General notes:

• Tenant sales up 6.4%.
• Continued liquidity with E13.6b to cover any refinancing needs within 36 months.
• Asset value metrics:
• Net replacement value = E146.70
• Net tangible assets = E112.30
• Net disposal value = E121.90

Positives:

• Dividend in May = E2.50.
• Vacancy at 2019 levels.
• LFL net rental income up 8%.
• 2023 EBITDA = 2019 level on LFL basis.
• Net financial debt reduced by E950 Mn to E19.8 Bn
• AREPS = E9.62

Negatives:

• Total asset value metrics all lower. Though expected due to disposals.

Has the thesis been broken?

• No, thesis on track, however, will look to slowly trim.

Valuation:

NTA = E112.30 = $9.25 per CDI

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• Meets forecast guidance for AREPS of E9.65-9.80
• Continued deleveraging through the selling of assets.

General notes:

• Net debt has now been reduced by E4.7bn since 2021.
• Debt is fully secured for more than 36 months.
• There will be planned foreclosure of two US assets. Both are held on the books at below the debt value. Not good, but not bad either from a thesis point of view as this should increase NTA.
• Values:
• Net reinstatement value = E150.70
• Net disposal value = E141.6
• Net tangible assets = E116.4

Positives:

• Net rental income up 8.5% on like for like basis.
• Tenant sales up 9% vs H1FY22.
• 2023 AREPS guidance now at the upper end of E9.30-9.50.
• European and UK NRI up 12.5% and 9.5% respectively on a like for like basis.
• Average cost of debt decreased to 1.8%.

Negatives:

• Us regional and CBD asset net rental income down 9.8%.
• LTV was up slightly.
• No mention of any distribution yet.

Has the thesis been broken?

• No, on track and still improving. US assets are not great but the delivering and disposals are occurring. European assets seem to be going well and helped by inflation due to inflation linked rents while average cost of debt has decreased.

Valuation:

Using NTA = E116.4. Current EUR to AUD = 1.64. Therefore, NTA per CDI = $9.55

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• Further disposal of US assets and continued deleveraging.
• Meets guidance of E9.30-9.50 and results continue to improve.

General notes:

• E13.7 bn cash and credit lines available with refinancing needs secured for more than 3 years.
• US disposals and deleveraging plan continue to be a focus.

Positives:

• Turnover up 8.5% pcp on like-for-like basis.
• Like-for-like gross rental income up 7.8% pcp driven by indexation and operating performance.
• Tenant sales up 12% pcp.

Negatives:

• Lower property development and project management revenues.

Has the thesis been broken?

• No, continuing to play out. Revenue increases due to indexation a nice inflation hedge, helps inflate away the debt. AREPS guidance confirmed so no change in outlook.

Valuation:

No change.

What are you expecting and what do you need to see over the next reporting season or generally into the future?

No change to previous guidance:

• AREPS E9.30-9.50
• "Consistent performance vs 2022 with inflation protection".
• Continue with US disposal program.
• Continue to see improvement in financial results.
• Monitor for any issues with relation to interest rates in the longer term. Short term doesn't appear to be an issue.

General notes:

• Rent collections = 97-98%.
• Sales above 2019 levels. Inflation adjusted is this is probably still below.
• All rents are indexed in Europe. Therefore, inflation will increase rents received and increase sales-based rents in UK and US. To note, there is effectively a one-year lag on the inflation-based rents.
• Cost of debt remains the same due to hedging and maturities fully covered for the next 3 years.

Positives:

• AREPS = E9.31 better than guidance at end of Q3.
• Deleveraging is occurring:
• E2.8b billon of disposals.
• Net debt/EBITDA below 2019 levels.

Negatives:

• Footfall hasn't improved past 2019 levels like sales. Europe is at 88% and US 94%. Still more in sales per person.

Has the thesis been broken?

• No, thesis on track. Results steadily recovering from COVID impacts as expected. Need to watch for potential impacts on interest rates on debt.

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• Guidance
• AREPS E9.30-9.50
• "Consistent performance vs 2022 with inflation protection".
• Continue with US disposal program.
• Continue to see improvement in financial results.
• Monitor for any issues with relation to interest rates in the longer term. Short term doesn't appear to be an issue due to hedging and inflation-based rent. 

URW's Q3 trading update released today with no surprises. Positively, AREPS guidance was increased slightly as conditions continuing to improve from the COVID lows. Some general notes:

• Tenant sales now at 103% of 2019 levels with September improving further to 104%. US leading the recovery with the UK still behind the 2019 levels.
• Rent collection now in line with pre-COVID levels.
• Strong uptick in leasing deals signed.
• Convention and exhibition pre-bookings are approaching 2018 levels after very poor results during COVID.
• 800 million Euro of disposals still to occur and expected to be completed in 2023.
• Cash financing secured for more than 3 years.
• AREPS guidance increased from E8.90 to at least E9.10.

Thesis on track.

General Notes

• According to Tikr.com Xavier Niel owns 27% of the outstanding shares as of 15/5/22. He has been accumulating over the past years since management takeover. Good sign for thesis, owner mindset. 
• URW still planning to radically reduce US exposure by end of 2023. 
• Rent collection at 96%.
• URW is fully hedged against interest rate rises for the coming 5 years. 
• Disposal plan on track with disposals occurring at or greater than last appraised value. 
• LTV now at 42% reducing to 41.5% with all signed disposals.
• Net values of assets:
• Net reinstatement value = E163.40
• Net disposal value = E152.90 - this is up significantly since 1 year ago. 
• Net tangible assets = E127.5
• Adjusted recurring EPS of E4.95 for 1H.
• Graphic below shows why URW assets are premium shopping centre assets:

Positives

• Increasing of AREPS guidance from E8.20-8.40 to at least E8.90 from FY22.
• Tenant sales now exceeding 2019 levels, except in UK. See sales and footfall by month chart from presentation below.
• Average cost of debt stable at 2.0%. (EUR debt 1.5% and 3.8% for USD/GDP debt). With average debt maturity at 8.5 years.

Negatives

• US entity still under stain from debt. Disposal of the assets (as planned) will be a positive result in my opinion. 
• Footfall is still down on 2019 figures. As expected, shoppers are going less often but have a higher spend. Sales are trending up nicely.
• Vacancy still very high compared to 2019. Europe for example has a vacancy of 4.0% while in 2019 it was 2.5%. UK at the end of the period had a vacancy of 9.7%. Overall, it is falling compared to 1 year ago. Total group vacancy is now 7.7% compared to 9.7% for 1HFY21. 
• Net rental income (on an annualised basis) around 9% lower than 2019 figure (not LFL comparison). 

Has the thesis been broken?

• No, thesis is on track. There are signs the recovery is starting to happen as predicted in thesis. Will need to monitor the outcome of the US disposals which will significantly deleverage the portfolio, however, the disposal will not be a straightforward transaction and may require a haircut to valuations. 

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• Continuation of improvement in results. 
• Disposal of US portfolio by end of 2023 is promised. 

URW released Q1 results which are a strong improvement on the PCP. However, the results have not recovered to 2019 levels, though I was never expecting URW to do so at this stage. URW's FY22 AREPS guidance of EUR 8.20-8.40 (or around 61c per CDI) was maintained.

Footfall is still down compared to 2019, however, tenant sales are improving at a faster rate. Indicating shoppers are spending more per a visit than in 2019 (inflation could be a factor here?). The table below shows footfall and tenant sales by geography with the PCP in 2019, as a percentage of 2019 results. The US is clearly leading the recovery as expected. Sales in the US already above pre-COVID levels. March results show the trend is upwards. The entertainment category sales are still struggling down 21.6 in US and 25.8 in Europe.

Results align with my expectations of an eventual recovery. While I don't think URW will be as valuable as it was pre-COVID, URW is still significantly undervalued at well below book/replacement value.

General Notes

• All shopping centres are now open and trading. Over the entire group, centres were closed for the same amount of days on average as H1 2020, however, US centres we not closed.
• June appears to be the date when centres were open in a more pre-covid normal environment. 
• Management working on deleveraging programme and getting leasing back to 2019 levels.

Positives

• Tenant sales in June at 86% of 2019 in Europe and reaching 100% in US. US opened up earlier than Europe and showing good signs of recovery.
• Still more than enough cash and available facilities at €12.5 bn.
• European consumer savings rate around 20% in Q1. Historically this number is around 12%. Spare cash for retail spending.
• 100% of debt has a maturity of 3 years or more.

Negatives

• Net rental income down 22.4% like for like PCP. Most financial metrics for the half were poor. This is expected. This half was always going to be very poor given Europe's second wave.
• Footfall in June 76% of 2019. Still some catch up to do.
• Overall vacancy at 8.9%.Adjusted recurring EPS = $0.26 per half down 30%.

Has the thesis been broken?

• No, thesis was based on picking up the shares at around 20% of book value and holding while on recovery to a post-COVID norm. Poor results during this period were expected. June, numbers provide a very strong indication of the potential for recovery in the second half of the year. I believe Australia's retail recovery from initial lockdowns will be replicated in other western economies as they reopen, high household savings rates in Europe and US during lockdowns will help the recovery. The bond market is lending to URW at extremely low rates and no debt is due in the next 3 years so I don't see any liquidity issues unless US or European economies need to lockdown again. The management takeover has been very important as it is clear they see the free money on the table and are making sure the value of URWs assets is realised for shareholders .
• Major risk is further lockdowns due to a COVID variant that vaccines do not adequately protect the population.

Valuation:

• Reported stats:
  • EPRA Net reinstatement value = € 162.4 per share = $13.01 per CDI
  • EPRA NTA = € 124.7 per share = $9.99 per CDI
  • EPRA NDV = € 107.5 per share = $8.61 per CDI

Exchange rate used AUD = 0.624 EUR. 20 ASX CDI's = 1 URW Stapled share.

Today URW announced the issuing of €1.25 Bn of senior bonds over 7 years 5 months and 12 year maturity. The fixed coupon on these issues were 0.75% and 1.375% respectively. While this is not a large issue for a company of URW's size it shows to me that the bond market doesn't see any default potential in URW or the interest rate would surely be higher.

The quarterly report numbers were absolutely awful but to be expected given the lockdowns in the USA and UK/Europe. My thesis is based on the fact I believe URW will survive until the lockdowns are over and then the market will move towards the NTA price of URW when they realise there is no risk of URW going under. The bond issue today gives me further confidence that the solvency of URW is not an issue.

I am also bullish on the tailwind of reopening for URW. The recent report noted that some regional US shopping centres were recording greater than pre-covid sales. If Australian retailers are anything to go by, retailers overseas can expect some great sales and profits that will translate to a stronger than expected results for URW in the year after reopening.