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

Good morning, and welcome to Unibail-Rodamco-Westfield's 2022 Full Year Results Presentation. In 2022, our strong operations and continued deleveraging provided a powerful platform for progress against all of our strategic objectives. Our group-wide performance drove increased earnings which, combined with EUR 2.8 billion of European and U.S. disposals, has translated into improved credit metrics and a net debt-to-EBITDA ratio lower than 2019 levels. This performance is reflected in consistently-increasing operating metrics, also now at 2019 levels, demonstrating the full recovery of our business. Commercial Partnerships revenues increased 51% versus 2021, slightly above 2019, and we achieved strong growth in media advertising and brand experience. Our Convention & Exhibition activity has rebounded strongly, and our Office division delivered a 20% like-for-like increase in NRI. We continued our strong ESG performance and are on track to achieve all of our Better Places 2030 targets. We are also able to play our part in countering the European energy crisis, reducing consumption beyond our own targets and exceeding government requirements. We start the year from a position of significant strength and are confident URW will continue to perform in 2023. This position of strength is underpinned by our Better Places 2030 ESG strategy. Important to keep in mind, our greenhouse gas emission reduction targets are approved by the science-based targets initiative, which align us with the 1.5 degree limit set out in the Paris Climate Agreement. With ESG fully embedded in our decision-making and remuneration criteria, Better Places 2030 covers the entire value chain, and our ratings reflect that. URW is recognized by all major indices, covering both real estate-specific and all-sector ratings for climate sustainability and governance. We are on track to meet all of our targets, including cutting carbon emissions by 50% by 2030. Regarding energy intensity, thanks to the decisive actions taken in the context of the energy crisis, I am pleased to share that we have surpassed our 15% target in Europe, achieving a total reduction of 19.8% in 2022. The group is absolutely committed to the role that it plays in combating climate change and contributing to the environmental transition of cities. We look forward to sharing a step change evolution of our ESG strategy in the second half of the year that will include our own path to carbon neutrality. 2022 has been a very good year for Unibail-Rodamco-Westfield in a challenging environment. The contribution of all business divisions resulted in a 30% increase in EBITDA and almost 35% year-on-year increase in adjusted recurring earnings per share to EUR 9.31. Our European EBITDA reached 95% of 2019 levels, and we are on track to achieve the 2024 target set at our Investor Day in March 2022. Thanks to the disposals executed in Europe and the U.S. last year, we achieved a EUR 1.9 billion reduction in net debt. Our net debt-to-EBITDA ratio, which reflects both our strong operational performance and our debt reduction, is down from 13.7x in 2021 to 9.6x this year, below the 9.9x in 2019. These results come from the progressive improvement in all operating metrics since the peak of the COVID crisis, which for our sector was in H1 2021. Tenant sales at group level reached 2019 levels in the first half of 2022 before exceeding them in H2. Rent collection has normalized, while collection from previous periods has also improved. Our vacancy has consistently decreased, leading to a strong improvement in MGR uplift. These results demonstrate the underlying strength of the business, the quality of our operations and the attractiveness of our assets. I'm happy to say this performance confirms the hand of the acute impact of COVID on our business, and therefore, 2022 will be the base for year-on-year operating metric comparisons in 2023. As well as returning to pre-COVID levels, tenant sales at our assets have outperformed the market in all regions. Through the pandemic, large shopping centers were some of the first to close in Europe and in the U.S., and the last to reopen, and we generally suffered more restrictions than other types of retail. While it is normal to see a strong rebound in sales upon reopening based on this level of impact, the recovery clearly shows the loyalty of our customers, the strength of our portfolio and the enduring appeal of our assets. We have always been confident and shared with you our ability to get sales back to 2019 levels and then grow from there. In 2022, sales exceeded 2019 on a full year basis on the back of consistently-improving footfall and the positive impact of inflation. This also translates into a strong increase in sales base rents, up 60% on last year. In Europe, tenant sales are at 100% of 2019 levels for the year and trending higher at 102% in H2. U.S. tenant sales have been consistently above 2019 levels since H2 2021, with sales now at 108%. This goes up to 114% if you exclude our 2 central business district locations in New York and San Francisco, which are still impacted by work from home trends. If you look at other variable income, which is even more influenced by the level and quality of footfall, we see a clear revenue improvement. This demonstrates that we have held on to our unique customers, and that we are seeing a more productive, loyal shopper driving increased sales. Parking revenues and marketing service also suggests that customers are increasing their dwell time, up to 30% depending on the type of location. These strong trends are illustrated across our portfolio even in the face of a changing macroeconomic environment. Let's look at Westfield Stratford City, an asset that is operating in an environment with high inflation and falling consumer confidence. Even in this context, it enjoyed strong performance, with tenant sales exceeding 2019 levels as early as the second quarter. Footfall is now at 93% of pre-COVID levels, outperforming the U.K. average published by the British Retail Consortium by 5 percentage points. This resilience, indicative of our broader portfolio, gives us confidence that we will continue to enjoy healthy sales and traffic levels going forward. Major retailers see this, and are committing to our assets in terms of expansion and bringing new concepts. At Westfield Stratford, our performance is driving lower vacancy figures down to 5.5% in December 2022 while we delivered a 13.5% uplift in MGR. Looking at the overall portfolio, the performance is just as impressive. Here, you can see the success of our proactive leasing strategy with group vacancy down to 6.5%, leading to the return of commercial tension, and most importantly, higher MGR. With the same level of activity as in 2019 and 2021, we have signed a higher volume of long-term deals, driving this overall MGR increase. Long-term leases represent 68% of MGRs signed last year, up 7 percentage points on 2021. Having secured major anchor tenants for larger units in 2021, in 2022, we focused our leasing efforts on small and medium-sized units at higher rents. These deals represented almost 3/4 of GLA site. Overall, we delivered a 6.2% MGR uplift on all deals and a significant 14.4% uplift on deals over 36 months. This productivity also extends to how we upgrade, diversify and refresh our tenant mix. Our rotation rates, which represent the proportion of new lettings and renewals with new concepts over our total number of stores, is back to a strong 11%. This demonstrates our ability to bring new and innovative concepts to refresh our offer and meet consumer demand. As well, our top retailers continue to expand and upgrade their stores with us. In Europe, we signed 114 deals with our top 50 retailers by GLA for a store size that is 13% above the average size of their URW store portfolio. Amongst these leases, I want to highlight Zara at Westfield Donau Zentrum, who upgraded their store to a 4,000 square meter flagship. And JD Sports, who expanded their store at Westfield Stratford to almost 5,000 square meters. Major retailers are growing with us, increasing the importance of our assets as they optimize their online and offline operations. Last week, JD Sports announced its plans to invest evenly in their store network and in data analytics and technology to better understand the customers and push omnichannel services like Click & Collect. The type of investment JD Sport is making is playing out across the sector, as retail decision-making is centered on the drive-to-store strategy. The role of the physical store continues to grow. Many retailers are closing underperforming stores to concentrate on their most productive locations that drive offline and online profitability, exactly what we are providing them with. This network optimization is accelerating as retailers pursue their omnichannel drive-to-store strategies. A drive-to store strategy is based on improving store productivity and cost savings, which in turn optimizes profitability globally by pushing customers to collect and return online purchases in store, while also leveraging store networks to lower customer acquisition costs. Here, you can see how these strategies have a transformative impact on margins and store economics. 2/3 of Click & Collect users end up buying additional items in store, optimizing sales performance, while retailers save on last-mile delivery, which accounts for more than half of e-commerce delivery costs for retailers. For in-store returns, 15% to 30% of customers make an additional purchase, and retailers reduced their associated losses to costs by around 75%. This means that the increasing role of store networks to drive profitability in an omnichannel world and the quality of our customer base gives us more leverage in our negotiations as a landlord. With the growth of retail media in a cookie-less world, we are leveraging the quality customer base and our increasing footfall to drive the evolution of our commercial partnerships revenues. At group level, we have delivered EUR 175 million versus EUR 116 million in 2021 and above 2019 levels. In Europe, we launched Westfield Rise, a one-stop shop for brands and media buyers to create innovative and measurable campaigns using URW's platform of best-in-class retail media assets and have advanced our plan to better qualify our audience. This has delivered a net margin of EUR 46 million in 2022, up 52% compared to 2021, and we are on track to generate our target of EUR 75 million in annual net margin by 2024. When you look at this performance in revenue per visit's terms, you see an increase from EUR 0.05 to EUR 0.07 per visit. This demonstrate that we are making progress increasing revenues based on the quality of our audience as well as leveraging our increasing footfall. This gives us confidence in strong growth beyond our plan horizon. We have also made progress delivering our committed development pipeline with tight CapEx control in a tough operating environment, particularly as a result of cost inflation. We opened the final phase of our Les Ateliers Gaîté regeneration project in the Montparnasse district of Paris, which is now 93% let. We identified the existing site with new residential use, expanded the office and retail components and refurbished the Pullman Hotel, all while reducing overall energy intensity from heating by 40% despite a 30% increase in total floor area. In the U.S., we delivered the extension of Westfield Topanga on the site of a former Sears department store, which received LEED Platinum certification. Here, we offer a new indoor and outdoor dining entertainment and luxury district with new tenants, including Hermès, Dior and Valentino. The project is opening in phases and is 87% let. And in the U.K., we have just delivered the first phase of Coppermaker Square, our second build-to-run residential development in London, which is a joint venture partnership with PSP Investments and QuadReal Property Group. These projects demonstrate our ability to unlock value in our assets with developments that also make a contribution to the regeneration of the cities and communities we serve. Now on to our deleveraging progress, which led to a direct EUR 1.8 billion IFRS net debt reduction in 2022 in an unfavorable investment market. These disposals were made with low discounts to appraisals and a 5.6% global net initial yield. In 2022, we delivered EUR 1.6 billion of disposals in Europe, reaching EUR 3.2 billion of our EUR 4 billion disposal plan, and we will secure the remaining EUR 0.8 billion during 2023. In the U.S., we sold EUR 1.2 billion of assets at 100% in what were some of the few sizable transactions in that market over the past 3 to 4 years. We continue to streamline our U.S. regional portfolio, and we are ready to execute on the radical reduction of our financial exposure as the investment market improves. Given current conditions, we don't expect a major market improvement before H2 2023 when central banks should see the positive effects of their policies, providing more visibility on the evolution of interest rates for investors. The disposal process is supported by our strong operational performance and liquidity position, which enables us to execute at the right time and in an orderly manner. Going forward, we are confident in the appeal of the retail asset class for investors over their prior focus on other asset classes such as logistics and offices. This confidence is based on the demonstrated resilience of the business model, the hedging protection it has against inflation and the repricing of retail assets, which has taken place over the last 3 years. Before I hand over to Fabrice, I just want to align our 2020 results, with the targets we announced at our Investor Day last year. In our core business, our operations are back to 2019 levels, a testament to the quality of our assets and teams. We are committed to our deleveraging plan and our radical reduction of financial exposure in the U.S., and are making progress towards our target of around 40% loan-to-value ratio. Regarding new revenues, with the launch of Westfield Rise, we are confident we will achieve our target of EUR 75 million in net margin in Europe by 2024, and we are delivering our committed pipeline with tight CapEx control while preparing to add accretive new projects that unlock value with very low predevelopment expenses. With that, I will now hand it over to Fabrice.

Thank you, Jean-Marie, and good morning, everyone. In 2022, our second half performance confirmed the trends seen in the second quarter, with an ongoing improvement in terms of tenant sales, leasing activity and vacancy, leading to a strong operating results for the year. This, combined with the ongoing debt reduction from a deleveraging plan, drove a significant improvement in the group financial ratios. Adjusted recurring earnings for 2022 were EUR 9.31 per share, a 34.7% increase on 2021. Our guidance for the year was at least EUR 9.10 per share, and a strong end to the year in terms of rent collection and variable income was a key contributor. EBITDA increased by 30%, with a 27% like-for-like growth in net rental income across all activities. The drivers of our AREPS growth in 2022 are fully aligned with those shared at our Investor Day last year. The main one was, of course, the improvement in the Shopping Center result, which includes the end of COVID rent relief, representing EUR 1.54 per share. This mainly benefited our performance in the first half. The increased Shopping Center result also includes the positive underlying operating performance of our standing assets as well as the contribution of assets delivered in 2021 and 2022. The growth also includes the recovery of the convention and exhibition net operating income, representing almost EUR 1 per share at 100% and half of that at group share. This performance is partly offset by the mechanical increase in taxes and contribution to minority interest as well as the impact of disposals. It also includes a very small increase in financial expenses. While interest rate increased significantly in H2, this was largely mitigated by the group's hedging program. In total, excluding COVID rent relief, AREPS growth would be plus 13%. Moving now to net rental income for Shopping Centers. On a like-for-like basis, NRI was up 21.5%. The end of COVID-19 rent relief resulted in a plus 13.7% contribution. Excluding this factor, like-for-like NRI was up at 7.8%. Renewals and relettings, net of departures, remain impacted by negative rental uplift on short-term deals and the lagging effect of vacancy reduction. This was more than compensated by the 2.3% increase in sales-based rents driven by the recovery in activity, our proactive leasing strategy during the pandemic, and to some extent, by inflation. The other category increased by 6.6%, thanks to lower doubtful debtor provisions in 2022, debt reversal mainly in H1 of provisions made in prior years as well as higher variable income from parking and commercial partnerships. In terms of regional like-for-like performance, excluding COVID-19 rent relief, the U.S. was a key driver of more than 10% while growth in the U.K. was over 2%, improving from a negative result in the first half. 2022 performance was supported by our ability to pass on inflation via indexation and sales based rents. As a reminder, URW's rents in Continental Europe are all indexed and have historically tracked the evolution of inflation, with a circa 1-year delay as rental indexation in a given year is usually based on the inflation of the previous year. Indexation made a plus 3.6% contribution to 2022 rental NRI like-for-like performance in Continental Europe, above the inflation seen in 2021. While U.K. and U.S. leases are not indexed, we benefited indirectly from high inflation through sales based rents. Sales based rents increased by 97% in the U.K., representing 9.2% of NRI compared to 5.5% in 2021. In the U.S., SBR increased by 64%, representing 21.5% of NRI compared to 15.9% last year. Looking ahead, we expect to pass on the majority of 2022 inflation in 2023 through indexation, as retailers continue to perform and drive customers to their prime stores to protect margins, as demonstrated by Jean-Marie. Inflation is also a factor when it comes to tenant service charges in Europe. Thanks to a range of proactive measures, we've been able to keep 2022 charges stable versus 2019, the most relevant comparative year. This compares to a total inflation of around 13% over the same period. Measures included securing 2022 energy prices in advance, as well as our energy consumption savings of circa 20% from both our Better Places strategy and our additional commitment to reduce energy intensity to support government initiatives. As a result, we're able to limit the increase in energy cost for tenants to just 8%. In addition, savings on other costs, such as cleaning and security, were achieved. Service charges are expected to increase in 2023 from this low basis driven by increased energy costs, which represent around 1/4 of the total. And we will continue to work on further cost savings and energy consumption reductions in order to limit the impact. Overall, it's worth noting that the service charges only represented 15% of the total occupational cost in 2022 for retailers in Europe. Our portfolio of shopping centers located in the best catchment areas also offer protection against the impact of inflation on consumption. This slide shows our top 12 Westfield-branded assets in Europe, which together represent around 50% of our European retail GMV. These assets have a combined catchment area of 85 million people, with a purchasing power per capita that is more than 30% higher than the European average. And as demonstrated by Jean-Marie, with the example of Westfield Stratford, asset performance is resilient even when the purchasing power per capita is closer to the average. This explains the appeal for retailers of a portfolio concentrated in the best catchment areas and gives us confidence that the group will continue to perform even in tougher macroeconomic conditions as we have done in the past, including during the great financial crisis. Moving next to rent collection, which has now returned to pre-COVID levels of 97%. These improved collection rates had a positive impact on 2022 doubtful debtor provisions. In parallel, we collected over EUR 250 million of unpaid rents relating to 2021 mainly in the first half of 2022. This led to an improvement of 2021 rent collection from 88% in February 2022 to 93% in February 2023. This translated into a reversal of provisions of EUR 45.6 million, positively affecting 2022 accounts. Bankruptcies declined further in 2022 as operating conditions normalized. The 203 stores affected by bankruptcies in 2022 represent just 1.7% of total stores down from 2.4% in 2021. H2 2022 bankruptcy levels were up year-on-year, reflecting some increasing pressure on weaker retailers but remained below the multiyear average. Our watchlist of retailers has slightly increased compared to 2021, but is in line with the one in 2019. And in the case of bankruptcies where the retailer did not pay the rents like Camaieu in France, there was no P&L impact thanks to the full provisioning of the rents. And once again, thanks to the quality of our assets, tenants remained in place or were replaced in 80% of the units affected. Overall group vacancy continued to track downwards from its peak in H1 2021 and is now at 6.5% for the group. The Continental European vacancy rate is 3.1%. This is below year-end 2021 levels in all countries with the exception of Austria, which already has extremely low vacancy at 1.7%. U.K. vacancies decreased year-on-year from 10.6% to 9.4% and with high levels at Westfield London being addressed through repurposing strategies as outlined at the half year. U.S. levels continued to decrease at 10.4%, down by 60 basis points from December 2021. U.S. flagship vacancy, marked with the black line on the chart, decreased by 110 basis points to 8.2%, close to the pre-COVID levels of 7.9%. Higher occupancy was driven by dynamic leasing activity with a focus on achieving improved rental values and longer duration. This translated into higher MGR side in 2022 at EUR 441 million, plus 26% compared to 2021 and plus 14% compared to 2019. As highlighted by Jean-Marie, this increase is driven by a higher proportion of deals on small and medium-sized units, with high rents per square meter. The continued increase in the proportion of long-term deals was most evident in the U.S., which jumped from 47% to 62%, and we see clear demand from retailers in a normalizing market as and when sales improve. This demand is also visible in the rental value achieved, which are consistently improving [ half-half-half ] as we moved away from the COVID crisis. Uplift from all deals returned to positive territory in 2022 at plus 2.7% and accelerated to plus 9.6% in H2 2022. This performance was driven by the higher proportion of long-term deals, but also by higher uplift on these deals reflecting improving pricing tension as vacancy decreases. In the U.S., the sharp increase in MGR uplift is explained by long-term renewals and relettings at terms significantly higher than the short-term deals signed during the COVID period. We are also securing lettings with new tenants able to pay higher rents, especially in the luxury sector. In line with previous periods, the negative uplift on short-term deals signed in 2021 was almost fully compensated by higher SBR levels in 2022. Moving now to occupancy cost ratios, which have become a more relevant metric in 2022 as the situation normalized. 2022 OCR is below pre-COVID levels in Continental Europe, the U.K. and the U.S., despite the effect of 2022 indexation and sales still impacted by COVID in Q1 in Europe. In the U.K., the OCR is higher due to the business rate, which will go down mechanically in 2023 with a review of business rate levels. And as we have demonstrated during the Investor Day, the OCR has to be put in perspective with the sales intensity at our locations. This is almost 20% higher than the comparable market of [indiscernible] in Continental Europe, almost 50% higher in the U.K. and 12% higher in the U.S. In addition, as highlighted by Jean-Marie, retailers drive-to-store strategy generate additional sales and substantial savings, given the increasing last-mile delivery costs faced by retailers for the online sales. The benefits from Click & Collect and in-store product returns, which were limited in 2019, are major today and are not reflected in the 2022 OCR. Estimating this additional volume of activity generated in stores, the OCR would be below figures presented on this slide by up to 3 percentage points. The strong performance of our retail assets in 2022 was mirrored at our Offices portfolio. Offices' NRI reached EUR 70 million, a 16% increase including the delivery of Pullman Montparnasse and Gaîté offices, partly offset by the disposal of Solna Centrum and Les Villages. On a like-for-like basis, NRI was up 44.2% in France and 23.2% on a group basis. Leasing progress at Trinity now let at 74%, with an average rent close to the highest secured for La Défense, was the main driver of this like-for-like progression. We also made progress on the letting of development projects. We signed a 9-year term lease for 25,000 square meters of the Lightwell project in La Défense, representing an 80% pre-letting. Work on this project were launched in the second half of 2022, with 85% of construction costs secured for an expected delivery in 2024. URW also signed an 8,000 square meter lease with Shell, representing almost 1/3 of the office space in Westfield Hamburg, also to be delivered in 2024. This demonstrate the appeal for well-located assets with high sustainability ratings and URW's know-how and track record of delivering these projects. This gives us confidence in our ability to seize additional development opportunities for obsolete offices in drastic need for retrofitting. Now to Convention & Exhibition. After our Q1 still impacted by COVID, C&E activity has seen strong recovery, with 617 events held in 2022, 14% lower than 2018 but above our expectations. Net operating income generated by these events was higher than in 2018, thanks to a different mix with larger events and higher prices. Pre-bookings for 2023 reached 86% of 2019, the last comparable year. This supports our projection of a return to normal activity in 2023, ahead of an expected buildup to the 2024 Paris Olympics towards the end of the year. The return of C&E activity is reflected in our 2022 results. Recurring net operating income amounted to EUR 190 million compared to EUR 55 million in 2021, impacted by COVID, and EUR 165 million in 2018. 2022 figures include EUR 25 million contribution from the French state to compensate for pandemic-related period of closure. Excluding these subsidies and restated for the triennial shows held in 2018 and 2022, C&E 2022 NOI was 3% above 2018, the last comparable year. 2022 results also benefited from the shift of certain biannual shows from odd to even years. This seasonality will translate into lower NOI for the C&E activity in 2023. Moving next to our portfolio values, which stand at EUR 52.2 billion, a 4.1% decrease versus year-end 2021. This primarily comes from the effect of the EUR 1.8 billion of disposals. Portfolio value saw a like-for-like decrease of circa EUR 1.3 billion or 2.7% compared to last year. This is offset by EUR 0.9 billion of CapEx. FX had a positive impact of EUR 0.4 billion thanks to the strengthening of the U.S. dollar, though lower than the FX impact registered in H1. This evolution in values translated into a 2.4% decrease in net reinstatement value compared to last year. This decrease in valuation was mitigated by the retained recurring results and positive currency moves. In total, net reinstatement value stood at EUR 155.7 per share at the end of 2022. Focusing now on retail valuations. The like-for-like value of the retail portfolio decreased by 2.6% in 2022. Since 2018, the group's retail portfolio valuation has been adjusted downward by 19% on a like-for-like basis. Continental Europe valuations are down 0.6% in 2022 and minus 13% since 2018. These valuations have been impacted by the increase in exit cap and discount rates of 50 to 60 basis points, mitigated by high indexation level and improvement in 2022 operating performance. U.K. valuation saw a 5.4% decline in 2022 and an overall decrease of 45% since 2018. This is due to an increase in discount rate and exit cap rate of more than 200 basis points and a 19% reduction in exit year NRI compared to 2018 valuations. U.S. assets were down 7.4% in 2022 and 27% since 2018, appraisers increased the discount rate by 90 basis points and the exit cap rate by 40 basis points over the period. They also decreased the NRI exit year assumption by 12% despite the recovery in tenant sales, leasing activity and occupancy seen in 2022, in particular for flagship assets. This decrease in values, combined with higher rents, resulted in an increase in net initial yield in Continental Europe from 4.2% in 2018 to 4.9% in 2022. 2022 valuations reflect a high net initial yield but also higher NRI growth potential, with a 10-year CAGR assumed at 4% by appraisers above the 2018 assumptions. The net initial yield for our U.K. portfolio now stands at 6.1%, a 180 basis points increase compared to 2018 for what are considered the 2 best retail assets in the market. The net initial yield for U.S. assets has increased from 4% in 2018 to 4.6% in 2022. U.S. valuations also show a higher net initial yield, combined with higher rental growth prospects at an average of 5% for flagship assets. Compared to other asset classes, the net initial yield of URW's retail portfolio is higher as the adjustment in value started earlier and did not benefit from lower rates over the 2018-2021 period. The impact of rates increase in 2022 was, therefore, more limited on URW's assets and compensated by rental growth prospects as well as COVID recovery. Moving now to financial ratios. IFRS net financial debt decreased from EUR 22.6 billion to EUR 20.7 billion over the course of the year. The circa EUR 2 billion decrease is mainly a result of the EUR 1.8 billion of disposals and EUR 1.3 billion of retained earnings, partly offset by a EUR 0.2 billion negative FX impact as well as EUR 0.9 billion spent in CapEx in 2022. Despite the slight decrease in values mentioned earlier, the loan-to-value ratio decreased from 43.3% to 41.2%. As a result, URW's key credit ratios demonstrated a massive improvement in the year, thanks to the strong operational performance and our deleveraging achievements. Our net debt-to-EBITDA ratio has improved from 14.6x in 2020 to 13.7x in 2021 and to 9.6x in 2022, now below its 2019 level. As our debt continues to decrease and EBITDA recovers, we expect to see continued improvements in these ratios. Our financial debt is fully hedged against interest rate evolution in the coming years based on the group's disposal plan. The increase in rates and spread in 2022 led to a positive mark-to-market of the debt and the financial instruments. As a result, the net disposal value NAV, which includes this mark-to-market, has significantly increased to EUR 148.40 per share, up 34.5% in December 2022 compared to December 2021. The efficiency of our hedging program was evidenced in 2022 with the cost of debt in line with 2021 levels, even in an increasing interest rate environment. URW's cost of debt at 2% is consistent with the sensitivity analysis presented in H1, and we should continue to benefit in 2023 from hedging in place and from the increased remuneration of the group's cash placement, allowing us to keep our 2023 cost of debt close to current levels. URW continued to access credit markets in 2022, raising EUR 1.7 billion of debt on a proportionate basis. This included mortgage debt and corporate bank debt, of which circa 75% was sustainability linked. During 2022, we also published our updated green financing framework, self-imposing high standards on energy performance and project eligibility criteria. Thanks to the funds raised and the disposals completed, the group strengthened its liquidity position with EUR 3.5 billion of cash on hand compared to EUR 2.4 billion last year. Together with EUR 9.7 billion of undrawn credit facilities, the group has EUR 13.2 billion in available cash and undrawn credit lines at the end of 2022, and the group's average debt maturity stand at 8.3 years. Thanks to this liquidity, we have the resources to cover all our debt maturities for the next 3 years even in a scenario where we make no further disposals nor raise any new financing. Our cash in hand and undrawn credit facilities would amount to EUR 7.9 billion at the end of 2025. The group's debt maturities over the next 3 years amount to EUR 6.2 billion in total, i.e., a net position of EUR 1.7 billion. This does not include the EUR 1.25 billion hybrid with a call date as from 2023. Regarding the hybrid, the group will make a decision regarding its call option ahead of the first reset date in October 2023, and we'll provide an update at the full year -- at the half year results. Moving to development. The total investment cost of the group pipeline decreased slightly to EUR 3.1 billion compared to December 2021, mainly as a result of deliveries was EUR 0.4 billion. The average rating of these deliveries stands at 88% as at January 31, 2022. Development costs increased by [ EUR 3 billion ] in 2022 as a result of inflation, mainly within our Hamburg mixed-use project. 84% of the Hamburg project costs to be delivered in 2024 have now been signed. The retail component is now 73% let, up from 47% last year. In total, committed projects amount to EUR 2.4 billion, of which EUR 1.2 billion has already been invested. The deliveries for 2023 include 5 projects, currently pre-let at 81% with a total investment cost of EUR 0.3 billion. A quick update on deleveraging before I hand back to Jean-Marie. We made good progress in 2022 and have a clear focus for 2023. We will secure the remaining EUR 0.8 billion of our European disposal target and continue to streamline our remaining U.S. regional asset portfolio. URW is committed to the radical reduction of its financial exposure to the U.S., a process that is supported by strong operational performance and the group's liquidity as demonstrated earlier. We'll deliver our committed pipeline, deploying a remaining EUR 1.2 billion of CapEx in the coming years. And complying with the commitments made in 2021, the group will not pay a dividend for fiscal year 2022. It remains our intention to reinstate the dividend for fiscal year 2023 to be paid in 2024, taking into consideration operational performance, credit metrics and delivering progress in the year ahead. That is all for me. Now back to Jean-Marie for some closing remarks on 2023 outlook.

Thank you, Fabrice. Before we open up for questions, I want to cover our 2023 guidance. We expect adjusted recurring earnings per share to be between EUR 9.30 and EUR 9.50. The main drivers of these are consistent performance in our retail operations versus 2022, with inflation protection for indexation and sales based rent, the impact of large events scheduled changes in 2022, leading to a naturally lower convention and exhibition activity in 2023, the full year effect of 2022 disposals, the impact of U.S. regional streamlining and the European disposal program. And obviously, the contribution of 2022 and 2023 development project deliveries. This guidance does not include major disposals in the U.S., which are part of our radical reduction of U.S. financial exposure, and the group assumes no major related -- energy-related restrictions, no major deterioration to the macroeconomic and geopolitical environment. We have always been clear and shared with you that our business would get back to 2019 levels and grow from there. We accomplished this in 2022 and are well positioned for the year ahead. Retailers and brands are expanding across our platform as they focus on omnichannel drive-to-store strategies. Our business model and assets are resilient and are set up to perform even in a challenging economic environment. Combined with our liquidity position, this gives us confidence in our ability to execute on our deleveraging plan as investment markets improve. Finally, we continue to unlock value in our portfolio for developments, which make meaningful contributions to the environmental transition of cities. With that, I will now open it up for questions. Thank you.

[Operator Instructions] The first question is from Florent Laroche-Joubert, ODDO BHF.

So I will have 2 questions. Maybe on the guidance for 2023, so would it be possible to give us maybe more color on what you have taken into account in your guidance for the AREPS, meaning in terms of indexation, potential reduction of vacancy and so on? And maybe a question on disposals so if I may. So maybe in Europe, say if maybe you have any discussion in progress for the remaining part of the disposal plan? And in the U.S. for the flagship portfolio, so how can we say that maybe you have made some progress in the last week or the last month?

I'll take the question on the guidance. So the guidance is consistent with the performance that we have seen in 2022, in particular, in the second half of 2022. In particular, as you've seen the recovery in sales performance leading to a high level of SBR, so this is what we have taken. Also, a strong leasing activity in H2 2022, which was taken into consideration for the guidance. And this includes, of course, on top of that, the indexation level for next year, for which we said that we had taken the majority of the indexation as part of this guidance.

On the disposal program, we are -- in H2 last year, the -- some of the uncertainty around the interest rates and to what extent they would continue to be increased has totally slowed down, not to say even further in the investment market. So we had the top point discussions in Europe versus our EUR 4 billion plan which give us confidence that once markets improve, we'll be able to reopen these discussions or some of them or even engage with new discussions based on the operational performance you've seen in our results 2022, and the kind of appetite that we expect to be even higher on the retail class assets than what it was before. You have seen as well in the U.S., the streamlining of our portfolio, even with achievements of sizable transaction in the second half of the year. Here, the markets will improve as well, and we are confident in our ability to achieve the radical reduction of our U.S. financial exposure in the course of the coming months, or we should say, semesters.

The next question is from Rob Jones with BNP Paribas.

Two questions, as per your request. Fabrice, I got a little bit nervous, if I'm pressed, when you made the comments towards the end about the dividend and the implication in terms of the criteria associated with its reintroduction. So maybe I could ask a question and theoretically, if you wanted, it could have a yes or no answer. And that is, do you need to see LTV less than 40% and the U.S. financial exposure radically reduced to reintroduce the dividend? Yes or no, I guess, theoretically. And then the second question is from a management accountability perspective, and maybe this is one for Jean-Marie, but if you don't sell the U.S. by the end of '23. And certainly, the investors that we speak to, and we do not believe that will be the case, do you consider that a failure from a strategic perspective?

I'm not sure I heard the last part of the question.

The last part of the question, the second question was?

The last -- the second question was around if you don't sell the U.S. by the end of 2023, also radically reduce your financial exposure to the U.S. by the end of 2023, do you -- is that, in your view, a failure from a kind of strategic or management perspective? Or is there another way to think about it, given that a lot of investors, already their assumption is that we won't see a full U.S. disposal in 2023. So certainly from that perspective, it wouldn't be a disappointment relative to their own expectations.

So regarding the reinstatement of the dividend, again, it will be based on the operating performance that we will see in 2023. And again, on the basis of a strong operating performance that we have seen in 2022, the credit metrics that will prevail at that time and our deleveraging progress, including the ongoing -- the completion of our European disposals and the streamlining of our U.S. portfolio. So this will be the 3 criteria that we'll take into consideration at that time. But again, our intention is to reinstate this dividend in -- for fiscal year 2023 to be paid in 2024.

On the second question, what I would say first is that when I compare the level of debt today, what was the level of debt when we launched the plan, the deleveraging plan, we reduced that debt by EUR 3.5 billion. We sold for EUR 3.2 billion of assets in Europe. We sold for close to EUR 1.3 billion or EUR 2 billion in the U.S., so we have progressed a lot. And again, based on the operating metrics, the liquidity position, we're confident in our ability to radically reduce our financial exposure end of '23 or some months in 2024. Won't be seen as a failure. The point is really our commitment and also some of our ability that has been demonstrated over 2022, upselling assets in the U.S. at a sizable level and with somehow low discount compared to what was expected in terms of discount to the GMVs.

The next question is from Pierre Clouard with Kepler Cheuvreux.

I have just 1 clarification first. So on the guidance, I just wanted to make sure that does your guidance include the EUR 800 million that you need to sell in Europe in 2023 or not? Because on your last slide, it's not very clear. Then 2 questions on financials, so the first one on the hybrid bond. So maybe it would be good for us to give us more color on what you are planning to do with the hybrid bond that has a [ corruption ] in 2023? And then the second one, on the dividend -- coming back on the dividend, when the accumulated negative earnings will be 0, would you have to distribute at least EUR 1.7 billion one shot, or can you spread all these payments?

Okay. So I'll start with the last one on the dividend. So basically, today, we have EUR 2.4 billion of negative retained earnings in the statutory accounts. So basically -- and you're right, we have EUR 1.7 billion of SIIC obligation in terms of distribution. EUR 1.720 billion, to be more precise. So the way it works is that, first, you need to absorb these losses. And just as a reference, this year's results in terms of statutory accounts was EUR 89 million so despite a very strong year. So you need first to absorb the EUR 2.4 billion, and then every euro that you have to -- that is positive in terms of results, you would have to pay it as part of the EUR 1.7 billion. So basically, it will not be in one go. It is as we progress, and as we have positive retail earnings that will be in a position to be forced -- or will be forced to pay this dividend under the SIIC regime. And as we've mentioned, the fact that we have negative retained earnings does not preclude us from deciding a distribution out of the premium. That's the first question. Regarding the hybrid, as we indicated, this is an instrument that is important in our capital structure. And we will have time, and we'll make our decision ahead of the first reset date, which is in October 2023. And what was your first question on the guidance, sorry?

Is it including or excluding 2023 disposals, the EUR 800 million that you need to sell in Europe?

As mentioned by Jean-Marie, in fact, the disposals that are included in this guidance are both the streamlining of the U.S. portfolio. And as you've seen, we've remained active in H2, and we anticipate to continue to remain active in H1. And you've seen, by the way, North County disposal that was completed earlier this month. So basically, the disposal in the U.S. are likely -- on the regional part are likely to be bit more at the beginning of the year. And when it comes to the disposals for Europe, it's more likely to be in the second half of the year, but they are taken into consideration in the guidance. What will be important, again, in terms of disposals regarding the guidance, are the disposals that were completed in 2022 in particular, because the majority of these disposals were completed in the second half of the year, and therefore, we have a full year impact in 2023. And this will be mitigated again by the operating performance that we see in 2023 remaining strong and supported by inflation.

The next question is from Jonathan Kownator with Goldman Sachs.

A couple of questions for me. Then the first one, please. Your MGR uplift is 6.2% at the group level. When we look at the breakdown of the NRI like-for-like growth in the contribution of renewal relettings and indexation, it's still negative at 1.1%, driven largely by the U.S., but there's a big disconnect here. Can you help us reconcile that disconnect, particularly even focusing on Europe? I mean, the number was positive 1.4%, but then indexation was 3.6%. That means like a negative contribution in terms of reletting. So again, the MGR uplift, this like-for-like impact, I struggle to reconcile that? So that's my first question, please.

On this first question, there is always a lagging effect between the uplift and the signing of the date of a contract and its implementation, and therefore, its impact on the NRI performance. And this is true, not only by the way, on the uplift, but also on the vacancy reduction. This is why I mentioned that the NRI like-for-like contribution of renewals relettings net of departures remained negative in 2022 despite the improvement in the vacancy, despite this positive uplift because you always have a lag impact between the date at which a deal is signed and its effective implementation, and the date at which your retailers start paying rents. And this is what -- this being said, what you can see is, therefore, is nevertheless an improvement. If I take, for instance, Europe, the negative contribution of renewals and relettings was minus 3.5% in H1. It was minus 2% in H2 -- in the full year, meaning that in H2, we saw a reduction in the negative contribution. It was, I guess, minus 0.8%. So you see that over time, it will take time for this to have its impact and to fit through into the NRI like-for-like performance. And by the way, this is why we have added a specific sentence to explain this phenomenon in our MD&A and this is why also we should have -- we should bear the benefit of this in next year's like-for-like performance.

And if I may add just to that, I think it's important as well to look at on this NRI performance, the combination of the impact of relettings and renewals and the impact of turnover rents, so sales based rents which are part of the negotiation as well.

Can you confirm that the level of incentives that was given to achieve this performance, I mean, are they included in these numbers or are they excluding in these numbers? And is that also a source of this disconnect?

No, they are included in the numbers. So basically, what you have in the P&L account is the amount after taking into consideration any incentive that would be given.

The MGR uplift or the like-for-like or the impact of renewal and relettings or both?

On the like-for-like performance.

Okay. But they're not included in the MGR uplift, right?

Yes, you're right.

Okay, okay. So that's probably one of the source of the difference.

Yes. Jonathan, if you're interested, you use the fit-out contribution that we give in the context of this leasing activity in the Investment section, and you see that it's limited. Out of memory, it's around EUR 27 million in total for 2022. So basically, you have the information when it comes to this fit-out contribution that are given to retailers in the context of the signing of the deals.

Okay. Perfect. Very helpful. Second question is just going back to U.S. valuations. I mean obviously, you've adjusted them already 27%. Any idea as to how long this process is going to last? Ultimately, when you look at some of the funding conditions that are available in the U.S., they're quite depressed. I mean, funding itself at 5.3% or about, if I remember correctly from the results earlier this week. I mean, what kind of investors could be interested in your assets, given that the funding conditions are pretty significantly high in the U.S. at this stage? And what would be the sensitivity that you would look at still in terms of potential declines in valuations?