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

Good morning, and thank you for making yourselves available. While we believe that we've been able to take the required steps to deal with this phase of COVID-19, it is not yet over and the pandemic has accelerated long-standing trends. We now need to make sure that we take the steps required to best position the firm for the future. What we're announcing today is a comprehensive large scale, EUR 9-plus billion plan, the RESET plan. This plan is designed to strengthen our capital structure in the long term, secure uninterrupted access to the debt markets and best position the group to adapt to a fast-changing environment. We will also today provide an update on our performance since H1 2020 in terms of footfall, tenant sales and rent collection. As outlined in our H1 presentation, since the crisis hit the retail sector, we've moved fast to mitigate its impact. We have focused on tenant negotiations in a pragmatic and positive dialogue for all while making solid progress with rent collection, which is improving month after month. Footfall and tenant sales trends are encouraging, with French August sales, for instance, almost back to last year's level. However, we live in uncertain times and in a fast-changing environment. This is why it's essential to move fast and to remain ahead, and this is what our RESET plan will do. Before describing the key pillars of this plan, I'd like to give you a bit of background. We have consistently delivered on strategic and capital allocation priorities through our Flagship destination strategy, disposals, EUR 4.8 billion since June '18 and our relentless focus on operational performance. In addition, throughout this unprecedented crisis, the entire URW team has worked incredibly hard to mitigate its impact on our group. But we believe we now need to take more action. This is the rationale behind the RESET plan we're announcing today, which represents more than EUR 9 billion of deleveraging and cash savings initiatives. A fully underwritten EUR 3.5 billion capital raise to be used to immediately reduce leverage; limiting cash dividends through scripts and/or a lower payout ratio, resulting in EUR 1 billion cash savings over the next 2 years; a further EUR 800 million reduction in development and nonessential operating CapEx; and EUR 4 billion of disposals expected to be completed by year-end 2021 of which EUR 1 billion is making good progress. This plan will enable the group to preserve its strong investment-grade credit rating, with a rating of A -/Baa1 and maintain a sustainable capital structure. More broadly, all these actions together will strengthen our balance sheet to execute our long-term strategy. The Supervisory Board of URW has yesterday authorized a EUR 3.5 billion capital increase, which, in conjunction with the other strategic initiatives, is designed to bolster the financial profile of the group and best position URW for the future, while strengthening our balance sheet, maintaining a strong investment-grade credit rating, and ensuring unimpeded access to credit markets. The proceeds of the rights issue would be used to immediately reduce leverage. Upon approval of the capital increase by the EGM of URW SE, final terms and conditions, including the subscription price are expected to be determined and announced in Q4 2020 and the transaction is expected to close by year-end. As part of this presentation today, we would like to discuss 2 main topics. First, I'll now provide an update on how the COVID-19 pandemic has impacted our business on the mitigating measures we've put in place and some encouraging trends we're seeing. Then together with Jaap Tonckens, I'll describe the 5 strategic priorities, which form our EUR 9 billion RESET plan, including the expected impact of the EUR 3.5 billion proposed capital raise. As mentioned during our H1 results, we have taken a proactive approach to mitigate the impact of the pandemic. During the lockdown, we had to close shopping centers in most markets, and we immediately shifted our focus to preserving liquidity and supporting our communities and our tenants. We deferred April rents. And in most regions, May rents in order to help the retailers. We reduced our pipeline by EUR 1.6 billion. We canceled the EUR 748 million final dividend with respect to 2019. We raised EUR 1.4 billion in senior bonds and sold a majority interest in 5 shopping centers in France, generating EUR 1.5 billion in net proceeds. Then as confined measures were gradually lifted in Europe and the U.S. we safely reopened our shopping centers, engaged in negotiation with the retailers and raised an additional EUR 750 million of bonds, highlighting the support we continue to enjoy in that markets. Challenges certainly remain, but we see clear signals that the recovery is underway. 96% of our shopping centers have reopened. Footfall recovery in Continental Europe is encouraging, and tenant sales are improving. Tenant negotiations are well on track with 61% of negotiations now closed, and we're making solid progress with rent collection recovery month after month. We have reopened all our shopping centers globally with the exception of the indoor operations of 5 centers in Los Angeles County, which continue to be suspended. As you know, the situation in the U.S. has been uneven with states only gradually lifting restrictions and New York State and California, the last ones to do so. Overall, our weighted average closure period was 74 days, a little more than 2 months, and there are still some specific local restrictions for cinemas, gyms and restaurants. This slide is very interesting to understand what's happening in terms of recovery. It shows the impact of the lockdown on mobility in major cities. We've compared cities with Paris, which is itself back at more than 80% of the pre-pandemic levels. As you can see, the way the economy and people are going back to normal varies greatly from city to city between Continental Europe, the U.K. and the U.S. and is a function of how the crisis has been handled. This doesn't mean that recovery won't happen in other places, just that it hasn't happened yet as much as it has in Paris, for example, and that is very important now to get people back to their offices. We can see the direct impact of this in our August sales data as well, which I'll cover in a few slides. The footfall recovery is very encouraging. With most Continental European regions now trending in the range of 80% to 90% of last year's footfall. While the U.K. is in the 60% to 70% range, it shows good week-on-week development as people are now progressively returning to offices following the lockdown and the summer holidays. We remain prudent, however, as COVID restrictions might be reinstated here and there in case of the new surge in the virus. Footfall in the U.S., although progressing is still lagging behind Europe because of the restrictions in place and lower mobility, as shown in the previous slide. In terms of sales performance, tenant sales in Continental Europe were minus 26% in June; minus 16% in July; and minus 12% in August, showing a more rapid recovery than footfall as most remaining restrictions were lifted and higher conversion rates and average baskets were recorded. U.K. figures are progressing, but from a lower base as centers reopened later, and you've seen London is late compared to other European capital cities. These upwards sloping trends are really encouraging. In France, which represents 27% of our retail portfolio, the preliminary August figures show tenant sales are at 95% of August 2019 levels, a strong improvement from June and July, particularly noteworthy was that 44% of our French stores reported August sales above 2019 levels. And excluding F&B and entertainment, which are still lagging, August sales in France are at 98.5% of 2019. Tenant negotiations, which started after the reopening of our centers are making solid progress. As previously indicated, there's no one size fits all approach. And negotiations are on a case-by-case basis based on 2 very simple principles, fairness and sharing the burden. Importantly, there are not about permanently changing lease structures or turning to variable rents only. In return, we are standing for concessions, which range from extending the firm period of the leases, to increasing the sales-based rent percentage, waiving co-tenancy clauses in the U.S. or signing leases for new stores. As of September 14, negotiations are more than 61% through the process, up from 25% as at July 24. In terms of leasing, we signed 118 leases on standing assets in July and August in Europe with an MGR uplift of plus 4.1%, which is driven by good uplift in Spain, Central Europe and Austria. This is, of course, only a snapshot, not likely to be representative for the year as a whole, but it's all the same and encouraging sign. Similarly, the rent collection continues to progress. Q2 rent connection for the group stands at 46%. Only 7% of rent relief has been registered at this date with a further 36% still under negotiation. The July collection rate stands at 72%, up from 50% as of July 24 and driven by Continental Europe at 81%, and August stands at 70%, with Europe also at 81%. Collection is partly driven by tenant negotiations as some tenants await the outcome of negotiations to release rent payments. However, potential rent relief is always linked to the payment in full of the outstanding amounts agreed upon. In certain cases where no agreement has been reached, the group has drawn on security deposits or initiated legal actions to enforce lease agreements. Now let's move to the strategic initiatives, which form part of our EUR 9-plus billion RESET plan. This RESET plan consists of 5 strategic initiatives, which total deleveraging and savings in excess of EUR 9 billion. Restore our financial strength through the proposed capital raise and cash dividend savings, execute on asset disposals, representing EUR 4 billion by year-end '21, streamline operations and footprint, embrace a changing environment and thrive by leveraging our platform to grow revenues. Jaap will now give details on the first 3 steps of our plan.

Thanks, Christophe. I will start with the first pillar restore, the restoration of financial strength. We've said this before, and we continue to be very hard at work to actually do so. The clear priority that we have is to reduce the leverage of the group as indicated by Christophe, we firmly believe that the RESET plan will allow us to do so by strengthening the balance sheet and put the foundation here to enable us to execute on the long-term strategy. So the key pillars, the fully underwritten EUR 3.5 billion capital raise to be used immediately to reduce leverage; limiting cash dividends through the scrip and/or lower payout ratios, resulting in EUR 1 billion of cash savings over the next 2 years; a further EUR 800 million reduction in development and nonessential operating CapEx; and EUR 4 billion of disposals expected to be completed by year-end 2021. We have engaged with the rating agencies to review the RESET plan to ensure it would meet our objectives of maintaining a robust investment-grade rating. And as you might have seen, the agencies, yes, they confirmed that this will plan enable us to do so. The ratings stable at -- sorry, S&P at an A- continuing with net negative outlook and Baa1 at Moody's, which is 1 notch down, but with a stable outlook. As a reminder, as of June 30, we had EUR 12.7 billion of cash on hand and undrawn credit lines, which was, obviously, one of the reasons that we're doing this is not for liquidity. It's really designed to ensure continued access to the debt markets and to keep our cost of debt low with an LTV between 30% and 40%. And net debt-to-EBITDA below 9x. The latter objective we aim to achieve by the end of 2021. We've run sensitivities on the potential valuation movements of that portfolio as well as our EBITDA. And these simulations show that even if valuations were to decline by much more than we anticipate, for example, a 25% drop in GMV, we would still have a lot of headroom before reaching our IFRS LTV covenant level of 60%, which still remain at EUR 3.5 billion of capital raise and EUR 4 billion of disposals. And we've even run the scenario where we would issue the EUR 3.5 billion to help people understand the sensitivity, considering the EUR 1 billion of disposal that are well underway. In that particular case, a 25% decline would bring the LTV to circa 46% above where we want it to be. But in these kind of scenarios, we believe we can live with that. The key element for us is to lay the foundation here. To be able to withstand valuation declines and continue to execute on the strategy. As to the EBITDA sensitivity, we could see this decline by 15% and still be below our 9x target. If cash flow were to decline by 20%, it would still be below where we were at December 2019. We have a well-spread debt maturity profile with attractive financing terms. Our liquidity position, pro forma for the capital raise, would have been EUR 16.2 billion as of June 30 compared to the EUR 15 billion maturities from the second half of '20 through to '25. So again, as I said, the capital raise here is not for liquidity, but to reduce debt and strengthen the capital structure for the long term. We've said this before, we have the liquidity to repay maturing debt. But if we were to have to use the undrawn lines to refinance debt and we can, it will still be debt, albeit short-term bank debt. And this is why maintaining our uninterrupted access to the credit markets on attractive terms is so very important. Now as to the execution or the execute part, the disposal plan, they have always been and they continue to be a critical component of our strategy. As indicated during our H1 results, the objective is to execute EUR 4 billion of disposals, which we expect we're going to be able to achieve by the end of 2021. And the program would will run across all asset classes with 50% non-retail assets, and we have identified a larger pool for a total of EUR 6 billion of assets that have been earmarked for sale, giving us flexibility in the choice and timing of the asset sales. We have confidence in our capacity to achieve this target, and we continue to be in discussions and making good progress with potential buyers of approximately EUR 1 billion of assets. We have a strong track record in portfolio optimization. We sold EUR 4.8 billion since June 2018 at an average 4.8% premium, including the 5 French retail assets in the midst of the COVID-19 crisis. And we're putting all of our expertise and knowledge to work in this aggressive disposal plan. It will also include the sale of joint venture stakes in liquid and mature assets to achieve our goal. And as I said, during the half, we will be pragmatic in order to accomplish our objectives. When it comes to streamline, we've already announced in our H1 results, the measures on the left-hand side of the slide. But going forward, we're stepping up our assets to streamline our operations, optimize the footprints to better allow the use and the best use of our resources. We'll do so through a further EUR 800 million CapEx reduction, including EUR 600 million of development CapEx and approximately EUR 200 million of nonessential operating CapEx. We will also not start on large-scale noncommitted projects, and our reduced pipeline will focus on our standing assets while prioritizing capital allocation to ensure that we maintain their high-quality and positioning. And we're going to also be working -- continue to work actively to be able to reduce the regional footprint in the U.S. in the near term. We will also increase our focus on cost savings and through further simplification of our structures and gross admin expense savings on top of the ones we have already accomplished. We continue to perform an in-depth analysis of our development pipeline and have decreased it by a further EUR 600 million since our H1 publication in July. So since the full year ended on December 2019, we've reduced the total by about EUR 2.2 billion. Now after we take into account the EUR 2.2 billion invested to date, the overall pipeline to be funded is now EUR 3.4 billion of which EUR 600 million is expected to be spent over the next 12 months. So that as at H1 2021, we expect EUR 2.9 billion left to be spent, of which today, only 34% is committed. With that, let me hand it back to Christophe.

Thanks, Jaap. I should have said that you, of course, on the East Coast in the United States, it's 3:15 in the morning for you, or 3:20 now. So thanks for being with us. I'll now go through the embrace section of our plan. The retail environment is changing fast. COVID-19 has accelerated trends that were for most already present before the onset of this pandemic. URW, like our peers and retailers, is not unaffected by those structural changes. The internet penetration has further accelerated as people were dependent on online retail during the lockdowns. But this is expected to stabilize post-COVID, as illustrated by the chart, which is showing the internet penetration in the U.K. It's now confirmed that online sales are progressively coming back towards more normal levels, albeit probably higher than pre-COVID as physical stores reopen. August data to be released this Friday will certainly confirm this. The physical presence will, however, remain essential to brands. And the number of stores per brand will need to be reduced for retailers to focus on the best locations. In addition to online, stores are definitely part of the future of retail. They have proven to have an irreplaceable value for brands and retailers. They bring customer experience, brand awareness, differentiation and profitability. Yes, there are store closures, particularly in the U.S., but retailers continue to open stores in Europe and in the U.S. and clearly reiterate the necessity of this physical presence. Brands need physical stores. Lego's recent announcement of their intention to open 120 stores, new stores, of which 80 in China, where online penetration is the highest in the world, perfectly illustrates this point, I think. As per a global data study published yesterday and referenced in Exane's newsletter of yesterday, close to 90% of retailers said stores would be just as important or more important to them in the future. And stores are important for consumers, too. 80% say they have missed the interaction of physical stores during the lockdown. Our portfolio consisting of a majority of flagship destinations is of unique quality. Our assets benefit from the highest footfall levels with 6 out of the top 10 and 19 out of the top 30 assets in Europe. Our assets are mostly urban, 2/3 of these assets are connected to metro and tram lines. Third party experts, not us, acknowledge the quality of our portfolio with an average ranking of A+ and 95% of URW's gross asset value rated A or above, more than any of our peers. This, in turn, leads to stronger performance. We're convinced that in this context of connected retail, the quality of our assets will position the group as a long-term winner and that we have the right strategy of concentration, differentiation and innovation. All of this enables the group to benefit from the accelerated retail polarization with the best centers getting even better as consumer and retail confidence recover post-COVID. Our projects have been gradually rebalanced and adapted to the changing environment. Indeed, in all major cities, people are looking for vibrant places, combining shopping, leisure, hotels, offices with both public bodies promoting mixed-use projects and investors change tracing this trend. This leads to a lower reliance on retail, which today represents around 30% of our total pipeline in terms of square meters. We have a strong track record in delivering non-retail assets, as illustrated, for instance, by Westfield Stratford City, by the new residential tower at Westfield UTC in San Diego, and offices above retail assets at So Quest in France, for instance. URW benefits from strong skills and expertise and has experience attracting third-party capital to achieve its objectives. The last pillar of our RESET plan, thrive, consists in leveraging USW powerful platform to be able to grow revenue streams, including in a challenged environment. Our objective is threefold. Bolster the attractiveness and legitimacy of our flagship destinations to extend their audience; reinforce URW's value proposition and develop new revenues to better and further monetize this audience, and develop a new asset life strategy where possible to generate potential additional revenues. To increase the audience of our flagships, we will continue to renew our retail mix value proposition to offset the decline of some retail categories and bolster new growing and emerging ones, such as sports and athleisure, health and well-being, entertainment, DNVBs, et cetera. URW really has the power to become a kingmaker for fast-growing brands by connecting them to the best audience in the best locations. Our flagships will evolve as well to mixed-use as we extend their offerings to new tenant categories, partnering with the institutional capital to do so. We will also look to better capitalize on the global Westfield brand to increase our reach and the frequency of contact with customers. To better monetize the value of our increased audience, we plan to provide retailers with an increased offering in digital and omnichannel services such as click and collect and home delivery, which should help sustain rental revenues. We also anticipate new rental revenues from emerging tenants, including DNVBs, through the use of new formats such as white boxes or pop-ups. We will also look to generate new non-rental revenue streams with brands for which a better-qualified audience of 1.2 billion visits a year, has a real value. This will be done, for instance, through services provided to brands in all flagships as well as through partnerships with media agencies and logistics specialists. These new revenue streams are expected to reach EUR 150 million by 2025. And finally, as a long-term focus, we consider to expand asset-light revenues through offering URW's asset management expertise to investors through third-party management contracts. And a future option could also be to franchise the Westfield brand and know-how to leading centers in noncompeting countries or catchment areas to generate additional fee revenues. But although we already had interest from operators in some countries, this is not for today. In conclusion, we believe our EUR 9-plus billion RESET plan, fully supported by URW's senior management team and Supervisory Board will best position URW for the future, both financially and strategically. There are 3 points I'd like to leave you with. One, deleveraging is the top priority, and we're taking decisive action to deliver on this; two, with this plan, we will have generated more headroom to maintain our strong investment-grade rating, even if valuations fall; and three, we are convinced URW will be best positioned for the future as the best partners for brands and retailers, thanks to our portfolio of must-have flagship destinations with additional potential revenue streams going forward. Thank you for your attention. And now let me open up the Q&A session. Thank you.

[Operator Instructions] Our first question comes from Bart Gysens from Morgan Stanley.

Great. Look, the RESET plan seems to hinge or a significant part of your RESET plan is your ability to sell assets. You've sold EUR 4.3 billion of assets in June '18 or EUR 4.8 billion, if you include the fact that you've been allowed to shift EUR 500 million of debt of the balance sheet. Now a big chunk of that was offices in an environment when office fundamentals were better than they are today. So my question is, what gives you the confidence that you can sell almost as much over the next 12 months as you have done over the last 2 years, which comprise mainly offices? What are you going to do differently over the next 12 months that you haven't tried over the last 24 months?

Thanks, Bart. Thank you for outlining the fact that we've been successful to dispose EUR 4.8 billion. You count EUR 4.3 billion, but we count the net disposal proceeds, as you know, which are EUR 4.8 billion in the last 2 years. We have sold -- you said the bigger chunk with offices. Actually, it was half retail half offices. And going forward, the EUR 4 billion that we have full confidence in selling will be also half retail and half offices and others. So I think it's the balance in the past will be more or less the same balance in the future. Second, and we've outlined this in the presentation, these EUR 4 billion regard only European assets. They are out of a pool of identified EUR 6 billion of assets. So our hit rate should be EUR 4 billion out of EUR 6 billion, which give us, there again, confidence that we can reach this target. You know, and we've announced that and there are no news today on this, but there are EUR 1 billion which are in advanced negotiations. So we're pretty confident that we'll achieve this first part of the EUR 4 billion plan. And last but not least, we are having several discussions on some other assets. There again, before it's done, it's not done, as I used to say, but we have full confidence in the capacity of our team to achieve this EUR 4 billion. And there again, until it's done, it's not done, but the teams are very hard at work, as you imagine. I think one very important point to mention as well is that the average quality of what we're going to plan to dispose is of higher quality of what we've disposed in the past. I think Unibail-Rodamco-Westfield has more than any other player streamlined with a very aggressive way its portfolio. So the average quality of what we will be selling is of much higher quality. And there again, that gives us confidence. And I'd like to add a final point. You've probably noticed in this part, the execute of disposal, the E of the RESET plan that we are considering selling JV stakes in some flagship assets, which we have not really done in the past, which would be no news for the real estate sector. For example, that our best asset in Spain is owned in a 50-50 JV, that our 2 London assets are in 50-50 JVs. So we would be considering disposing that as well. The objective is to achieve this EUR 4 billion, and we are very confident. Jaap, do you want to try to jump in?

Could I have just 1 more observation. I think it goes in line as to with what you were saying. We have, through the aggressive disposal program, Bart, we have already cleaned out the portfolio. I mean we're saying that we're selling high-quality assets. It's just basically next layer, if you will, in the portfolio. What we are selling, what we have left to sell, that's, I think, the most important thing because we've upgraded portfolio of quality so significantly, what we have left to sell is much higher than what we understand is trying to be sold at this point in time. And as we said, we're going to be pragmatic about achieving the objective. And if that means that it's not going to be at a premium to book, you'll get what I'm saying.

Our next question comes from Jonathan Kownator from Goldman Sachs.

Three questions, if I may. The first one on dividend policy. Can you help us understand -- you're saying you're going to save EUR 1 billion, but is it EUR 1 billion versus your payments in dividends and you also mentioned in the scrip. And some investors has asked questions around whether this was effectively a backdoor to raising more equity than EUR 3.5 billion through the scrip dividend. So if you can give us a bit of perhaps clarity on that, that would be helpful. And the second question is on U.S. regional malls. Can you please clarify a bit what you mean by reduce the mall footprint there? And the last question is a bit more, I would say, fundamental. There's been questions around how you could effectively improve the visibility of the rental streams going forward? And obviously, peers such as Hammerson's have -- are trying some new measures. Can you help us understand how you can provide perhaps a bit more clarity? I know it's difficult in this environment on rental visibility and whether you considered similar type of measures?

So the dividend policy, I'll let Jaap maybe elaborate. But the dividend policy, obviously, will be explained or set in the -- during the -- for the EGM, so more news on this later. I think the way to save EUR 1 billion is through either scrip and/or reduction of the amount of dividend. When I say reduction is compared to previous levels, obviously, which will enable us to save EUR 1 billion. The scrip dividend, you can't force investors to accept the scrip dividend, but there are ways to incentivize investors for scrip dividend. Jaap, you want to add something on this?

Sure. I think that what we need to think through is that the baseline, the reset of the dividends that we did for -- with respect to 2020 should be seeing kind of as your baseline. And what we're expecting -- if you were to assume that the Board were to declare another EUR 750 million, if, right? At that point, we would look to raise either scrip. So that is, indeed, it would be an increase if you will, that is not part of this stage, but it could also be through less cash out the door. The objective is to save EUR 1 billion of cash from going out the door over the next 2 years. Do you want to help me take the regional mall, Christophe?

Do you want me to take the regional mall? Yes. The regional malls, I mean, this is -- it's not in the execute section of the plan, but in the streamlined section of the plan. So we're not counting on disposals of regional malls in the U.S. in the EUR 4 billion of disposals. This is point one. Point two, we had announced in December 2017, during the Westfield -- when we presented the Westfield transaction that we would be planning to reduce the regional footprint in the U.S. We've already actually disposed 2 assets: 1 in July 2018 and 1 more recently in, I think, in July of this year. So we will be looking into more of this. This is also meant to first concentrate more the energy of the U.S. teams on our flagships. And you know, apart from these regional malls, which only account kind of 3% of our GMV. But to concentrate the U.S. team on our flagships, which have got potential. We're opening new stores of new retailers in these flagships. And as the market is difficult in the U.S. for regional malls, as you can imagine, this is an ongoing process. We are having several discussions with potential investors, and we'll be updating the market further. So it's not part of the EUR 4 billion, but it's part of the streamlining in order to further concentrate the teams on the flagships in the U.S.

I think to supplement this, Christophe, we have now studied, obviously, the ability to actually do this. It was complex. And we are going to accomplish the disposal of the regional malls. Some of them will be on an individual basis. Some, it could be either a portfolio sale and/or standoff. Let's be very clear about it. The regional models are going to go.

As for your last question, Jonathan, and I will not comment on Hammerson's strategy. I will just say that our portfolio, our strategy. Our regional footprint, our regional diversification sets us really apart from Hammerson and why not because some people might have a question of into. Honestly, I have a hard time understanding why we can even be compared into Hammerson, which are very different animals. No judgment here, they're just very, very different from who we are. And I don't see any reason why while we're achieving MGR uplifts on relettings and renewals, and we've achieved this into July and August, why on earth would I reset the rents to a lower level when I'm achieving in excess of the previous rents. It's not happening for every lease. It's not happening in every shopping center. It might not happen in every market, but overall, there is absolutely no reason when you own flagships assets such as Les Quatre Temps, such as Maquinista, such as CentrO in Germany, such as Mall Scandinavia, to do a global reset of leases, it makes no sense. And I hope and I trust that the leasing teams will prove to you and to your colleagues that we, at Unibail-Rodamco-Westfield, can achieve MGR uplift and therefore, have no reason to lower the rents. It would make no sense. Absolutely no sense. Now it's not easy and it's negotiation by negotiations. And yes, there might be sacrifices here and there. We might accept a lower rent from this tenant to keep it in place until we find a replacement. But overall, I think the MGR speaks for themselves. Very, very different quality of portfolio, very different probably quality of teams, I may say.

Very clear. Just going back on the dividend because that wasn't entirely clear. So let's say, you were paying EUR 1.5 billion in dividend before the 2019 where you paid EUR 750 million. So help us understand again, the EUR 1 billion saving is there as to the EUR 1.5 billion that you were paying previously. Or should we think about the EUR 750 million times 2 minus EUR 1 billion. Again, I'm sorry, I'm just a bit unclear. But I'm sure it's simply an explanation.

That's correct. That is correct, Jonathan. As I said, the EUR 750 million, the reset on that with respect to 2019, and we're calculating the EUR 1 billion off of the EUR 750 million per year.

So to make it simple, Jaap, if you allow me to...

Okay, so EUR 1.5 billion minus EUR 1 billion.

No, it's 2x EUR 750 million minus 2 x EUR 500 million. As a rule of thumb, I mean, there again, the dividend policy is not set. You know that we've got minimum distribution requirements. We also had a pretty high payout ratio, much higher than some of our peers. So if you take the 2019 basis, which was down to EUR 750 million, and you take the option of a scrip dividend with a 67%, 2/3 hit rate, that's EUR 500 million. That's for the 2020 dividend paid in '21 and the 2021 dividend paid in '22. There again, it's kind of rough ballpark calculation because the dividend policy is not set yet, but that calculation, that easy calculation, EUR 750 million and 2/3 of scrip means EUR 500 million of cash saved times 2 years, that's EUR 1 billion. I hope it's clearer.

Okay. That's clear. So in effect, we can think about it potentially a EUR 3.5 billion plus EUR 1 billion.

Yes.

Okay, very clear.

And I think that's the other thing that you need to think about in the RESET plan Jonathan, if you counted EUR 3.5 billion plus the EUR 1 billion, which is the savings, plus the reduction of CapEx by EUR 800 million. And then with the execution of the disposals with which the EUR 1 billion is well advanced, if you just look at those steps, we already got EUR 6.3 billion, which we're very, very comfortable almost within our control, almost fully, I should say.

Let me add, Jonathan, but it's obvious that the EUR 1 billion potential scrip dividend that we would do would not be exactly the same price as the EUR 3.5 billion equity raises, obviously. That's a given.

Sure. And just from technicality perspective, you mentioned obviously, scrip and obviously, scrip a choice from the investors, which you can insist as we were discussing. But do you have any way to force this? Or like can you say the dividend is only going to be in shares? Or do you have to go through the scrip mechanism?

You can't force it, you can incentivize it. Like we did -- I don't know if you remember, I think it was in 2013, I think where there was a tax on dividends, right? And we offered the option to shareholders to have the non-SEC dividend paid in shares, and there was a slight discount in order for it to be incentive for shareholders. So this is usually the mechanism used by companies when they want a scrip dividend to be offered to their investors. In the end, it's the investor's choice as well, but this is what we will be targeting.

The other thing is, obviously, to ensure that we achieve the savings. There's other levers, right, in terms of the after demands, and we'll make that determination closer to the time.

Our next question comes from Rob Filley from Green Street Advisors.

A couple of questions. First of all, why the change of heart on the need to raise capital over the past 2 months? And how did you derive at that EUR 3.5 billion figure? And I'll ask my second question after that.

Thanks for your question. I think we have 2 things. First, this is part of EUR 9 billion plus plan. So the equity raise is 1 element of this plan. I think we've already been very clear that deleveraging was our priority. I think we've had several discussions over the last month with investors who were telling us that they would consider deleveraging as a necessity for Unibail-Rodamco-Westfield, which is what we're doing. I think this is also an act of prudent management. I mean, although we're showing signs of recovery, especially in Continental Europe, situation in the U.S. is still pretty difficult. As you know, I think the charts on mobility speak from themselves. I don't know if you had seen these. It's on an app called Citymapper, which are advertised here because it's actually quite handy to see in various world cities who's moving and who's not moving, actually, meaning who's going shopping, going to the office and who's not. So the U.S. is still lagging behind, and we have to be very prudent in view of what could be a new surge in the virus and so on. There are some restrictions measures being put in place here and there. So although the recovery is underway, we have to stay prudent. One thing which is absolutely essential when you have debt of EUR 24 billion, which means roughly EUR 3 billion to refinance every year, is that we want to ensure permanent access to the debt markets. And we have engaged with -- and hence, retain a very strong investment-grade rating, and we have engaged in discussions with the rating agencies. Fabrice Mouchel is in the room here in Paris. And if you have further questions on this, he'll be happy to answer. And this is to ensure this strong investment-grade credit rating, a stable outlook with Moody's downgraded but stable outlook, which is very important. And S&P maintaining its A- with negative outlook, but the negative outlook is more linked to the sector than to our own metrics because there, again, it's probably much more solid than it was before the announcement. So all in all, this holistic plan with the EUR 3.5 billion is designed to strengthen our balance sheet, to maintain unimpeded access to the debt markets and to gain the flexibility to execute on our long-term strategy. This is how it was designed. And of course, we've had ample discussions with various stakeholders during the holidays. And this is why during those holidays, it was not really holidays, of course, but during August, I would say, during the summer, and this is why we come out today with this plan, which I think meets these 3 objectives.

I think, Christophe, there's 1 more element. Of course, the preferred way for us to delever is the executed strategy in terms of disposals, but you'd appreciate, it takes time. And we wanted to be proactive on this particular step.

Okay. And now on to the disposal spend, I appreciate what you said earlier about your confidence in getting them away. But most market participants we speak to generally want to sell their shopping centers, not buying more. So how many people are you speaking with who have the capacity to write such big checks? Is it 2 or 3 or 7 or 8? And then on that, I see your debt-to-EBITDA target of 9x, what cap rates are you penciling in and what quality of assets to sell to get to that?

One point I want to make is that, yes, there are probably more sellers than buyers of shopping centers today. But what we are selling, I said it before today, but it's very important. What we're selling is not of the same quality of what other people might be saying. There again, I'm not judging. It's just a fact. I mentioned the fact that we'd be considering selling JV stakes in flagship assets. I don't know of too many people doing that in key markets, which are showing very strong sign of recovery. We are having discussions with people interested. These assets don't come on the market very often. Usually, they never come on the market. And this is what gives us confidence. I think we're able to execute as well in a market which was not easy. Certainly, the deal was signed pre-COVID but was closed post-COVID on the JV that we set up for the 5 French retail assets with the 2 institutional French investors. This is also a sign of the capacity of our teams which there again are hard at work, I can tell you. Capacity of our teams to find clever solutions and to find the right investors in each market. It's not an all-out a call for interest. It's being able to support the right investors in each market. They are not the same to this kind of asset or that kind of asset. And there again, half of this is non-retail. So should not be concerned by major sentiment on retail, but we're also confident on our capacity to sell the EUR 2 billion of retail assets in this program. Jaap, you're in charge of this team. So what are you seeing?

Well, we -- obviously, we are in dialogue. We know there's dedicated capital to the sector. I think the other important thing is in terms of we're not trying to dump wholesale assets, right? The concept that Christophe mentioned in terms of JV stakes is exactly in line with what we've observed, right, over the last couple of years, whereby investors still want to commit capital to retail, provide that the partner continues to have skin in the game. And it is also excellent at its game. And people may have different perspectives with respect to the business. But I think that the URW teams are recognized within the industry as being outstanding in what they do. And I think retail investors -- or should I say, investors in retail are cognizant of it. We've had that conversation with our partners in the 5 French assets. They were delighted by the -- by what they have been seeing in terms of trends, portfolio sales data. And so the teams here have enormous credibility with investors in direct stakes in retail. And I think that's a very important component about the strategy.

Okay. And sorry, on the target net-debt-EBITDA of 9x, what cap rate are you pointing in to get that in your disposal?

Well, it's a comment, especially -- it's a variable, right, because you can see both where does your EBITDA go? Right? That's another part, which is obviously a moving part, which we're trying to nail down. We're working on nailing down as to put at that point. And we have made certain assumptions on the ability to actually disclose these assets at various price levels.

Okay. I suppose the office is...

This goes back to -- while we put pressure on ourselves by saying by the end of 2021, it's a reflection of confidence. But also I have very little interest in flagging upfront as some have done in the industry as to what the price will be. There's going to be transactions, which are going to be -- that are forced, right? I think that's a -- that's going to be an interesting element to observe. And I think that's where the quality differential will become very apparent.

And as per offices, since half of disposals are non-retail assets. I mean, we usually do not -- and we never comment market rumors. But there are a certain number of transactions which are talked upon in the market from us and from other people, which show that the office market in Paris is holding very well. So that will give you an indication of what we could be targeting for this part of the disposals.

Our next question comes from Rob Jones from Exane BNP Paribas.

My questions have largely been asked in 1 form or another. But maybe if we can touch on disposals again. So I completely understand that the rationale for coming out now to raise equity and announce a kind of RESET program, an element to that clearly is on the back of discussions with rating agencies and desire and need to maintain existing credit rating, have access to debt markets, et cetera, et cetera, completely understand that. Obviously, in an ideal world, you've got execution risk on the disposals, albeit you don't have execution risk on the capital raise because it's fully underwritten. So when clearly looking at the disposals element, if for whatever reason you are not able to complete EUR 4 billion disposals by the end of next year, does that then put pressure again or potential pressure again on your rating? And if so, which other levers can you pull to get to that EUR 9 billion total quantum? Is it the case of having lower levels of dividend distribution for more than 2 years? Is it more cuts in CapEx? Or is there a risk of a second equity raise? Or is it a case of, say, selling the EUR 4 billion of assets over a 3-year time period, rather than 18-month time period? And are the rating agencies comfortable with that?

Rob, I think this is a holistic plan of more than EUR 9 billion. We are confident in our capacity to execute this. We're confident in the fact that this is the plan. And you can't predict what the market will be in 2years, I can't either, but I can express my confidence in our teams to execute this strategy. This is what I can say today. It's been carefully calibrated and discussed at length, as you can imagine, with our Supervisory Board. And we jointly consider that this is the right quantum. And what we wanted to do, because we've been asked the questions, why now and not in 1.5 year time, if you have not been able to execute your disposals, well, fair enough, I don't know where the market will be, but it's prudent management once again to anticipate and to make sure that we retain this access to the debt markets in excellent conditions, which I think this plan is set for. And I think the rating agencies confirming A- for one and Baa1 for the other, with stable outlook is that -- prove that this is considered as the right point. Now we have to execute on the disposals but as we have all said, Jaap and myself, we have confidence in our capacity to do that. So let's not speculate in the future. Let's execute on this holistic plan with discipline and expertise, I would say.

That's very clear. Just 1 final quick question. You'll be pleased to know enough about equity rates or disposals, but thinking about rent collection update. And obviously, that's progressing pretty well, actually against your plan on getting everything done in the next few months. But on the leasing side, obviously, for new leases, we've seen a positive MGR uplift, I think for -- as you said during your presentation. I presume the discussions with tenants who are overdue rent hasn't necessarily been as positive. But can you give a -- either a figure for the average concession you're having to give? Does it take the form of a number of months rent-free period with an extension for life of the lease? I appreciate these are very sensitive figures because, obviously, you haven't finished your discussions with tenants, but any sort of kind of color you can give there would be really appreciated.

Sure. As I said, Rob, the discussions we have -- or rather, the leases that we signed in July and August are showing encouraging signs of recovery. But it's only a snapshot. Usually, in a quarter, I mean, it was like this in my first job at L'Oréal when we always finished the month at the last days of the month. It's a bit the same in leasing, where the last 2 weeks of each quarter are the most intense ones. And this is why it's not representative. It's an indication that things are recovering, but it's not an indication of what it will be at the end of the quarter or at the end of the year. We'll be updating on these figures, of course, when we publish our Q3 figures, which publication will be a bit more extensive than usual for obvious reasons before the EGM and the vote on this equity raise. As for the negotiations, first, thank you for outlining the fact that rent recovery is progressing, it is progressing. I think this was an area of concern for the market at our H1 presentation. I think 81% in Continental Europe is a pretty good achievement. It's a bit behind in the U.K. and the U.S. You probably read, and I think you reported in your news later this morning, which I've had time to read before this presentation, that the U.K. government, unfortunately, has prolonged the moratorium on the capacity for landlords to enforce the rent payment. I think personally, this is a mistake. Protecting the small tenants is probably a good idea, protecting the large tenants, which are not playing a fair game is totally wrong. And there are retailers, which I will not give the names of today. Some people have done that in Germany, for example, naming a very famous sports brand at a time which was not paying their rents and saying how a shame this was, and they finally paid their rents. I think in the U.K., some people might need to start the name and shame game because it's not acceptable. That strong, healthy retailers, some of which were allowed to stay open during the lockdown are not paying not only their Q2 rents but also their Q3 rents. This is not acceptable, but unfortunately, the U.K. government is not giving us the possibility to enforce the payment of these rents. This is why -- sorry, one of the reasons why the U.K. is slightly lagging behind. But this is also, I think, an achievement by the teams that the rent collection in the U.K. is actually progressing as well. Negotiations, we will not be talking of them. I mean, I mentioned the 2 principles, which is being fair. i.e., case by case, not considering the same thing for people who could stay open and people who had to close, maybe for the average closure number of days closed or maybe more, that restaurants or entertainment concepts have been forced to close. Some shopping centers have remain closed longer. So depending on the footprint of each retailer, we will be having one-on-one case-by-case discussions with retailers. What I'm saying as well is that it's 61% complete, some people might say that we've done the easy part and now we're facing a cliff with the difficult part. It's not the case. We have settled a number of very tough discussions with very big retailers, and it's being done in a fair way on both sides and in an equitable way on both sides. So I'm pretty satisfied with the outcome of this. There are some tough discussions ahead, of course, but the teams will be dealing with it. I think it's a very long process. Would I wish that it would be 100% complete? Of course. But what I noted is that it was 25% complete when we presented our results. It's now at 61% and I think it's progressing on a day-by-day basis. I'm personally involved in a certain number of negotiations. I won't tell you which, but in a certain number of negotiations with large retailers for some and with small retailers for others. I mean, this is the price to pay when you've been on this market for a long time, either as a landlord or for 11 years before as a retailer. Michel Dessolain, our Chief Operating Officer, Europe, is on this every day with his teams, involved himself and Jean-Marie Tritant in the U.S., as well. So this is also the way we do business at Unibail-Rodamco-Westfield. We take our jackets off, we roll-up our sleeves. We still keep a tie from time to time, yes, but this is what we do on a daily basis. It's so important and is progressing well, not easy, but progressing well.

Christophe, that's very clear. And glad to hear you're an avid reader of the Exane Daily, and we look forward to continue keeping our sleeves rolled up and providing you with some investor feedback in the coming days. Cheers.

Hi. I have to say I was worried, Rob, because you do the trick of putting the name of the person who reads when you're asking questions. What do you think about this Christophe and so on? I thought it was really personal. But then Sam told me, he had, what do you think about this Sam? And Jaap, what do you think about this Jaap? So I won't answer every day, but I'm reading that every day, and you noticed that I also referenced the global data study that you published yesterday, which is, I think, very interesting and interesting as well to see to read for everyone I'm ready to send it to whoever wants it. But to read that stores are important, doesn't mean that Internet is not progressing. But I think the future of the world is omnichannel retail, omnichannel consumers. We actually opened a couple of Amazon stores in the U.S. in the last 2 or 3 weeks. And if Amazon, as you've already heard me say, but if Amazon is opening stores, it means that stores have some value even for the largest Internet retailer in the world. This gives me confidence in our portfolio.