(News Bulletin 247) – The shopping center operator announced this Thursday the return of a distribution to its shareholders, three years after having suspended it. Which sends a sign of confidence.

One of the smallest capitalizations of the CAC 40 (9.85 billion euros) is at the top of the bill this Thursday. Shopping center operator Unibail-Rodamco-Westfield (URW) rose 6% around 3 p.m., marking the largest increase in the Paris index.

The property company unveiled its annual results Thursday morning. One announcement particularly stands out: the return of a dividend payment. The company proposes to pay a coupon of 2.5 euros per share for the 2023 financial year which would be paid in May, subject to shareholder approval at the next general meeting.

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Palace Revolution

URW had decided to suspend the payment of its dividend for its 2020, 2021 and 2022 financial years following the palace revolution that the group experienced in the fall of 2020. A struggle then opposing a group of investors led by Xavier Niel’s old leadership ended with the victory of the first cities.

Consequence of this episode: the governance of the company (and its management) was completely renewed and the strategy revised in depth. Rather than carrying out a capital increase, as desired by the former management, the company wanted to prioritize its debt reduction via asset sales in Europe and the United States. Debt reduction being necessary, the group decided to reserve its cash to reduce its debt, and thus renounced dividends for several years.

Which can obviously constitute a handicap in a sector appreciated for its dividend yield. Real estate companies have SIIC status (listed real estate investment company) which exempts them from corporate tax on their rental activities or on their capital gain on sale but requires them to pay normally (deferrals can be made) a very high share (95% of recurring profit, 100% of dividends received from subsidiaries) of their profits to their shareholders.

Asset disposals

Unibail -Rodamco-Westfield is therefore resuming the distribution of a coupon. “The dividend is back, a sign of management’s confidence,” notes the independent research firm AlphaValue. “This is obviously news that the market will appreciate today (…) the reference shareholder, Mr. Niel, is keeping his initial promise, made in 2020, even if the dividend remains four times lower than that paid in 2019,” he adds in a note.

Invest Securities also notes that the coupon remains at a “very low” level, reflecting a distribution rate of 26% while the research office expected a dividend of 3.88 euros per share for a rate of around 40%. “The property company is committed to making it grow significantly through future sales, an easy objective to achieve but the future level of the dividend will therefore still remain very uncertain for several years,” he adds.

To continue its debt reduction, URW must carry out a major program of asset sales, particularly in the United States, but these sales are complicated by high interest rates, which make financing more difficult for potential buyers.

The company also indicated this Thursday that it was currently in discussions with potential buyers to sell around 1 billion euros of assets in Europe and the United States.

The “radical reduction” of its exposure to the American market, postponed several times due to unfavorable market conditions, will “most certainly take place beyond 2024”, once interest rates are more favorable, he also said. Jean-Marie Tritant, chairman of the group’s board of directors, told AFP.

Debt still high

For the moment, the group’s debt level remains high. The “loan to value” ratio, i.e. the net financial debt compared to the value of assets”, a key indicator of the real estate sector, stands at 41.8% at the end of December 2023 compared to 41.2% a year earlier, even if this increase mainly reflects the drop in the valuation of its assets. The debt ratio measured with the EPRA standard (European public real estate association) stands at 54.4% and the net debt represents 9.3 times the gross operating surplus, levels deemed “too high” by AlphaValue as well as by UBS.

In terms of its results, URW generated an adjusted recurring net income per share (“RNRAPA”), its preferred profit indicator, of 9.62 euros, an increase of 3.3%, thus exceeding its objective which was to achieve a figure of at least 9.50 euros.

Net rents stood at 2.21 billion euros, down 0.7% but up 6.1% excluding currency and scope effects (many within the group).

Net rents from shopping centers alone increased by 8% on a comparable basis to 2.03 billion euros, “probably one of the best figures of the publication season which is opening”, notes UBS.

Olympics that support the profit objective

Gross operating surplus increased by 6.7% year-on-year on a comparable basis to 2.2 billion euros. The group also posted a net loss of 1.6 billion euros compared to a profit of 178 million euros in 2022.

The vacancy rate (i.e. areas not occupied by tenants) in shopping centers also stood at 5.4%, returning to the level of 2019, the year before the health crisis. This reflects a drop of 1.1 percentage points compared to 2022.

“The sharp decline in the U.S. vacancy rate at the end of 2023 supports the idea that shopping centers are starting to operate at full capacity again in this country. This is consistent with a plan to sell these assets if rates d “long-term interest will decline in the next 12 to 18 months”, analyzes AlphaValue.

For 2024, Unibail-Rodamco-Westfield expects to generate adjusted recurring net income per share of between 9.65 euros and 9.80 euros.

This objective is based in particular on “the benefits” expected from the holding of the Olympic and Paralympic Games in Paris next summer, which should provide support for the company’s “congress & exhibition” activity (which however only represented 4 % of net rents for 2023). The group operates several sites via a joint venture with the CCI Paris-Île-de France where the events will take place, such as the Porte de Versailles exhibition center in Paris or the Villepinte exhibition center.

This target, however, excludes significant disposals in the United States.