Unibail-Rodamco-Westfield SE (URW) Earnings Call Transcript & Summary

Good evening, and welcome to our Half Year 2020 results presentation. It's an unusual setup today. I'm here in Paris at URW's headquarters and Jaap is in the U.S. I trust the technical teams will help us run this presentation as smoothly as usual. I'd like to begin with a couple of words to summarize this first half. Our focus throughout this unprecedented crisis has been to mitigate its impact on our group. Q1 had started off positively, be it in leasing, with 444 -- 44 6 -- sorry, 446 deals signed in tenant sales and footfall, up 2.2% and 2%, respectively. And in terms of rent collection at 94% for Q1. The COVID-19 pandemic hit our operations late February in Europe and the U.S., with most of our centers forced to close from March 16. Our focus immediately shifted to preserving our liquidity and supporting our communities and our tenants through various relief schemes. I'm very happy that in this very specific period, we managed to finalize the disposals of 5 French assets as planned and as announced at our full year 2019 results in February, in a context where many operations of such kinds did not close. Then as confined measures were gradually lifted in Europe, we concentrated on restarting our operations and implementing a very strong health and safety protocol. As we see our footfall and sales improving weekly, our focus is now on rent collection and on finalizing tenant negotiations. Let me say here that the teams at URW really did a fantastic job in the first half in an extremely adverse environment, often at a distance. I'd like to warmly thank them for their treatment, with a special mention for the field teams, which stayed on-site during the whole period to allow essential stores to continue to operate, then to ensure we could safely welcome back our customers as our centers reopened. I will start with the global financial results at group level. The adjusted AREPS for H1 '20 reached EUR 4.65 versus EUR 6.45 in H1 '19, a decrease of minus 28% or EUR 1.80. After this amount, EUR 0.16 are due to disposals made in 2019 and '20. And EUR 0.22 to the end as from this year of the capitalization of leasing fees and EUR 1.45 linked to the impact of COVID-19 on our operations and financing expenses. Jaap will provide all the details on this COVID impact in his presentation. Minus 14.2% for the group's like-for-like NRI, split as follows by sector: minus 11.3% for the shopping center division, of which 6.7% in Continental Europe, plus 0.4% for the Office division, and minus 73.2% for our convention exhibition business, severely hit by the pandemic with all events canceled as for March 9. April net reinstatement value stands at EUR 197, a decrease of 13.9% versus end of '19. Jaap will, as usual, give all the details in a moment. Now to the explanations on how the COVID-19 pandemic has impacted our business and on the mitigating measures we've put in place. As you can see here, our regions have been unevenly affected by closing and reopening measures. Centers in Germany were the first ones to be allowed to reopen, followed by Austria and Poland. Although most centers in France were reopened from May 11, we suffered from a prolonged ban on centers above 40,000 square meters in the Paris region and Lyon, which affected us more than any other player given the concentration of our portfolio on flagships in these regions. Centers in Sweden and the Netherlands were never formally ordered to close but, of course, suffered from the stay-at-home instructions. As you know, the situation in the U.S. has been particularly hectic with states gradually lifting restrictions, starting for us in Florida from May 15. California and, just recently, New York State were the last ones to ease restrictions. But Westfield World Trade Center is still not allowed to reopen. Reopening in the U.S. were then affected by the tragic killing of George Floyd. And just 10 days ago, stores in enclosed mall areas in California had had to close again for what we hope is only a limited time. Overall, our weighted average closure period was 67 days, and there are still some specific local restrictions for cinemas, gyms and restaurants like in Spain. As stated previously, one of our main focus at the beginning of the crisis was to preserve liquidity. We drew on credit lines, raised EUR 2.2 billion of bonds and issued commercial paper under ECB and Bank of England programs. We canceled the final dividend, saved or deferred approximately EUR 500 million of nonessential CapEx and removed a further EUR 1.6 billion from the development pipeline. Partial activity and furlough schemes were implemented everywhere. Headcount was reduced in the U.S. and the U.K. and we also severely cut nonstaff expenses. This will enable us to save EUR 60 million in gross admin costs on an annualized basis. Thanks to all these measures, we had ample liquidity as at end of June with a record EUR 12.7 billion of cash on hand and undrawn credit lines. Throughout the crisis, URW's priorities has also been to protect the health and safety of our people and to support the communities in which we operate. Our local teams rose to the challenge with many local initiatives to support health care professionals or individuals most affected by the situation. We received lots of positive feedback for our actions, and I'd like here again to thank the teams for their unwavering dedication. Naturally, our tenants were also at the forefront of our minds. And in order to not weigh on their own liquidity, we immediately deferred the rents of April as well as for May in most regions. We took the stance to not make any final decision on potential rent relief in the middle of the crisis, so as to not negotiate in the dark without even knowing when the centers would be allowed to reopen, not having any idea of how the customers would respond in the early weeks post reopening. Ad hoc discussion, therefore, started in May and are still ongoing. As government started to lift confining measures, our main priority switch to making sure we took all necessary actions to ensure a safe reopening of our centers. In partnership with epidemiologists and our partner, Bureau Veritas, we developed our own safe and healthy places label to make our centers the safest place to shop. An in-depth audit is performed by Bureau Veritas before the label can be granted to any center. The safety of our staff and visitors remains our main priority today. We successfully concluded on May 29, the disposal of a 54.2% interest in 5 French shopping centers with net disposal proceeds for URW of EUR 1.5 billion. As you can imagine, the process was not easy and required several weeks of intense discussions as well as a rental guarantee and a participative loan and earnout agreement. I'd like now give some details on how business is going since the centers reopened in Europe. We do not have enough history in the U.S. yet to be relevant. We split our centers into 3 groups. The first group is composed of those centers that reopened at the end of April or beginning of May and have been there for operating for 11 to 12 weeks. We see a steady improvement in footfall figures since reopening, with up to 80% to 90% of last year's footfall. The second group is composed of the Spanish and the last French centers, which we opened more recently. Although with less history, they show a similar trend to group 1. Although in the last 2 weeks, centers in the Barcelona region have been affected by a new surge of the virus and the decision of the Catalan Government to close down cinemas, gyms and leisure operators as well to limit 50% of the capacity of restaurants. The third group now is composed of the 4 centers located in business districts and served mostly by large public transport hubs, namely Westfield London and Stratford City, and which only reopened on June 15; and Westfield Les 4 Temps and Forum des Halles in Paris, which we opened on June 4 and June 15, respectively. These are obviously suffering more, given the fact that people have been encouraged or even required to work from home until the summer break. Offices and business districts are still, on average, below 50% occupancy and people are also still pretty reluctant to travel on the tube or local trains. This graph seen in a recent Kempen newsletter, thank you, clearly shows that while 70% to 80% of people in Continental Europe are gradually back at work, only half the people in the U.K. have actually returned to the office. At the end of February, before COVID struck, we're off to a pretty good year. What we can see now is that people shop more individually. Shopping is undoubtedly more efficient while the virus is still around. People have reduced their dwell time. And restaurants and cinemas, which usually account for 15% to 25% of the center's footfall are still restricted. All this mechanically leads to higher conversion rates and higher average baskets and is translated into sales performing above footfall. Sales figures for the whole of H1 are totally meaningless, of course, given the 67 days of closure. However, for the sake of transparency, we give you the complete figures in the MD&A. Much more interesting, of course, are the sales of the month of June itself at minus 19.7%, which is pretty encouraging compared to initial expectations. And this figure includes cinemas and restaurants, which were either still closed or only partially opened that month; and fashion, shoes, bags and accessories and department stores which are all affected in France, our main market in Europe, by the government's decision to postpone the beginning of summer sales from June 24 to July 15. Excluding these categories, sales in June would be minus 7.6%, with sectors such as home, culture, media and food posting positive or stable sales compared to last year. To be confirmed, but this shows early but positive signs of recovery. As far as rent collection goes, if Q1 is not an issue, Q2 and Q3 still need a lot of work. Q2 figures reflect the decisions we made to postpone the rents of April and May to Q3 and Q4 as well as ongoing tenant negotiations. To put it simply, tenants want to have more visibility on the outcome of negotiations before they release the payments of, June rents. To put it even more simply, we will grant no rent relief if we are not paid what tenants owe us. For having led a certain number of negotiations myself, this has been well understood by everyone. Q3 reflects the same negotiations as well as the general approach of accepting that payments be made monthly as for Q2 to allow tenants to improve their liquidity just 1 month or so after reopening. I'm not saying that negotiations are easy, far from that. But they are progressing relatively well in Europe. There's a bit more -- they're a bit more difficult in the U.S. as the reopening situation there is more complex. There's no one-size-fits-all. Negotiations are made on a case-by-case basis and based on 2 very simple principles: one, fairness; and two, sharing the burden. This has been generally well received. We're not granting relief for tenants that traded well throughout the crisis nor canceling service charges. We're, of course, giving more relief to very small companies or to F&B operators, which are the ones who suffer most from the lockdown and a slower recovery. In return, we ask tenants for concessions, such as extending the firm period of the leases, increasing the SBR percentage, waiving co-tenancy clauses in the U.S. or signing leases for new stores. As you would expect us to, we refused to switch to pure variable rents. We estimate we're now roughly 25% through the process, still a long way to go, but fully added and progressing well. Now a brief focus on the more usual operational highlights, obviously, affected by the COVID-19. After a strong start of the year, a lower level of leasing activity, of course, in Q2, 661 leases signed this half, down 44% versus H1 '19. No mystery, negotiations are tougher. Hence, a major achievement in the middle of the crisis, double-digit MGR uplift in France, plus 15.4%; in Central Europe, plus 14.1%; and in Spain, plus 29%. Overall, plus 5.5% in Continental Europe, despite a strong downlift in the Netherlands. The U.K. and U.S. markets are much more difficult, even more so that in these 2 regions, the weight of relettings as opposed to renewals was unusually low at 21% and 40%, respectively. You know that MGR uplifts are, in general, lower for renewals compared to relettings. Our exposure to bankruptcies varies by region. This is monitored on a day-by-day basis, obviously, group wide, 92% of affected units are still trading or have been replaced. So the potential impact of bankruptcies on an annualized basis amounts overall to 2.7% of the group's retail MGR. But of course, several tenants will emerge out of bankruptcy or will be replaced along the way. COVID had an adverse impact on vacancy, which remains, however, under control, reaching 6.8% for the group versus 5.4% at full year '19, of which 3.9% versus 2.5% in Continental Europe. The uptick in vacancy is due to new bankruptcies in H1, as described a minute ago, linked to or accelerated by COVID and to delays in relettings due to retailers being more in a wait-and-see attitude during the lockdown. This will have to be closely monitored and dealt with in the coming weeks and months in parallel with the risk, of course, of further bankruptcies or CVAs. Despite this context, we opened a significant number of new stores across our portfolio in H1, including a 2,500 square meter Decathlon at Mall of Scandinavia, at Westfield Mall Scandinavia; a Primark at Gropius Passagen; Hollister at Westfield Les 4 Temps; and some more DNVBS, such as Indochino at Westfield Valley Fair and Allbirds at Westfield UTC. A very symbolic achievement was the opening of first ever Harrods Outlet at Westfield London on July 3 to replace Debenhams, a world premier not only replacing a nailing retailer, but also bringing the most desired name in UK retail to our flagship center as well as a wide selection of new brands. Performance is above expectations we hear, and there has been extremely positive press coverage. We also achieved major successes in terms of new signings in H1, including Lucid Motors, which is the best contender to Tesla in the upmarket electric car segment signed at Westfield Valley Fair and Westfield Century City. Uniqlo at La Part-Dieu, a new retail store, approximately 3x larger than their previous one at Westfield Mall Scandinavia; a Legoland Discovery Center at the Future Westfield Hamburg, as well as Aritzia, Peloton, IWC at Westfield Valley Fair and Anthropologie at Westfield Valencia. Of course, H1 is almost ancient history now, and I'm sure a lot of you have questions about the future of retail in the post-COVID world. We're only 2 months and something out of confinement, and there are still, of course, major uncertainties. It's obviously way too early to draw final conclusions. But I'd like to share a couple of convictions based not on wishful thinking but on observations, not based on my own behavior but on the behavior of our customers. The first question relates to the share of e-commerce in the post-COVID world. I've read so many different comments on this one. Naturally during the lockdown, all retailers saw a spike in online sales and even more obviously, in the proportion of online sales, click and collect and curbside delivery on their global since their physical operations came to a complete or almost complete halt. Online penetration has grown during the period, mostly because people were not using -- who were not using the Internet to buy food, started to do so. And also, because shoppers somehow had no other choice but to shop online when they were stuck at home. This graph shows credit card transactions in-store and through e-commerce in France. It shows -- it's just an example, of course. But it shows that the share of online has increased, but also that online sales have actually declined during 6 of the 8 weeks of the lockdown and have somewhat come back to pre-crisis levels, implying a more limited ratchet effect than initially anticipated. Too early to tell. Undoubtedly though, e-commerce penetration will have been boosted. The question is by how much, 6 months, 1 year, 2 years, more? Management consultant firms seem to agree that the jump will be of approximately 1 year, but it might be more. Only time will tell. As an anecdote, I was talking last week with a very successful restaurant operator who had restaurants in Paris, London and soon Madrid. When his restaurants were all closed, he designed a click-and-collect service that reached 50% of his previous business. 50% is huge. I asked him whether or not these servers had decreased since the restaurants reopened. The answer is yes. To how much, well to virtually 0. Why? Because if customers come to his restaurants, they prefer to eat there because there is fantastic atmosphere. So they will close actually their click-and-collect service. But in parallel, they will have open a brand-new home delivery service. This is how fast situation change these days, so it's much too early to draw final conclusions. As always, also, the question that comes when discussing online is the one around the profitability of online sales. No doubt, there will be, in the future, a mix between online click-and-collect with lower delivery costs, and an opportunity to bring the customers to the shops and shopping in physical stores, which offer convenience, accessibility and experience. One thing is clear, just like for my restaurant operator, people gradually go back shopping in physical stores. As proven by the queues in front of the most popular stores as seen on this picture at our Splau Center in Barcelona and by the June sales figures. Because after all, people like physical places. When French people were asked during the lockdown about what they wanted to do once they would be allowed to -- of course, this is, again, one example, 33% said they would go to a shopping center, in ninth position out of 38 possible answers. I have to say I was surprised, happily surprised. 41% said they wanted to go to restaurant or bar; 26% to the cinema; and even 23% to a department store. And we're not the only ones who believe in the omnichannel model. Leading retailers and DNVBs alike agree on its importance. There will certainly be less stores in the future. And this is fine with us. For a long time now, you've heard us advocate that selectivity is the key word in retail. Stores, however, will remain an essential part of retailers' operation. Not standard stores, not everywhere, stores in carefully chosen locations in the best catchment areas. And the focus will be more than ever on creating real in-store experiences. We are indeed definitely in an omnichannel world, and our strategy to embrace this at URW relies on 2 pillars: one, digitizing the experience of our visitors and customers to further engage them. And two, to create more value for our retailers by extending their online sales. All the services and activities we create are serving these aims to achieve a global and unified omnichannel experience directly or through partnerships. And we're accelerating such partnerships with the best-in-class digital pure players like Zalando and its 30 million plus active users by giving them access to our retailers' inventory to increase their sales; Deliveroo; Uber Eats or the likes to foster home deliveries from the restaurant operators of our centers; Transaction Connect or Thanx in the U.S. to build our transactional loyalty program; or Brut, an online video news platform, to reach out to a renewed audience. The preference shift for new consumption patterns for more local and secondhand products for sustainable brands has only accelerated in the first 6 months of 2020, both for consumers and for employees. These changes are at the heart of our Better Places 2030 strategy launched in 2016 and extended to the U.S. and the U.K. in 2019. As part of pillar one, Better Spaces, great achievement in H1 by our U.S. teams with Palisade at Westfield UTC obtaining a LEED Gold certification in April and URW U.S. being listed among the top 30 companies generating and consuming green power on-site by the U.S. Environmental Protection Agency. For better communities, the second pillar. On top of the support provided to local communities during the COVID-19 crisis, our assets offer growing sustainable consumption options with Too Good to Go, for instance, working on reducing food waste; and the largest urban farm in Europe inaugurated a couple of weeks ago at our convention exhibition inside of Porte de Versailles. Finally, for better together, our third pillar. URW has built a strong commitment to volunteering over the years, which certainly triggered the full mobilization of our teams during COVID-19. This CSR strategy and efforts have been recognized in H1 2020. URW was reconfirmed in major CSR indices, such as Euronext Vigeo Eiris' indices and Ethibel Sustainability Index Excellence Europe and Global. Recognized and rewarded in June, the group achieved for the first time a score of B in the ISS ESG rating. We're ranked in the leaders group and are like in 2019 awarded the Prime status, which highlights our best-in-class approach. Now after this pretty long chapter on retail, a word on offices and our C&E business. During the crisis, we've all had to adapt to new ways of working on a very short notice. Today, now that life is starting again, at least in Europe, we hear there again competing narratives regarding this time homeworking. Yes, working from home is great. Companies didn't collapse. They can save money that way and employee save time commuting. But not being together hurts creativity and kill serendipity, I might be a bit old-fashioned, but I consider it's hard to attract talent, to build a team and to manage a company without meeting face-to-face, eye-to-eye, with group dynamics, which are much harder to achieve through a computer screen. Not to mention that the conditions to work-from-home are not always ideal. 73% of employees do not have a dedicated place to work and 16% even say that they do not want to work from home in the future. So what will be the share of homeworking tomorrow and what will be the future needs in office space? It's difficult to say. Most people in the U.S. and the U.K. have probably not been to their offices since mid-March and will not until early September at best or even later. Just like retail is not physical or digital, but both, my conviction is that it will not be either office or homeworking, but both. I think it's safe to assume that offices will remain, but that space requirements and design will change and that homeworking will grow from, say, 1 day per week pre-COVID in the most modern companies to maybe 2 or maybe 3 a week. At URW, we definitely reinvent the way we work. Since we have taken the decision to move our headquarters to our soon-to-be-delivered Trinity Tower in La Défense, which will be the opportunity to totally rethink our work organization and further foster teamwork, boldness and agility. Our Convention & Exhibition business has been very hard by the COVID crisis. Activity stopped, as I said on March 9. 125 events had taken place before the lockdown, but 191 have since then been canceled and 95 postponed. The good news that was just confirmed this Monday is that we got the green light to resume operations on September 1. 235 events are planned for H2 at this stage. We expect, in this business, a recovery from 2021 and the back-to-normal situation in 2022 before the 2024 Paris Olympics expected to have a positive effect as from H2 '23. Now on to development. During this first half, we once again performed an in-depth analysis of our pipeline and removed a further EUR 1.6 billion of projects, including Westfield Milan and Brownfield development in Spain. Around EUR 500 million of projects were delivered so our overall pipeline is now EUR 6.2 billion, down from EUR 8.3 billion at year-end 2019 and EUR 10.3 billion at mid- '19 and it will shrink further as we deliver EUR 830 million of projects in H2. Out of these EUR 6.2 billion, EUR 2.2 billion have been invested to date. So EUR 4 billion remain to be spent, of which EUR 1.6 billion are committed. Although we've had to take severe measures during the crisis, we have confidence that our now smaller development pipeline will continue to play a significant role in our growth and value creation. The pipeline projects correspond to 1 million square meters of new, refurbished or restructured GLA, of which now only 32% in retail; 30% in offices; and the rest in dining, hotels or residential, a clear illustration of our strategy to introduce more mixed-use components in our destinations. Our major projects will deal with the repositioning of space in outstanding assets, such as the repurposing of House of Fraser at Westfield London into a co-working space and for which we just received planning permission. H2 '20 will be very active in terms of deliveries, including Trinity and the La Part-Dieu extension, although the COVID-19 crisis has affected schedules by between 2 to 6 months as well as leasing. Westfield Mall of the Netherlands has been pushed back to H1 2021. Westfield Valley Fair was delivered on March 4 with the new Bloomingdale's and had to close 12 days later, then reopen, then close it's -- enclosed parts again. We hope we can reopen it very soon. This is for me. Now I will hand over to Jaap, who will give you all the details on our latest disposals, our balance sheet and other finance matters. Thank you. And now we see if it works. It does.

Thank you. One of our most immediate objectives when the coronavirus pandemic hit was to further bolster liquidity. It may have been somewhat more expensive than before, but in this half, we raised almost EUR 2.2 billion in bonds with an average coupon of 2.3% at an average maturity of 9.3 years. This has allowed to pre-fund the repayment of EUR 2.1 billion, the whole upcoming 2020 maturities as well as extending the average maturity of the group's debt. As you can see, the average cost of debt ticked up by 10 basis points to 1.7%, of which 1.1% for euro-denominated debt and 3.6% for our U.S. dollar-denominated debt. The steps we've taken this half have increased the average debt maturity to a new record of 8.5 years. As a result, our liquidity as of June 30 stood at EUR 12.7 billion in cash and undrawn lines, which is also a new record. Out of an abundance of caution during the half, we also drew down EUR 3.2 billion of our bank lines, all functions as expected, and we've repaid them during the half. Well, normally, we prefer not to stockpile cash. Times were sufficiently unsettled that we decided to take a more prudent stance. As at June 30, our cash position was EUR 3.4 billion compared to almost EUR 500 million as of December 31, 2019. Of course, the incremental liquidity did not come for free. Our interest expense increased by EUR 13.7 million, mostly because of the cost of securing the incremental liquidity, but we believe this was the right thing to do. As this chart shows, we have no maturity cliffs. The commercial paper includes GBP 600 million we issued under the Bank of England's COVID-19 facility at a cost of 49 basis points. All the commercial paper is backed up by our existing credit facilities. As to disposals, we've made good progress against the objectives. In February 2019, we had increased our disposition target to EUR 6 billion worth of assets, of which now 80% has been completed. With the additional EUR 2.8 billion, a slight increase from what we announced in February this year, the total target is EUR 8.8 billion since December 2017. So out of the EUR 4 billion remaining and to be executed in the next couple of years, a little bit less than half is retail. We are currently in several advanced processes, which, upon completion, should generate almost EUR 1 billion in proceeds, which is approximately 25% of the remaining target. We obviously aim for the best pricing as the assets we're disposing of are very high quality. However, we'll take a very pragmatic approach towards achieving these disposals and to manage our leverage down. Speaking of leverage, as of June 30, our LTV came to 41.5%, a little bit above the upper end of our target, and I'll get to the valuations in a second. But part of the explanation of the change since December '19 is that the gross market value of the entire portfolio came down by 5.1% on a like-for-like basis. This was largely due to the retail valuation declines in the U.S. minus EUR 613 million; in France, minus EUR 581 million; and in the U.K., minus EUR 535 million. As Christophe noted earlier, group NOI during the period was down by 15%. This, as well as a slightly higher interest expenses I just mentioned, resulted in an interest coverage ratio of 4.2x, calculated on a trailing 6-month basis. Now we continue to get questions about how our loan-to-value calculation squares with some of the much higher numbers that get thrown around in the market. As we discussed during our Investor Day last year in London, we present our loan-to-value as defined in our covenants as this LTV calculation governs access to our liquidity. I understand why equity holders look at this differently, but we're consistent with IFRS and our covenants, and this is what our lenders ask us to report to them. The LTV calculation we communicated on is very simple. Net financial debt, excluding current accounts with noncontrolling interest, divided by total assets, which are externally appraised, effectively, the GMV of our assets of EUR 56 billion, plus EUR 1.8 billion of cash flow generating intangibles, mostly development, property, asset management and airport revenues and EUR 800 million of future fee businesses as appraised by the appraisers, who make assumptions about the renewal of the contracts that have led to the valuation of the EUR 1.8 billion of the cash flow generating intangibles. The assets do not include EUR 1.4 billion of goodwill not justified by the fee business. These values are, as required, calculated as for the group's IFRS financial statements, so not on a proportionate basis. Lastly, because under IFRS, the hybrids are classified as equity, the hybrids do not count as debt in the calculation. When you look at this formula, you see there is ample headroom under our covenants. Now you know us by now, we don't provide guidance or speculation on how much values could go down by. So we only provide here as an illustration with some indications of what could happen if values for the shopping centers, convention exhibition and services were to go down by 5%, 10%, 20% or 25%. So for instance, if values were to fall by another 5% from June 30, this would represent a further drop in values of EUR 3 billion. An additional 10% drop from the June 30 values would mean a valuation loss or a decrease of EUR 5 billion. Now if we say if the portfolio were to drop by the same order of magnitude as during the great financial crisis, this would correspond to an additional 20% value decrease from where we are today, meaning EUR 11 billion or an outward net initial yield shift of 124 basis points. And that still would leave us with additional headroom for a further 10% drop before this 6% loan-to-value covenants will come into play. Now, all this is not to say that we're nonchalant about where we are or that it is not a top priority. Nor, of course, are we saying that we expect a drop -- a 30% drop in the value of the portfolio. It's just to confirm that there remains more than ample headroom under our covenants and that although you are free to calculate your own LTV, which differs from IFRS, you can't really compare these results to our covenants. Something new. The new EPRA KPIs after the old NAV metrics were replaced by these new KPIs. We consider the EPRA net reinstatement value to be the relevant metric because the NRV aims to highlight the value of net assets on a long-term basis. Since the aim of the metric is to reflect what will be needed to recreate the company through the investment markets based on the current capitals and financing structures, related costs, such as real estate transfer taxes are included. Some may prefer the EPRA net tangible asset metric. We do not consider it to reflect the total value of our business as it ignores the value of the intangible assets and the fee businesses, which are valued at about EUR 1.5 billion as of June 30. They are an integral part of our business model, as they are for many other real estate companies, as the industry has evolved and has become more operational. This value, these cash flows that are generated, they're long term, they cannot simply be ignored in terms of valuation of the company. We've included in the appendix to the press release, a recalculation showing the bridge between the prior metrics and the new EPRA valuation metrics. As of December 2019, the EPRA NRV was EUR 228.80 per share. Adjusting for the almost EUR 6 per share as a result of the dividend paid and the mark-to-market of financial assets, the pro forma 2019 EPRA NRV was EUR 222.90 per share. The principal elements of the evolution of the June 30 NRV, a reduction of EUR 25.87. The elements here are the recurring EPS of EUR 4.82 per share for the period. And the negative asset revaluation move of EUR 26.26 per share, which is made up of the non like-for-like change investment properties, impairment of goodwill and the revaluation for -- all in all, for a total of EUR 10.56 and a like-for-like revaluation of minus 5.1%, out of which 4.2% in Continental Europe; 13.9% in the U.K.; and 5% in the U.S. And these -- the like-for-like valuation across the region is driven by a negative rent effect of EUR 3.60 and a negative yield effect of EUR 12.10. All necessary details are in the appendix of the press release, and I'd invite you to address detailed questions to Sam and Maarten after the call. The P&L and the balance sheet as impacted by COVID, it's clearly generated a number of complications in the accounting for -- to account for the effects of the pandemic. With respect to the P&L, the full impact of negotiations with tenants is not yet reflected. As Christophe mentioned, only about 1/4 of the negotiations had been completed by June 30. And remember, we did not start with these retailers until after the reopening of the centers in question. And in negotiations with tenants, we get concessions in exchange for rent relief. For example, the ones that were described by Christophe, new opening of stores, extending break options, more sales based rent and the like. Now under IFRS 16, we have to straight-line the rent relief over the remaining firm period of the lease, which might, by the way, be extended is consideration for the relief grant bias. And so this means that there can be a mismatch between the income statement and the cash flow effect. Just to note, in the half, we've granted EUR 32.6 million of rent relief. That's a total cash impact. However, in the H1 P&L, the impact is only EUR 15.6 million. The rest has to be straight line. We think it's approximately 4 years based on the leases that have been signed to date. There is also an impact on the balance sheet as well. Working capital has increased significantly as our receivables have, of course, gone up by almost EUR 500 million, EUR 493 million to be exact, on a proportionate basis because of the deferrals, we've granted tenants during the crisis. This is also somewhat difficult to see in our balance sheet, though, as we benefited from a large VAT refund. Because we have deferred April and, in many cases, May rents, we were -- they have not hit our usual 90 or 180 days, after which you can start taking provisions for doubtful debtors. As of June 30, we have provisioned only for tenants, about which there are significant credit concerns, which is obviously a minority of the tenants. Ultimately, our collection of these receivables will be a function of what -- collecting what we've voluntarily deferred, the outcome of negotiations with tenants on rent relief and compensation, and if needed, our success in lawsuits. We've already done so in some instances. Obviously, at risk remain further potential bankruptcies and deferrals. As Christophe referenced, we're in the middle of these negotiations, where he, Michel, Jean-Marie are all personally involved in an effort on a daily basis. They're making good progress and are confident that most tenants will pay. On the basis of what we've seen so far, we expect we will collect a very significant portion of these EUR 493 million. With respect to the adjusted recurring earnings for the half, we've prepared a bridge to show you the detail of the evolution of the H1 adjusted recurring earnings per share versus H1 '19. The impact of the disposals of Jumbo in Q1 '19, Majunga in Q3 '19 and Ring Center in Q4 as well as the 5 French assets in May, the impact there was EUR 0.16. The impact of expensing internal leasing fees for the first time this year was EUR 0.22. The COVID impact as far as we've been able to precisely ascertained, has impacted the AREPS by EUR 1.45. And the key components here are the P&L impact of the rent relief granted in charge of the income statement, all of EUR 0.11; doubtful debtors, EUR 0.57; lower sales-based rent, commercial partnerships, media income and parking, EUR 0.25, as well as less service income, fewer lease sign, for example, EUR 0.21. The 73% decline of Convention & Exhibition revenues impacted the P&L on a net basis by EUR 0.24. And lastly, higher financial expenses, as we increase liquidity, impacted the P&L by EUR 0.07. In addition to the EUR 1.6 billion of projects removed from the pipeline, as Christophe discussed, we've deferred EUR 500 million of mostly smaller noncommitted projects and operating CapEx. For the remainder of the year, we expect to spend approximately EUR 600 million in development and replacement CapEx for a total of EUR 960 million in 2020 with most of the development CapEx for projects to be delivered in the next 18 months. As to the general expenses, we've saved on personnel costs through partial employment, furlough schemes. As development pipeline will scale back, an adjustment of the corresponding staff was obviously, unfortunately, to be made as well. And in a very difficult business environment, we've also further reduced headcount through our Agility program in the U.S. and the U.K. and nonstaff costs have been reduced as well. Collectively, these steps should save about EUR 40 million in 2020 and save about EUR 60 million in gross admin expense on an annualized basis. Now with respect to the outlook, I'm sorry, I hate to dash expectations, but the performance through June 30 was significantly impacted by the pandemic. In March, like most companies in many sectors, we've withdrawn the guidance due to significant lack of visibility about the duration impact of the pandemic on our operations. We said we will provide an update on our guidance when we can reliably estimate the duration, severity and consequences. Well, 95% of our centers by value in Europe and the U.S. had reopened as of June 15. Several of our centers had to close again following an order by the state of California, and you heard Christophe talk about Catalonia. And this illustrates the continued uncertainty around the financial impact of factors that are beyond our control. Also, negotiations with tenants about the recovery of rents for the second and third quarter are still ongoing. And we also expect that it's likely there will be more tenant bankruptcies. Lastly, the recovery of the variable income, such as sales-based rent, commercial partnerships, parking and airports are all very much traffic-driven. So at this point, we believe that the uncertainty about the duration and the impact of the pandemic on the operations and financial results retains material and that, therefore, providing an update of the 2020 guidance is not yet appropriate. We'll do so as soon as we gain visibility, and we can provide an accurate enough figure, which is what we understand you expect from us. In conclusion, these are unprecedented times for all of us. We're all working really hard. And I trust we are collectively taking all necessary measures to address these challenges in the best possible way and to prepare for the future. As a group, we have a high degree of confidence in the quality of our assets, the enduring strength of our business and the total motivation of our teams. And with that, let me thank you for your attention and open it up for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Stuart McLean from Macquarie.

I was just looking to understand a little bit more around the bridge from recurring earnings to cash. So you've given some of the building blocks. So earnings were EUR 667 million. Is the way to think about it, should I deduct from that the change in receivables balance for the consolidated entity, so it's EUR 400 million? So I guess it's down to EUR 267 million of more kind of cash flows and then deduct an additional EUR 15 million for the rent relief, deduct the hybrids and the EUR 24 million? And I'm closer to a cash number of EUR 230 million. I hope you can understand my math there. But just some color around that and how to think about kind of actual cash collection.

Well, I think those -- the numbers that you can see if you compare the P&L to the cash flow statement that gives you the biggest, if you will, delta between the accounting implications and the cash flows themselves, which you'll obviously see as a significant change in working capital, which is impacted by the fact that there is still a lot of rents that are actually outstanding. In terms of the actual delta, I didn't follow all of your numbers, and we can talk about this off-line. But in terms of cash collection, there is -- Christophe gave you that bridge in terms of what had been -- the relief had granted, which was 3%, then we've deferred about 30% and 39% is still outstanding. So those are the key numbers. And the stuff that's overdue, it hasn't been voluntarily deferred by us, is most likely a function of the negotiations are currently ongoing as retailers hold off paying that until the overall negotiations are settled. But as Christophe said, we do expect to get paid.

Can you please, maybe another way, provide the euro million number of the total cash that you would have expected to receive or what's been invoiced that hasn't been received? So be it combination of rental relief, what's been agreed to be deferred, and also what you're expecting to get in where negotiations haven't yet started. Can you give us that number there?

I think the best way to look at this, look at our bridge, multiply it by 138.4 million shares to get you the total numbers, right? Now in terms of what we expect to collect, that's not something we're going to put out there today. You'll appreciate that the moment there is anything that's out there it becomes a self-fulfilling prophecy. We have good expectations about having a significant amount of the accounts receivable that we've indicated to be collected, the vast majority of it.

Okay. And then my second question is just on that. So if I take the provision of EUR 0.55, multiply that by 138 million shares, that's about EUR 80 million. On the change in receivable, it looks about to be about 20%. Why is that the right number? Why isn't it lower? Why isn't it higher? Why is 20% the right number that you're not expecting to get back?

Well, I think the doubtful debtors are a function of a couple of things. All under IFRS, we can only take provisions for doubtful debtors, if there's significant risk of the tenants not being able to pay. So we've seen, particularly in the U.S. and the U.K. as well as in Poland, we've been able to take a number of those provisions that amount to approximately EUR 70-plus million. Because we have voluntarily deferred April and May, these numbers that would otherwise would have been payable have not yet hit the first 90-day mark. And typically, we provide 50% of overdues that have not been paid that have been overdue for more than 90 days. And we fully provision after 180 days. So simply, the math will tell you that as we've deferred voluntarily those rents, they haven't become overdue yet.

Okay. And then maybe my final question, it's just on goodwill. The impairment there seems to be about EUR 760 million, only EUR 70 million is against the fee business. What is that goodwill write-down, most appears to be against the U.S. business?

It's a combination of the U.S. as well as in Continental Europe. The goodwill write-down has to be done in accordance with the model in a 5-year plan. We've obviously done this testing at the end of December of last year. And there's obviously a requirement that we retest, if there is a doubt as to whether or not the test done at 2019 would need to be revised based on the change in business conditions. That we have done. And that has resulted in the overall impairment of about EUR 780 million of goodwill. That is -- it's split between goodwill incurred in connection with the Westfield transaction as well as goodwill that existed previously related to the Rodamco merger in 2007 as well acquisition of the mfi in Germany.

Okay. So if we take the U.S. example, EUR 420 million, is that against, I'm not sure, future developments, for example, that you might have paid up for when acquiring Westfield that isn't likely to come through? What -- how do we think about that write-down and what it relates to?

Well, there's a fairly extensive provision in the MD&A. I'd encourage you to look at that. Where we describe what is -- what's happening and how the goodwill was determined and what was impaired. I'm sorry, I'm happy to have this discussion off-line to get into this detail. I'm not sure it's entirely interesting for everybody, for everyone on the call, but I'm happy to have a discussion with you later on.

Yes. No, that might be good. I'm just looking to get clarity on that, given the price paid for WFD. I might also pick up the provisioning question later as well as the cash flow implications.

The next question comes from Jaap Kuin.

I've got a couple of questions. Let me start with the July or Q3 rent collection. It's obviously a bit up versus Q2, but what struck me was that actually the U.S. rate of payment is a bit higher compared to Europe. So I was interested in your explanation behind that, what you think drives that difference considering that the U.S. is still in a bit more trouble compared to Europe. That will be my first question. I will do them one-by-one.

Do you want to take that, Jaap?

Yes, sure. I mean we have been aggressively going after the rents that were due in July. And that includes the -- going after cash deposits, the credit as well. There is still a significant -- as Christophe mentioned, there's still a significant amount of receivables that we need to settle with a number of the U.S. tenants. Again, there are 2 good progress being made. It's very forthright. It's very simple. What I believe is that the voluntary deferral in April when we reached out to tenants to say, "Hey, listen, we understand your liquidity position. And you can defer the rent for April until Q2," was well received. And clearly, a reflection of, hey, you guys understand our business. That does not mean that it becomes easier to collect it all for May and for June, but that's work in progress that Jean-Marie is working on very hard.

Okay. And then maybe staying in the U.S., I saw the net initial yields of the U.S. portfolio is still actually, I think, 10 bps down. It's 4%. I guess what's the reason for this not to move up a little bit at least? What's kind of the trigger for a larger readjustment? Would that just be transactional evidence?

The net initial yield is an output, yes. So what's happening here is that the appraisers take the DCF approach. They make assumptions with respect to the estimated rental values as well as the reletting of the properties over the period of the valuation model. They discount that back to today's value. And then they divide it by the rent in place for the next 12 months. So if you -- technically, if you see that vacancy has ticked up in the U.S., as it did, you'll have less rent over the next 12 months than you might have had before. But if you divide that rent in place for the next 12 months by the result in DCF value of the business, the net initial yield, because of the higher vacancy, is mathematically lower. So it's not a driver. It's the exit cap rates that really have an impact. And I think they've moved those out a little.

Yes. Okay. But there was no reason to change the exit cap rate, I guess...

Well, that changed a little bit. And it varies between the regionals and the flagship as well.

Okay. All right. Then I guess my final question would be on -- actually 2 more. One on the balance sheet. Obviously, you detail again the headroom you have to covenants. I appreciate that. And obviously, we agree to disagree on the LTV definition. And then there's something about the credit rating, of course, because I guess at some point that becomes important more quickly than the covenants. So could you maybe elaborate a bit on where kind of the discussions with the rating agencies. I think there was some mild threats against further downgrades towards the end of the year to maybe BBB. So could you highlight your thinking on the credit rating and to what lengths you would go to kind of protect that credit rating? And if that maybe could then also potentially include additional equity, if you feel that your credit rating is, in the end, very important for your cost of debt and outlook?

Well, let me, first of all, say, we've been very proactive. And we've had numerous discussions with the agencies over the last couple of months to keep them updated on the developments, the operational developments and what's happening. We have also -- Moody's issued, I think, an update in June without any further ratings actions. We will be updating them, of course, following the discussion as we're having here the formal release of the numbers this week to provide them a further update. In terms of deleveraging, I understand the question. I think the one element that we clearly have in our favor is the track record we've built up with respect to the agencies and everybody else I believe. That our ability to dispose of assets is not a question, and that's the key element that we're focusing on with respect to deleveraging. It's -- that focus is through asset disposals, as we've done for many, many years. And then obviously, CapEx is another lever in the toolbox.

Okay. So -- okay. And in the end, so let's say, a notch downgrade, that probably doesn't hurt you too much. But would you say that the BBB rating is -- that will be kind of, let's say, in the foreseeable future kind of an expected rating? Do you agree with that? And do you feel that's the minimum you need?

Liquidity is clearly not an issue, and with the amount of liquidity we have and the -- and what we believe the operational developments to be. We'll continue to focus primarily on the asset disposals, Jaap. I'm not going to comment on what will or will not be the case. The rating agencies are fully entitled to their view. I would take issue with the -- your assumption about a BBB. So again, we'll disagree on that one. And by the way, one more footnote. You cannot disagree with us on the way we calculate the loan-to-value, for purposes of our covenants. That's just the way it is. If for the equity holders, they take a different view, that's entirely correct. But the 2 are not -- you cannot link the 2 in terms of determining whether or not there will be access to liquidity.

Agree with that. Then maybe finally, just a small question on admin costs. You guide for the cost savings, but if you check the P&L, it seems they're up in the first half. So could you maybe highlight where that comes from?

Yes. I mean the most of the impact of the admin expense savings we expect to see in H2. And then obviously, we've also seen the impact of expensing leasing fees, whereas previously, those leasing fees were capitalized. This year, we're running them through the P&L as expensed. So that's EUR 0.22 of incremental impact on the AREPS and the reletting expenses are included in the admin expense.

The next question comes from Sander Bunck from Barclays.

I have a couple of questions as well. And I'll do them one-by-one. The first one is more of a kind of an admin question, just trying to understand, if I understand correctly. Going through Page 19 of the presentation and you call that invoiced rents, can you just confirm what invoiced refers to? Is that the amount of rent that you would usually invoice during a normal Q2 -- Q1 and Q2? Or is it actually that there has been already been some reductions in terms of like from, say, for example, quarterly to monthly already some other reliefs granted? So it's basically just a number invoiced as a percentage of what you would expect to receive under COVID circumstances? That's the first question.

During Q1, we typically, when we'd go for most of the countries in which we invoice, we invoice ahead of time, quarterly in advance. By the time that the COVID-19 basically forced the shutdown of most of the shopping centers, most of the invoices for Q2 had already gone out. So that's what we had expected in what we invoiced, and full expectation that it would get paid in normal circumstances. So that's what the percentage refers to.

Okay. So it's invoiced, and that's a proper reflection of what you would normally invoice on the normal circumstances?

Yes.

Okay. Great. Second question I have is also on values. Can you just confirm when you -- in your discussions with valuers, how much of the current value decline is due to COVID and how much is due to ongoing underlying challenges in the market? And kind of have they said anything in conjunction with that, something about the second half of this year, what they will be looking at?

Out of the EUR 2.7 billion, EUR 2.8 billion of like-for-like revaluation, approximately EUR 2.3 billion was a direct result of COVID. What basically they have done, they have moved exit cap rates a little as well as the discount rates up, both of them up a little. They have taken assumptions with respect to lower indexation and lower market growth. And then there has been an impact on them taking some discount to the expected cash flows. So very significant, about 83% of the total negative revaluation in the shopping centers is due to COVID. With respect to further values, listen, I can't tell you what it will be. It's not unreasonable to assume that there will be some further decline in values for the year, as it becomes clearer as to what the longer-term impact of COVID are going to be. I think an important component here will also be the H2 cash collection and the willingness of tenants to continue to stay. Bankruptcy will, obviously, and vacancy will obviously come into play as well. So all of those elements make this a little bit of a moving target. But I wouldn't be surprised to see some further exit cap rates or discount rate increases based on what's likely to happen and what they think is happening or what kind of transaction evidence emerges in H2.