Real Estate

URW/Hammerson: mauled

Crashing the mall was once slang for visiting a shopping centre. Now it describes the pandemic’s effect on shopping centres. Owners already under pressure before the crisis are scrambling to shore up finances. Unibail-Rodamco-Westfield, owner of some of the world’s fanciest temples to consumption, unveiled its own “reset plan” on Thursday. 

The French group desperately needs to lower net debts of €24bn to maintain its credit rating. The plan is to shave €9bn from that figure by the end of next year, mostly with a €3.5bn rights issue and €4bn of disposals. Capex and cash dividend cuts make up the remainder. URW shares reacted on the day by shedding a further 7 per cent to levels last seen two decades ago. 

At a valuation of about one-sixth net asset value, URW has never been cheaper. The relative quality of URW’s portfolio is reflected only in lower valuations for peers. Klépierre trades at just over one-tenth NAV. The UK’s Hammerson, which is undergoing a similar rights and disposals plan, trades below a tenth. 

Chart show URW deleveraging plan

For URW, leverage was already high before the crisis. Debt stood at 12 times ebitda at the end of 2019. That figure has ballooned as earnings collapsed. Deals with tenants and bankruptcies will shed about €400m from net rents this year, thinks Berenberg. The reset plan might see group leverage return to 2019 levels by the end of next year, according to S&P calculations.

The biggest risk in URW’s plan is the glut of property flooding the market. Asset values at the group have held up better than peers. A 4.8 per cent premium to book value has been achieved on disposals since mid-2018. That record may be difficult to keep as many in the sector become sellers.

Much depends on successful sales. So long as buyers are willing to pay a decent price for URW disposals, shareholders will be reassured that its assets are the sort of high-end shopping malls that shoppers still like to crash.

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