 90% of last year’s footfall, demonstrating the appeal of URW’s Flagship destinations. While the UK is in the 60 – 70% range, it shows good week-on-week development as people are returning to offices following the lockdown and summer holidays. Footfall in the US centres lags behind that in Europe, as, for a number of shopping centres in Los Angeles, indoor operations remain restricted. In addition, mobility in the major US cities in which the Group’s shopping centres operate is well below that of most Continental European cities.

Tenant sales in Continental Europe were -26% in June, -16% in July, and -12% in August(10) , showing a more rapid recovery than footfall, as the last shopping centres reopened during June, most remaining restrictions were lifted, and higher conversion rates and average baskets were recorded. In Europe, tenant sales were -33% and -21% in June and July, respectively, and -16% in August(10) .

In France (representing 27% of URW’s retail portfolio), the preliminary August figures show tenant sales are -5%, a strong improvement from -29% in June and -15% in July, with 44% of French tenants reporting August sales above 2019.

Lease negotiation and rent collection

The tenant negotiations, which started after the reopening of centres, are making solid progress. These negotiations are conducted on a case-by-case basis. They recognise the issues the Group’s tenants faced due to administrative closures or trading restrictions and the need to provide relief, are generally limited to the period of closure and based on the principle of a fair sharing of the burden, and entail concessions by tenants in exchange for such relief. They are not about permanently changing lease structures or changing the basis for rent calculations. As at September 14, the Group estimates it is 61% through the process, up from 25% as at July 24.

The rent collection continues to progress. The July collection rate stands at 72%, up from 50% as at July 24, driven by Continental Europe (81%). Collection for August amounted to 70% (Continental Europe: 81%). Collection is partly driven by the tenant negotiations, as some tenants await the outcome of the negotiations to release rent payments. However, potential rent relief is always linked to payment in full of the outstanding amounts agreed upon. In certain cases where no agreement has been reached, the Group has drawn on security deposits or initiated legal action to enforce lease agreements.