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

Good morning, and welcome to Unibail-Rodamco-Westfield's 2023 Half Year Results Presentation. In H1, our operational performance led to strong financial results, supported by higher tenant sales and the effect of indexation. Segments, such as food and beverage, fitness and entertainment, performed particularly well, demonstrating that consumer demand for these discretionary activities most impacted by the pandemic has rebounded. Leasing activity was robust with a record number of deals on a like-for-like basis. This delivered a double-digit MGR uplift as we continued our strategy to focus on longer-term leases. We also completed a successful exchange offer on our 2023 hybrid bond, which was a first-of-its kind transaction. 92% of the orders participated and our senior spreads also tightened following the transaction, demonstrating the continued confidence of the debt market in URW. On the deleveraging front, we secured 7 transactions contributing to a net debt reduction of EUR 500 million, showing our ability to find investors for select assets even in a constrained investment market. We continue to be in active discussions on assets in Europe and in the U.S. We will secure the remaining EUR 0.7 billion of European disposals and are committed to the radical reduction of our U.S. financial exposure. Our strong H1 2020 results based on our robust 2022 performance, and we are confident this will carry through to the end of the year and beyond. Looking at our financial results in more details. Like-for-like net rental income was up 8.2%, positively impacted by our indexation and our strong leasing performance over the last 12 months. Our cost of debt is at 1.8%, thanks to proactive debt management. Importantly, this is expected to remain stable at around 2% for the next 18 months. This contributed to a 6.6% increase in adjusted recurring earnings per share and a further improvement in our net debt-to-EBITDA ratio to 9.4x, reflecting both our strong operational performance and our debt reduction efforts. The performance of our Shopping Centre portfolio was the main contributor to these results. Tenant sales continued to grow, up 9% on the back of positive footfall growth, which is up 7%. These figures exclude U.S. regional assets, which now represents less than 1.3% of our group GMV, a figure that will continue to fall as we complete additional disposals. Our footfall and sales trends were supported by our strong leasing activity, which has increased occupancy, up 20 basis points, and generated a double-digit MGR uplift on leases signed. These trends also carried through to high rent collection rates where we reached 96% in the first half, in line with expectations, while collection from previous periods increased to 98%. Taking a closer look at footfall and tenant sales. In Europe, performance was very strong with footfall up 8% and tenant sales up 11%, driving an increase in sales-based rent and other variable income. In the U.S., footfall has steadily improved, with sales growing 4.6% from an already strong 2020 base. Other variable income was stable versus last year. On sales-based rent, we see the effect of our leasing strategy, successfully converting sales-based rent into minimum guaranteed rent. Our sales numbers demonstrate the quality and durability of the consumer appeal of our assets. We consistently outperformed national indices in all markets. And you can see the catch-up effect in Continental Europe, resulting from a more impacted H1 2022. This underlines the trend we see of our assets gaining market share as large retailers consolidate their overall store portfolios while growing their footprint with us. As we look at sales, I want to highlight the strong performance of experience-led segments in H1 2023, which are up 37% for entertainment destinations, up 28% for fitness and up 18% for food and beverage. The performance of these purely discretionary segments underlines the demonstration we made at the full year as to the quality of our catchment areas, and the spending power of our customers, even in a higher inflationary environment. This appeal translates into leasing activity as well where these thriving categories represent almost 1/4 of H1 lettings by GLA. The strong customer base that drives this significant sales performance is attracting major brands. knowing the quality of our assets, Sephora chose Westfield for its return to the U.K. by opening a 726 square meter store at Westfield London in March. The store rapidly became 1 of Sephora's top 5 best-performing locations worldwide, with sales outperforming their expectations by 300% within 8 weeks. This performance demonstrate that when retailers open with us, they outperform the market and even their own expectations. Tellingly, Sephora has now already signed a 692 square meter lease for their second U.K. store in Westfield Stratford City. The quality of partnership like this is a win-win, enriching our offer and driving footfall and sales performance. Now let's look at our overall leasing activity. So far in 2023, we have signed a record number of deals with a total GLA that is above both H1 2022 and H1 2019 levels. The volume of long-term deals as a proportion of MGRs signed reached 78% of total MGR fed by the conversion of short-term SBR-focused leases to longer-term deals at higher rents. This has generated a 17.6% MGR lift on long-term deals. And as commercial tension has returned to our assets, we signed new short-term deals at rates almost flat to passing rent when in H1 last year, they were down by 15%. Our leasing activity also represents our commitment to diversify and refresh our offer with new and innovative concepts and provide the best experiences to our customers. We are successfully attracting new digitally native vertical brands to our centers as they convert their popularity to profitability by expanding into physical retail. Major fashion and sports retailers are also expanding and upgrading the space with us to meet consumer demand and optimize their omnichannel networks. We're also introducing and growing new experienced tenants to meet the customer demand we see in the sales performance we have shared. Through this activity, we are on track to reach our target rotation rate of 10% per year. Now on to Westfield Rise, our European in-house retail media agency launched in H1 last year. With growing footfall in Europe, up 8%, we have been able to increase our average revenue per visit by 18.5% versus last year, mainly driven by higher media advertising revenues. Our experiential campaign income has remained stable with partnerships with major advertisers, such as Netflix, Samsung and L'Oreal. This has led to a 14% increase in net margin. As of H1, we have secured 47% of the budgeted H2 2023 revenue, which gives us confidence in our ability to outperform 2022 and achieve the EUR 75 million net margin target for 2024 shared at our Investor Day last year. We are highly focused on our deleveraging plan. And in a constrained investment market, we have secured 7 transactions in 2023 so far. This includes 2 disposals in Europe and 3 disposals along with planned foreclosures of Westfield Valencia and San Francisco Center in the U.S. These transactions have delivered a EUR 500 million contribution to net debt reduction, taking our total net debt reduction since 2021 to EUR 4.7 billion. In Europe, we are actively pursuing our EUR 4 billion disposal target, and we are confident we will secure the remaining EUR 0.7 billion by the end of the year. In the U.S., we have secured the sale of planned foreclosure of 16 assets since 2021. This represents EUR 1.4 billion of net debt reduction and we are looking to complete the divestment of our remaining regional assets, which today represent less than 1.3% of the group's GMV. From 2024 onwards, we'll continue our disciplined asset rotation policy. The radical reduction of our U.S. financial exposure remains our path forward and our strong operational performance gives us flexibility on when we'll execute on this. This flexibility is supported by several important factors: the strong performance of our business in all markets, as shown by our group EBITDA, which is back to 2019 levels on a like-for-like basis; our cost of debt, which will remain at around 2% for the next 18 months; our ample liquidity position at EUR 12 billion, which covers all maturities for at least the next 36 months; our tight CapEx control and our net debt-to-EBITDA ratio, which is down to 9.4x, below 2019 levels. I want to highlight that this will further improve in 2024 and 2025, thanks to delivery of projects in our committed pipeline, which have weighed on our balance sheet for several years. From now until the end of 2024, we've delivered EUR 2 billion of our EUR 2.4 billion total committed pipeline, which will take our net debt-to-EBITDA ratio to 8.7x on a pro forma basis. One project that is already contributing to this is the 19,000 square meter extension of Garbera in San Sebastian, Spain, which was delivered in May and is 99% let today. We have transformed Garbera from a local to a regional destination, broadening its reach and even attracted visitors from neighboring France. 54 new stores include a 5,200 square meter Primark store, the first in the Spanish and French Basque country. A new dining destination completes the project with a curated collection of international and best local concepts. Prior to the expansion, Garbera had 4.2 million visits, and we are confident will reach our target of 7 million annual visits. The project is expected to generate an additional net rental income in the range of EUR 8.5 million to EUR 9 million. Looking more broadly, we'll deliver a significant proportion of our committed pipeline in 2024. More than 80% of the costs related to these projects are already secured, giving us tight control on remaining capital to be deployed. Our projects I'm highlighting [indiscernible], putting us on track for successful openings and additional net rental income, which will improve our net debt-to-EBITDA ratio. Coppermaker Square, our build-to-rent residential development at Westfield Stratford, welcomed residents in January 2023 to its first tower, which is now let at 97% at rents 16% above our underwriting levels. Looking at our sustainability program. We continue to perform according to plan and are on track to meet all of our carbon-reduction targets, including cutting carbon emissions on Scope 1 and 2 by 80% by 2030. 94% of our European retail assets are certified revenues, with 78% rated excellent or outstanding. We also continue to increase renewable power generation at URW assets, which has the added benefit of improving their energy performance certificates. We have already reached more than double the 2025 target and continue to deliver new projects, such as the 550-kilowatt solar panel installation at Centrum Cerny Most in Prague. By 2030, we now expect total installed capacity of at least 50 megawatts in Europe, supplying the equivalent of about 25% of our total common area electricity needs. In the U.S., we currently have solar capacity of about 8 megawatts across 5 flagships. These supply energy for both common areas as well as tenants, driving additional revenue for URW. As announced at our last Investor Day, we are working on the step change evolution of our Better Places strategy that will include our own path to carbon neutrality. We look forward to sharing this with you at an investor event here in Paris on October 10. With that, I will now turn it over to Fabrice.

Thank you, Jean-Marie, and good morning, everyone. Our H1 2023 financial performance confirms the positive operational dynamic seen in 2022, with further improvements in both terms of tenant sales and leasing activity. Together with indexation, this progress translated into strong like-for-like net rental growth. We also secured additional debt reduction, driving an ongoing improvement in the group's net debt-to-EBITDA ratio. Adjusted recurring earnings for H1 2023 totaled EUR 5.28 per share, a 6.6% increase on H1 2022. An 8.2% increase in like-for-like net rental income translated into a 1.6% growth in EBITDA when considering the impact of disposals. For comparative purposes and on a like-for-like basis, both EBITDA and rental NRI -- retail NRI are back to or even above H1 2019 levels. Let's break down now the key components of our AREPS for the first half. The significant volume of disposals completed since 2022, which delivered a EUR 2.1 billion reduction in IFRS net financial debt, impacted the group's AREPS by a negative EUR 0.46. The key driver is the positive like-for-like NRI performance from shopping centers and offices. The impact from convention and exhibition primarily reflects the effect of even seasonality in a recovering sector as well as the subsidies received in H1 2022. There was also a benefit from the slightly decreasing cost of debt and reduced administrative expenses even in a higher rate and inflationary environment as well as lower taxes and impact of minority interest. Moving now to net rental income for shopping centers, which was up 8.5% on a like-for-like basis, including 4.5% from indexation. There was a positive contribution from Retail Media, Parking income, utilities revenues in the U.K. as well as the settlement of rent discounts, all included in the Other category. Doubtful debtors were up slightly in Continental Europe with higher bankruptcies. As a result, we saw double-digit like-for-like NRI growth for Europe. A key point to mention as well is that the strong leasing activity in 2022 is reflected in the renewals and relettings net of departures column. This had a 2.8% positive contribution to like-for-like NRI growth, thanks to the rental uplift and vacancy reduction achieved. U.S. Flagship like-for-like NRI growth was up 1.4%, driven by positive leasing activity at plus 5.6%, and higher variable income partly offset by a negative doubtful debtors impact of 4.4%. And this was due to the reversal in H1 2022 of bad debt provisions relating to rent moratoria. Our H1 2023 performance was supported by the group's ability to pass on inflation via indexation and sales-based rents. Indexation made a 6.7% contribution to H1 2023 NRI like-for-like performance in Continental Europe, in line with 2022 in inflation. It was also supported by the 8.5% year-on-year growth of SBR, corresponding to a 0.4% contribution to like-for-like NRI growth as a result of retail sales performance, including inflation, in particular in Europe. The lower figures for the U.S. are due to high SBR settlement in H1 2022 and the conversion of SBR into MGR. SBR represented 5.3% of H1 2023 NRI for the group as a whole, including 3.9% in Continental Europe, 7.9% in the U.K. and 8.7% in the U.S. Collection rate for retail stood at 96% in H1 2023, in line with H1 2022 at the same date. This includes a Q1 collection rate increasing from 95% to 97% as we continue to collect rent in the second quarter. We have also collected another EUR 40 million of rents from 2022, taking rent collection for the year from 97% to 98%. Although collection is taking longer in some situations, tenants are paying their rent even with the impact of indexation. Bankruptcies are back at normalized level, having fallen to record lows in H2 2021 and 2022 due to both government support and the rent relief provided during the COVID period. Overall, the COVID period resulted in an improvement in the quality of our tenant mix with the bankruptcy of our weakest-performing tenants during this period. The number of stores affected is below H1 2019 levels and in line with H1 2021. It represents 2.3% of total stores and only 1.7% in MGR terms. More than 1/4 of stores affected were in France due to the hand of French government support. These stores, including a nonperforming brands such as Camaieu and San Marina, which did not pay the rents. These were fully provisioned and therefore, had no impact on our P&L. Other brands like Gosport and Lagardere were taken over by new owners and operators with no impact on vacancy. In total, 89% of bankrupt units saw their tenant still in place or replaced, thanks to strong store performance, limiting the effect of bankruptcies and vacancy levels. Moving now to vacancy. Group vacancy as of June 2023 decreased to 6.3% compared to 6.5% at year-end 2022 and down from 7.2% in Q1, which had increased primarily due to the seasonality effects. In Continental Europe, vacancy rate increased slightly to 3.6%, mainly due to the bankruptcies I've just outlined as well as the expiry of short-term deals put in place during COVID in Germany and Austria. This figure is 30 basis points below Q1 levels, thanks to strong leasing activity with EUR 56 million of MGRs signed in Q2, 26% above Q1. U.K. vacancies decreased from 9.4% in December 2022 to 8.5% in June 2023 with 2 different situations. The vacancy rate in Westfield Stratford continued to decrease, down to 3.7%. Westfield London vacancy is at 13% and is being proactively addressed through the repurposing of excess space due to the 2018 extension and wider leasing efforts. U.S. Flagship vacancy is down to 7.9%, below the 8.2% at year-end 2022 and down from 9.4% in Q1 2023, thanks to strong leasing activity in Q2. U.S. Flagship vacancy is now in line with pre-COVID levels of 7.7%. Overall MGR signed amounted to EUR 219 million, an 11% increase compared to H1 2022 and 25% on top of the H1 2019. The primary focus of our leasing activity is executing long-term deals. The MGR sign on long-term lease in H1 2023 stood at EUR 171 million, a 17% increase compared to last year and up 20% compared to H1 2019. The proportion of long-term leases increased to 78% for the group, close to the 81% seen pre-COVID. And the percentage of long-term deals increased significantly in the U.S., from around 60% in H1 2019 and 2022, to 71% in H1 2023, reflecting retailers' interest for URW's assets. This retailer demand is also visible in the rental uplift achieved which reflects higher pricing tension as vacancy decreases and tenant sales increase, outperforming core inflation in the market. Total group H1 2023 uplift was 12.5% on top of indexation and 17.6% on long-term deals, including a 38.8% uplift in the U.S. This sharp increase in MGR uplift is explained by long-term renewals and relettings at terms significantly higher than the short-term deals signed at the time of COVID during the COVID period at a discount. In Continental Europe, the uplift stood at 4.6%, including a 6.5% on long-term deals on top of indexation. Excluding the impact of indexation, the uplift in Continental Europe would be above 10%. Moving now to occupancy cost ratio, which has become a more relevant metric in 2023, given the normalized operating environment. During the last 12 months, OCR has continued to decrease further, below pre-COVID levels in Continental Europe at 14.8%. This is thanks to the strong tenant sales growth absorbing the effect of indexation. In the U.K., OCR decreased further to 19.4% as a result of tenant sales increases and is expected to decrease further in H2 with a decrease in business rates effective since April. In the U.S., OCR is slightly up at 10.7%, with increased rents, partly offset by tenant sales growth. And as explained at the full year, the volume of activity generated by omnichannel retailers in stores goes well beyond sales figures used to compute the OCR. This additional activity includes Click and Collect and return of product in stores, which have huge value for retailers, are strong contributors to the margin but are not captured in the OCR. This additional activity did not exist to the same extent in the past, which limits the relevance of the comparison with 2019. The strong performance of our retail assets in H1 2023 was mirrored by our Offices portfolio. Offices NRI amounted to over EUR 41 million, a 15.6% increase, thanks to leasing activity, the ramp-up of the Pullman Montparnasse Hotel and the delivery of Darty offices in May 2022. On a like-for-like basis, this was up 17.1% on a group basis, including 26.7% in France. Leasing progress in Trinity was a major contributor to this like-for-like growth. 3 additional leases were signed in H1 2023 for the 5,000 square meter, increasing current occupancy to 85%. This has been achieved at an average rent of EUR 568 per square meter, including EUR 600 for the top floors, in line with prime rents in La Défense and lease incentives below the market average. This demonstrates the appeal for URW's prime, well-located assets with high sustainability ratings. Now to Convention & Exhibition, where we saw strong activity and high levels of commitment from organizers. A number of successful shows took place in H1 2023 with high attendance in line or even above pre-COVID levels. As an example, Vivatech 2023 at Porte de Versailles attracted 150,000 visitors, a 21% increase compared to 2019. This demonstrates the return of physical events and a significant demand from consumers for experiences, as explained by Jean-Marie. Pre-bookings for 2023 represent 95% of the net rental income budgeted in the year and this supports our projection of a return-to-normal activity in 2023. And as explained at the full year, C&E activity in H1 2023 was affected by the change in seasonality patterns for certain annual shows shifting from audio to venues after COVID. This seasonality effect is reflected in the H1 2023 results for C&E. Recurring net operating income amounted to EUR 71 million compared to EUR 95 million in H1 2022 and EUR 88 million in 2019. As a reminder, 2022 NOI included EUR 25 million in subsidies from the French state to compensate for pandemic-related periods of closures. Excluding these subsidies and restated for the triennial shows held in 2022 and 2023, C&E 2023 NOI was 5% above 2022. Restated for the shows at [ 50 to ] even years, it would be 3.8% below 2019 levels due in particular to energy cost increase. H1 2023 results were also supported by a 2% decrease in our general expenses despite inflation. Beyond this recent evolution, we want to show you a longer-term perspective. Compared to H1 2019, we have reduced our general expenses by 9% despite significant inflation of circa 15% over the period. Our general expenses have come down, thanks to restructuring efforts, efficiency gains and office moves. We will continue to be disciplined on costs and pursue further savings going forward. Moving now to our portfolio values, which stand at EUR 51 billion, a 2.3% decrease versus year-end 2022. Portfolio values saw a like-for-like decrease of circa EUR 1 billion or 2.2% compared to December 2022. Disposals have an impact of EUR 0.3 billion, offset by EUR 0.6 billion of CapEx. FX had a negative impact of EUR 0.2 billion, mainly due to the strengthening of the euro against the U.S. dollar. Net reinstatement value stood at EUR 150.7 per share at the end of June 2023, a 3.2% decrease compared to year-end. This evolution is mainly driven by the decrease in like-for-like valuation mitigated by the retained earnings. The like-for-like value of the retail portfolio decreased by 1.9% in H1 2023. Since 2018, the group's retail portfolio has been adjusted downward by 21% on a like-for-like basis, revaluing much earlier than other asset classes. In Continental Europe, valuations are down 1.7% in H1 2023 and minus 14% since 2018. U.K. valuation saw a 0.8% decrease in H1 2023 and an overall decrease of 46% since 2018. U.S. assets were down 2.5% in H1 2023 and 29% since 2018. This 29% negative adjustment includes minus 16% for flagship assets, while their like-for-like NRI was up over the same period. This decrease in values, combined with high rental levels for 2023 resulted in an increase in net initial yields. In Continental Europe, this went from 4.2% in 2018 to 4.9% in 2022 and 5.1% in H1 2023. The net initial yield for the U.K. portfolio now stands at 6.1%, a 180 basis point 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 4.7% in December 2022 and 4.8% in 2023. Taking into account the circa 10% vacancy in the U.S., net potential yield stands at 5.5%, including 5.2% for flagship assets. And as in H2 2022, overall valuations have been impacted by an increase in discount rates and exit cap rates of 25 basis points, partly compensated by cash flow growth forecasted by appraisals. This growth takes into account indexation and strong operating performance in H1 2023 and amounts to 3.6% in Continental Europe and 6% for U.S. Flagship assets. Moving now to financial ratios. IFRS net financial debt has decreased from EUR 20.7 billion to EUR 20.5 billion since year-end. This is mainly as a result of the EUR 0.3 billion of disposals and EUR 0.8 billion of retained earnings. This was partly offset by the EUR 0.5 billion spent in CapEx in H1 2023 as we continued our disciplined approach to investment and the EUR 0.2 billion partial cash reimbursement for hybrid. Pro forma for the disposals signed in July and the planned foreclosures of Valencia and San Francisco, the net debt stands at EUR 20.3 billion. This would correspond to a loan-to-value of 41.7% compared to 41.9% in H1 2023 and 41.2% as at December 2022, a slight increase as a result of the value decline. On a proportionate basis, the LTV would be almost stable compared to full year 2022 at 43% pro forma for the secure disposals and planned foreclosures. Our net debt-to-EBITDA ratio has improved from 9.6x at the full year 2022 to 9.4x in H1 2023, once again below 2019 levels, thanks to the group's debt reduction and the ongoing improvement in the operating performance. As our debt continues to decrease, our EBITDA continues to grow, and our committed projects are delivered we expect to see continued improvement in these ratios. In H1 2023, our hedging program has protected our cost of debt -- our cost of gross debt at 2022 levels even in an increasing interest rate environment. On a net debt basis, URW's cost of debt was slightly lower at 1.8% compared to the full year, thanks to high deposit interest on the group's increasing cash position of EUR 4 billion as of June 2023. The group's cash position has effectively increased further and improved further in H1 2023. Thanks to funds raised, retained cash flows and the disposals completed, the group strengthened its liquidity position with over EUR 4 billion of cash on hand compared to EUR 3.5 billion as at December 2022. URW continued to access credit market in H1 2023, raising EUR 0.7 billion of debt on a proportionate basis, both in Europe and the U.S., of which 75% in Europe was sustainability linked. Together with EUR 8 billion of undrawn credit facilities, the group has EUR 12 billion in available cash and annual credit lines. Its average debt maturity stands at 8 years. And 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 raise no new financing and make no further disposals. Based on our cash on hand and the maturities of our undrawn credit facilities, we still have resources of EUR 8 billion as at June 2026. The group's debt maturities over the next 3 years amount to EUR 7.2 billion in total, meaning that the group's debt maturities for the next 36 months are fully covered. The group also completed in H1 2023, the exchange of its hybrid with a non-call date in October 2023. 92% of hybrid holders participated in this exchange, receiving EUR 995 million in the form of new hybrid with a non-call date in 2028 and EUR 155 million of cash. The purpose of this exchange was to ensure we continue to benefit from the 50% equity content of this instrument by rating agencies, which supports the group's credit rating. And this aim was met as both S&P and Moody's confirmed the current rating and stable outlook following this transaction. It was also designed to offer an alternative to a straight non-call for the hybrid holders who are also senior debt investors. Another cause for satisfaction, the group senior spreads have tightened by 20 basis points since the announcement of this transaction, even outperforming the market. All in all, the success of this transaction gives the group flexibility to execute its deleveraging program in the best conditions in an orderly and timely manner. Now on to development. The total investment cost of the group's pipeline was stable at EUR 3.1 billion, with Westfield Hamburg representing over 50%. 88% of the cost for this project have now been signed. Preletting of the retail component has improved from 73% at year-end last year to 85% to date, ahead of an opening date in H1 2024. Preletting of the office component, which will be delivered in 2024, still stands at around 1/3. In total, committed projects amount to EUR 2.4 billion, of which EUR 1.4 million has already been invested. Beyond Westfield Hamburg, other key development projects include the Coppermaker Square residential project in London and the Lightwell office redevelopment also for delivery in 2024. Regarding recent deliveries, Garbera extension of over 19,000 square meters opened in H1 2023 and was 98% let. This leasing success supported a positive revaluation impact in excess of 5% over the cost of construction. That's all for me. Now back to Jean-Marie for some closing remarks.

Thank you, Fabrice. With these strong results, we continue to demonstrate the strength of our portfolio, our operations and the quality of our customers. Our strong footfall and sales growth across all regions outperformed the market, and we are delivering record leasing levels and robust rental growth. We continue to make deleveraging progress in Europe and with U.S. regional assets. The radical reduction of the group's U.S. financial exposure remains our path forward and our operational performance, in particular, in the U.S., our controlled cost of debt, ample liquidity position and CapEx control give us flexibility on when we execute. With these results, we expect our 2023 AREPS will be at the upper end of our full year guidance of EUR 9.30 to EUR 9.50. This confidence stems from: our strong operational performance, above indexation; our tenant sales; high collection rates; and dynamic leasing activity with double-digit MGR uplift; our controlled cost of debt and visibility on our hybrid costs; reduced general expenses; and [ deleveraging ] progress in line with our guidance. As mentioned earlier, we are building on the success of our Better Places strategy with a step change evolution that will include our own path to carbon neutrality. In this, we see significant opportunities to create value for all stakeholders as a partner to cities in their environmental transition. We'll share more about this ambition at an Investor Event in Paris on October 10. Thank you for your time today. We'll now open it up for questions.

[Operator Instructions] The first question is from Jonathan Kownator from Goldman Sachs.

So 2 questions, if I may. Given your reduction in G&A and the way you're maintaining also interest costs lower, you've achieved already 55% of your -- the top end of your guidance on EPS. So just curious as to why -- I mean, are you expecting some weakness and some lower [ HS ] H2? Or is there a chance that you effectively land your EPS higher than your guidance? Is the question number one. And question number two, are you able to give us already an outlook on the dividend for the end of the year?

Thanks for the question. Regarding the dividend, it remains our intention to reinstate a dividend for fiscal year 2023 payable in 2024. And this decision will take into consideration a number of factors, including the operating performance, the deleveraging progress and ultimately the credit metrics. And on that front, it will, at the end of the day, depend predominantly on the valuation of assets that we see in H2 of 2023. And the decision will be made at the end of the year, so -- and we announce in February for the announcement of the full year 2023 results. Now coming to your first question regarding the guidance and the implied guidance. In fact, when you look at H2 2023 versus H2 2022, there are 2 points to. The first one is the hybrid. And so basically, in H1 2023, we still had -- in H2 2022, we still had the old hybrid. And so we will have the impact of the new coupon of the hybrid with a non-call date in 2028, which represents around EUR 0.18 in terms of AREPS. So that's the first element when it comes to H2 2023. If you compare that also to H1 -- H2 2022, in H2 2022, we benefited at the end of the day from a positive contribution from an indemnity from El Corte Ingles, which had a 20 basis points impact -- positive impact. So all in all, when you combine those 2 elements, the growth that you see between H2 2023 and H2 2022 is at the end of the day, in line with the 6% to 7% that we've seen in H1.

The next question is from Paul May from Barclays.

I've got a couple of questions. Just first one on the U.S. asset valuations. In your transactional evidence, it would suggest that you either sold at discount to full year 2022 values, a sort of high single-digit discount, or in high single-digit yields on the assets that you sold, whereas the value decline was quite muted, also everything that's happening in the U.S. with regard to regional banks and the commercial real estate exposure there. What were the conversations like with your valuers for the U.S. assets over the first half? I suspect they were quite difficult, but that doesn't seem to have come through in the yield or in the value declines over the first half. And the second question, just around leverage. I appreciate it's not your main focus, but the EPRA LTV is now one of the highest in the sector, particularly if you adjust out the goodwill or the intangibles, and that's continued to increase since you've basically not been paying a dividend and have implemented the disposal program. So I just wondered why now the credit metrics are seen as being better despite arguably being worse than when you suspended the dividend. Why that might lead you to reinstate the dividend, given the IFRS loss? You don't have to is my understanding. And I just wondered how you plan to reduce leverage moving forward because disposals and cutting the dividend doesn't seem to have worked from a ratio perspective. I appreciate in absolute terms, debt has come down.

Thanks a lot, Paul, for your question. I mean starting with the deleveraging. In fact, over the last 2.5 years, the debt has reduced by close to EUR 4 billion and the net debt-to-EBITDA ratio has improved. And when it comes -- and by the way, improved above pre-COVID levels. And when it comes to the LTV, it has still come down by 3% from 44.7% and here, I'm talking about the IFRS LTV, to 41.7%, including these pro forma disposals and the foreclosures. So basically, you've seen that we have been progressing. And the disposal that we have completed, Jean-Marie referred to the EUR 4.7 billion of disposals completed over the last 2.5 years and the retained cash flows allowed us to reduce significantly the debt over that period. And by the way, we will continue to do that. Our aim is still to come down to a loan to value to around 40% on an IFRS basis compared to 45%, including the hybrid, and we'll continue to do that. I think, as we mentioned, the radical reduction of our exposure to the U.S. is the path forward. As we mentioned, it will -- it might take longer. And this is why effectively, we said that we have the flexibility to decide when we execute on that. And this flexibility is given to us by the operating performance that we have achieved, the strong cash position that we have and the hedging that also protects our interest coverage ratio.

When it comes to the U.S. valuations or in the discussion that we have with the valuers or the appraisers, they have taken into account a yield expansion. And if you look in the details of our MD&A, if you look at the yield impact on valuations, it's close to 8%. It's minus 7.9%. But this has been partly offset by the strong operational performance that you have seen in our assets and which they took into account, which has a positive effect, so you have a rent positive effect of plus 5.4%, which explains this minus 2.5% on the valuation of our U.S. Flagships. I think that the remaining portfolio that we have is mainly made of high-quality assets, all A rated and above. And that's almost the best of the best that you can find on the market today.

Is it possible to have a quick follow-up or not?

Please do.

Just on the leverage question. I appreciate if you pick kind of the highest point that it's down, but it is still materially up versus pre-COVID on an LTV basis. And as I say, we fully appreciate the absolute debt has reduced and credit to you for doing that. But just wondered how you do think about that LTV metric and because arguably, the only real way to reduce that in any meaningful percent is to have more equity, whether that's new equity issuances or whether that's aggressive disposals. And I think the latter is probably quite difficult given the transactional market. So I just wondered how you wanted to sort of look at that because I think more investors are looking at that EPRA LTV as a metric for your leverage.

We'll -- as we said, we'll continue to our first secure the EUR 700 million of European disposals, and we are on track to achieve that by the end of this year, so which will complete our EUR 4 billion of disposals in Europe. We have continued to streamline our U.S. regional portfolio. We have 5 remaining assets, and we have active discussions, and we expect to -- are confident that we continue to streamline this which will generate additional proceeds. And the path forward is still the radical reduction of our U.S. financial exposure. We have the time to do it. The operating performance is there. Our assets are even gaining market share. You've seen that the consumer confidence in the U.S. is at the highest point over the last 2 years, reaching 117 from 110 in June, higher level since July 2021, which tells a lot about the consumption that we see as well in our assets. So we see that continuing. We progress on our leasing activity, and we are going further into getting the vacancy down, which will have a positive effect. We have ample liquidity. We have time. There is no existential question. So we will deleverage for the radical reduction of our U.S. financial exposure.

The next question is from Markus Kulessa from Bank of America.

I have a follow-up on the implied H2 AREPS. Maybe if you can bridge me on half year versus half year. I understand the H2 versus H2. But it's a big decline versus H1, EUR 1.00, basically, you talked about EUR 0.18 coming from the hybrid cost, it's got some exceptional or some increase in admin costs, which now is cyclicality in H2. This would be my first question. And then on the disposals because you have different figures, I suppose it's the difference between IFRS proportion. I need just to make sure if in H1 effect EBIT was EUR 0.3 billion or EUR 0.5 billion or EUR 0.9 million, which I saw somewhere.