Unibail’s Westfield freezes dividends as pandemic hits retailers

The former Westfield retail empire of Sir Frank Lowy, now in the hands of European Unibail-Rodamco, has warned investors it will not pay a dividend until 2023 and will exit its US-based assets in the coming year, as it works through the impact of the global pandemic.

Based in France, but with a dual listing in Australia, it took over Lowy’s international Westfield business for $22 billion in late 2017, and as a condition of the takeover, the malls across Europe and London bear the Westfield moniker.

The UK operations were hit the hardest, falling 49.3 per cent due to bankruptcies and store closures.
The UK operations were hit the hardest, falling 49.3 per cent due to bankruptcies and store closures.Credit:AP

There was no full year guidance provided, however URW does not expect a recovery in earnings before tax, until FY22 given current mall closures across its operations and potential delays in vaccination programmes.

Investor reaction in Australia was swift with the shares listed on the ASX down 4.8 per cent to $4.61 just before midday on Thursday.

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In its full results to December 31, the group’s adjusted recurring earnings per security (EPS) was €7.28 ($11.42), 3 per cent below market forecast. Stripping out the impact of COVID-19 and an accounting change, underlying EPS was down 1 per cent year on year.

Reflecting the hard-hit retail sector by the pandemic, asset values declined 11.3 per cent for the year.

Westfield malls in Australia and New Zealand are owned and managed by Scentre Group, which releases its full year results on February 24.

URW also owns office towers, some hotels and conference halls, which were also hit hard by closures and cancellations during 2020.

Like-for-like comparable shopping centre net rental income was down by 24 per cent for the Group, mainly driven by the impact of COVID-19 through rent relief and higher bad debt provisioning.

The UK operations, being the Westfield London mall in Shepherd’s Bush, North London and the mall at Stratford, the East London home of the 2012 London Olympic stadium, were hit the hardest, falling 49.3 per cent due to bankruptcies and store closures.

In Continental Europe sales were down 19.1 per cent, while in the US the fall was 28 per cent.

In an attempt to stem the red ink and before the pandemic swept over the world, the board undertook a €9 billion balance sheet restoration package which comprised a fully underwritten rights issue and signalled more asset sales.

Jean-Marie Tritant, URW chief executive said overnight in Paris, that “2020 has been a year like no other in URW’s history and I want to thank our outstanding teams for showing true resilience”.

“They have worked tirelessly since March last year to help our Group, our tenants and our communities to handle this unprecedented situation,” Mr Tritant said.

“With restrictions in place across almost all of our markets we have realistic expectations for 2021 but are encouraged by the way footfall and sales bounced back strongly whenever restrictions were eased or lifted last year.”

Macquarie Equities analyst Stuart McLean said URW continues to walk a tightrope.

“While the group does have liquidity for 24 months, an inability to resolve the balance sheet via asset sales prior to this could place pressure on the group’s ability to access debt,” Mr McLean said in a note to clients.

“We anticipate continued asset value declines from here, placing further pressure on the long term value.”

While URW believe it has liquidity to last about 24 months, there is a risk an absence of divestments results in more limited deleveraging compared to its strategy placing pressure on its ability to access debt markets.

URW said it anticipates the €4 billion European asset disposal plan (with €3.2 billion remaining) will now be complete by 2022, compared to prior guidance of 2021.

Mr Tritant said further, divestments of the US assets will be impacted by challenging fundamentals (including 13 per cent vacancy in flagship assets) combined with an already limited appetite from capital for US malls pre-pandemic.

Overall vacancy increased to 8.3 per cent across the portfolio, driven by UK (9.7 per cent) and the US (13.1 per cent), while Europe remained more muted (4.9 per cent).

URW was impacted by 652 bankruptcies, with 186 remaining vacant. URW anticipate leasing to improve in CY22 on the back of an improving macro-economic backdrop and government stimulus, albeit the latter is a one-off impact.

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