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

Ladies and gentlemen, dear shareholders, first of all, allow me on behalf of the entire group to express our gratitude and solidarity to all those who tirelessly fight on the front line against the pandemic as well as those who have had to suffer from COVID-19. As Chairman of the Supervisory Board, I would like to welcome you to the General Assembly of Unibail-Rodamco-Westfield SE. This year, our Annual General Meeting is being held in a very unusual format because our group shares a single priority: to safeguard the health and safety of all shareholders, employees, customers and service providers. We were therefore forced to hold the shareholders' meeting behind closed doors without the physical presence of our shareholders and any other members who are usually entitled to attend due to health circumstances. These provisions comply with Article 4 of the order number 2020-321 of 25th of March 2020, adapting the rules of meeting and deliberation of meetings of legal entities due to rather the COVID-19 epidemic. In application of a stock exchange regulations in force, URW was yesterday compelled to published results of the general meeting yesterday evening. In many respects, this general meeting is, therefore, very atypical. We are perfectly aware of this. Simultaneous translation will be provided for English-speaking shareholders. At my side, are present Mr. Christophe Cuvillier, Chairman of the Executive Board; and Mr. David Zeitoun, Group General Counsel. In accordance with the law, I now open the meeting of a shareholders meeting called by the Executive Board, and I propose that you proceed with a constitution of the meeting's officers. In these exceptional circumstances, and in accordance with the aforementioned provisions of government, the duties of TELUS will be performed by Philippe Collombel, and Jean-Marie Tritant. Mr. David Zeitoun will act as Secretary of this meeting. I give him the floor to recover conditions for convening our meeting and for making for documents available.

Convening of shareholders and provision of documents. The invitation to this meeting were issued accordance with the legal and regulatory provisions. A notice of meeting prior to this meeting was published on 30th of September 2020, in Bulletin d'Annonces Légales Obligatoires. A press release was also distributed to the Autorité des marchés financier. A notice of meeting was published in the legal gazette, [Foreign Language] and Le Bulletin d'Annonces Légales Obligatoires on the 23rd of October 2020. I remind you that on the 15th of October 2020, Flagship Retail investment and Rock Investment, shareholders acting in consent, requested be included on the agenda of a shareholders' meeting of 10th of November 2020 of 3 [indiscernible] revolutions for the appointment of 3 new members of the company's Supervisory Board. These resolutions have been added to the agenda of this meeting. Following the advice of the Supervisory Board, the Executive Board decided on the 16th of October 2020 to not approve resolutions, A, B and C. I hereby inform you that all the information and documents required by the law have been made available to shareholders, including on the company's website in accordance with legal and regulatory provisions. I would like to inform you that the proceedings of this meeting are being broadcast live on video, which will remain available on the company's website. In addition, Mr. Rafael Pereira has been appointed to certify the legality of voting operations and of today's shareholders meeting. Quorum of the meeting. Concerning the quorum, the calculation for the shareholders' meeting is based on 138,468,385 shares. As this is a shareholders meeting convened on first notice, the quorum required for resolutions to put only ordinary shareholders meeting is 1/5 of shares carrying voting right, i.e., 27,693,677 shares. The quorum required for resolution submitted to the extraordinary shareholders' meeting is 1/4 of the shares with voting rights, 34,617,097 shares. I would like to specify that shareholders were able to cast their votes remotely via the Internet on a secure voting platform, Vote Access, and by post using the postal voting forms. As the meeting is being held in camera, it will not be possible to propose amendments or new resolutions or to ask new oral questions. According to the attendance sheet drawn out by BNP Paribas Security Services, our registrar, the shareholders represented or having voted by mail will -- for the ordinary part, a total of 82,168,528 shares, representing 59.44% of the voting rights. A legal quorum has therefore been reached. For the extraordinary part, a total of 82,176,543 shares or 59.34% of the voting rights. So a legal quorum has therefore been reached. This is in assembly behind closed door. There is no voting in session. The quorum is definitive. The officers will certify the proposal sheet by affixing their signature thereon.

Thank you, Mr. Zeitoun, for all his clarifications. This assembly is, thus, regularly constituted entered and can validly deliberate. Concerning the agenda, I invite you to consult the notice of our meeting brochure and its addendum, which have been made available to you on our website. I would now like to give a floor to Mr. Christophe Cuvillier, Chairman of the Executive Board.

Good morning, and welcome to this general meeting. The health situation has prevented us from holding this GM physically. I know that many of you are attending virtually, and I would like to thank you for that. I hope that in the current context of pandemic, you and your families are in good health. We've been invited to communicate without any further waiting, the results of the postal vote, which ended yesterday afternoon. This information is being considered sensitive. We are sincerely sorry, but we had no alternative but to do this last night before the Australian market opened in order to avoid any potential leaks. I hope you will understand, given the importance of what you were called to vote on. Indeed, we called this general meeting to seek approval for the issue of EUR 3.5 billion of new capital as part of the URW's RESET plan, EUR 9 billion plan, presented on September 16, 2020. Since I would like to thank all shareholders, especially the majority who voted in favor of this capital increase, which eventually was rejected. Since it started in March, the COVID-19 outbreak crisis has had a material impact on URW's businesses, including lengthy shopping center closures and a drop in rental income. Also, retail trends for which the group had already been positioning its portfolio have been accelerated by the pandemic. Over the past month, the Management Board and senior management team have engaged in an ongoing basis with the Supervisory Board about the management of the business and capital structure. The rationale behind the RESET plan, which represents more than EUR 9 billion, with 4 main components, including the EUR 3.5 billion capital raise, is to immediately reduce the group's leverage and to enable URW to preserve its strong investment-grade credit rating, A-/Baa1, and secure unrestricted access to credit markets and still maintain a sustainable capital structure and to execute our long-term strategy. The capital structure is very important for URW, especially in today's volatile environment. URW leverage metrics are markedly higher than key peers like Simon and Klépierre, looking at both net debt over EBITDA as well as net debt over enterprise value. Furthermore, while URW's debt maturity profile is well spread, EUR 6.7 billion on long-term debt and EUR 5.8 billion on revolving credit facilities will need to be either refinanced or renewed over the next 24 months. This illustrates why unrestricted access to the credit market is so important. You're all aware of the challenges that the current health crisis brings. Recovery was well underway through the summer until September, where the first signs of a second wave appeared. Footfall recovery showed encouraging progress, demonstrating the resilience and appeal of URW portfolio and its flagship locations. In Europe, all centers have been opened since June 15. And in the U.S., the reopening has been more gradual with the last centers in LA only reopening again from October 8. Footfall in Europe in August and September was at around 75% of 2019 levels but has since moderated with new second wave restrictions. Tenant negotiations are well on track with 72% now agreed, up from 25% at the end of July with outcomes in line with expectations. We expect total rent relief for the periods the centers were closed in H1 to be in the range of EUR 250 million and EUR 290 million. That is between 1.4 and 1.7 months of rent. Rent collection improved month after month with 52% of Q2 rents collected versus 38% reported as of July 24, and 79% of Q3 rents collected, of which 91% in Continental Europe. That the collection rate in the U.S. lag should not be a surprise as most centers were closed for longer. However, the COVID-19 situation is importantly still very uncertain. As of September 30, 96% of our -- of the group's shopping centers had reopened. But as of October 31 because of new restrictions, 65% of the group shopping centers by value or 75% by GLA were fully opened. As you can see on the right, many countries are reimplementing restrictions, especially the second national lockdown in France, the U.K., Czech Republic and Poland. These ongoing restrictions have obviously an immediate impact on consumer spending and retailer prospects, and nobody knows at this point how long this will last. However, there is also some good news. Slovakia allowed the reopening of shopping centers after just 2 weeks of lockdown, following a massive comprehensive exercise to test half of its citizens. And surely, the news regarding a future vaccine from Pfizer that was announced yesterday minutes before 1:00 p.m. Our priority in this situation remains to reduce the leverage of the group. The key pillars, which by now you all know, are: a EUR 3.5 billion capital raise, which has not been voted favorably; a EUR 1 billion dividend cash savings over the next 2 years; a further EUR 800 million reduction in development and nonessential operating CapEx; and the acceleration of the EUR 4 billion European disposals expected to be completed by the end of 2021. With the signing of the sale of the SHIFT office building a few days ago, EUR 620 million have already been realized. The combination of all these measures is designed to ensure continued unrestricted access to the debt markets and to keep our debt low with an LTV between 30% and 40% and net debt over EBITDA below 9%, the latter objective to be achieved by the end of 2021. A few words now to conclude this quick presentation before we go to the QA. Since April 2013, I've been the Chairman of the Board, and I've been working with exceptional teams. I would like to pay tribute to these teams. Since the beginning of the crisis, they have been relentlessly working as centers -- shopping centers were closed, reopened in some countries, closed again. It has been a difficult year. And yet, they were able to keep a dialogue and negotiate with our customers. And I know that we've been working together strongly with a strong conviction, a clear strategy to overcome difficulties, hurdles and all the uncertainties connected to COVID-19. There is a structural trend that we're still convinced of, which is -- and we've seen as soon as centers reopened, which is that footfall has increased and very quickly. We had -- we were close to 80% -- between 80% and 90% of precrisis levels. In these difficult times of isolation and distance, we all need physical locations where we can meet, where we can share and simply have a good time, simply to be together. This is one of the key lessons of this terrible crisis, the biggest one since 1929. Our visitors have increased their online spendings, but refuse to digitize all their purchases. Shopping centers have a bright future as long as we know how to anticipate, understand and respond to customer expectations. This is our ambition, and this is what we're working on. It is with that in mind. And in spite of the circumstances that we have relentlessly worked to implement our concentration strategy, our differentiation strategy and innovation to have superior shopping centers and be a leader in our markets and in our different geographies. I just talked about uncertainty. We've had bad news repeatedly up to yesterday. When 2 pharmaceutical companies announced that they had reached a key milestone in the development of a vaccine, this is something that makes us very happy. A vaccine means potentially hundreds of thousands of lives saved. And this is important to overcome this virus. Of course, the next steps, clinical steps have to be validated, but it would have an impact on our real estate. It would have an impact on URW and on our disposals. So this announcement was unexpected, and we have to remain vigilant about the next steps. We'll have to see whether the vaccine really works, when it will be launched and how quickly people will be vaccinated. All this has to be confirmed before we can even plan on a sustainable recovery of our business. My duty, as the Head of URW and in agreement with the Supervisory Board, is to preserve the group's capacity to -- for long-term action. I'm absolutely convinced that we have to be cautious in these difficult and exceptional times. Yesterday's news doesn't change the need to reinforce the group's balance sheet. The level of debt of the company is too high. The capital increase has not been approved by shareholders and, therefore, we need to implement the next steps of RESET, the EUR 4 billion of disposals, EUR 620 million of SHIFT, which have already been signed, EUR 1.1 billion in savings and EUR 800 million in investment reductions, these are absolutely indispensable to reach our debt objectives. And we have to look at other alternatives as well to further reinforce the structure -- the financial structure of the company. URW has remarkable assets in unique locations, and this is our strength. It is operated by exceptional teams around the world, which I'm proud of. We are best-in-class in terms of CSR and this was an important milestone as well. I call for our efforts in these areas to continue. I'd like to come back to the past week and some of the debates you've witnessed. We welcome criticism, but it should be done in a responsible way with the willingness to contribute to the company in a positive way and while always respecting the people who have made the success of this company. What we've witnessed last week is not what I consider a good dialogue. It is not what I consider proper risk management for a company like URW. I believe in our responsibility to act and propose solutions. And this is even more true when we weather such storms. It is true with the Board of Directors as well as with the Supervisory Board. You can count on my complete commitment and the commitment of the entire team to weather this storm and be prepared for the world once we recover. Over to the next part of this general assembly.

I would like to remind you that the shareholders had the opportunity to use a special e-mail box at their disposal to ask their questions. We have received 17 written questions from free shareholders, those within the meaning of Articles L. 225-108 and R. 225-84 of a French commercial code. Given a number of questions, shareholders are invited to read all the questions-and-answer in the company's website and the section dedicated to the shareholders meeting of the 10th of November 2020 in order to encourage shareholder dialogue. And in addition to the legal mechanisms for written questions, shareholders now have a possibility to ask questions via our platform made available to the company's website. So please indicate, which is the first question.

The first question from comes from Suleman Ravel. It's in English. Where do the debt covenants typically lie?

Thank you for this question. Fabrice Mouchel, could you please answer this question, Fabrice? Fabrice Mouchel is our Financial Director -- Financial Officer.

Yes. Good morning. So on bank covenants, we are subject to, there are 3 types. The first one is a debt ratio called LTV. Its limit is 60%. Just to remind you that today, the level over group when it comes to debt ratio is 42%. So we are far from the 60% ratio, which is a level of bank covenant. The second ratio is a DCR ratio. So that's the cover of interest by the EB, it's 10x today. On the 30th of September, we're 4x -- we've got 4x ratio. And we've got the FFO ratio on net debt, 4% -- fixed at 4%. And today, we are at 5%. So we have some leeway, some flexibility when it comes to this level of confidence.

The next question comes from [ Pierre Motea ]. Why the results were communicated before the general assembly? Christophe?

Well, we have said it wasn't our initial choice, but we were invited -- bearing in mind the regulations, rules and risks. Proxy votes, postal votes were closed yesterday afternoon, and we were invited to communicate these figures before the hours of the opening of the Australian market. As you know, we are on the Australian stock market. I understand your question, and I'm terribly sorry, but we didn't have a choice but to communicate these figures before the general assembly. Polls were close, it doesn't change their nature, but it has allowed for markets to be informed of these very highly sensitive information as you can probably imagine.

Next question, Pierre Edouard. Instead of raising capital, why not get -- suppress dividends until the financial situation improves? Christophe?