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

Good morning, and welcome to Unibail-Rodamco-Westfield's 2024 Half Year Results Presentation. H1 was characterized by strong operating performance across all activities. In retail, this meant higher year-on-year footfall and tenant sales, outperforming national sales indices in the U.S. and in Europe, as well as continued robust leasing activity. Our Convention & Exhibition business has delivered record results, thanks to the early impact of the Olympic Games, which starts tomorrow, as we are hosting a number of events and operational hubs at our Viparis venues. Office's NRI was up as we benefit from the full effect of leasing progress at Trinity Tower in La Défense, which is now fully let. And the first half was a strong period for new revenue growth with Retail Media revenues up significantly, fully on track to meet our 2024 target. The first half also saw the stabilization of asset values, with net initial yields reflecting rental growth. Regarding disposals, in the year and to date, we have completed or secured around EUR 0.3 billion of transactions, aligned with our last unaffected book values in a very challenging investment market. This brings us to a total of EUR 5.3 billion IFRS net debt reductions since 2021. In H1, we delivered 4 projects for a total retail GLA of 47,000 square meters. Before we look at this performance in more detail, I want to start with the situation in Hamburg. Last Friday, to provide timely and transparent information to the market, we announced a significant increase in the total investment cost of Westfield Hamburg-Überseequartier. In April, a water leak was discovered in the basement of the development, which delayed the opening of the project. In response, we formed an ad hoc Steering Committee at group level to provide support and guidance to the local team and secure a path to opening. Until this point, all information on the project, such as the reported TIC and pace of cash expenditure versus cost to date was consistent with the project phasing. Our team in Germany, with a combined 50 years of experience, had been running the project since 2017 under the supervision of our Chief Development Officer since the project's inception until a couple of months ago. The Steering Committee examined the cost and implications due to the delayed opening, which we announced on Friday. This totals approximately EUR 160 million. The Steering Committee also uncovered serious project mismanagement and identified significant cost overruns of approximately EUR 360 million. Clearly, overruns of this magnitude are totally unacceptable and understanding how this happened is our #1 priority. Changes to the executive leadership of the project and its oversight have already been made. And we have appointed Accuracy as forensic specialists and White & Case as legal counsel to undertake a comprehensive, independent investigation. They will report their findings to the Supervisory Board and the Management Board. Let's look at Westfield Hamburg in more detail. The project has gross built area of over 500,000 square meters and includes 13 buildings that share a basement and common mechanical, electrical and plumbing installations. The different parts of the project, retail, office, residential, hotels and the cruise terminal, are stacked on top of each other and share a common platform. The delay was initially caused by a water leak in the third basement, the lowest part of the project, that's 14 meters under the water level of the Elbe River. Small cracks were detected in the rut of the building, allowing water into technical rooms, where electrical equipment-serving tenants and life safety systems for the entire project are located. This also meant that large parts of the development were without electricity while the program was being addressed, delaying tenants' preparation for opening and impacting the rest of the testing and commissioning procedures. This is where the scale and complexity of the project is particularly relevant. Critical systems such as fire and life safety are huge, with the sprinkler system alone involving 360 kilometers of piping, 72,000 sprinkler heads and 130 water valves. Another example, the building management system. It is comprised of 94,000 sensors connected by 1,200 kilometers of cable and controlled through 570 cabinets. Let me now explain how this contributed to the TIC increase we reported on Friday. The cost attributable to the water leak and subsequent opening delay include the remediation works conducted to address the technical issue. Then there are costs related to keeping the site open and operable. To give you a sense of the impact of the size of the project, it costs approximately EUR 11 million a month to keep the site active. Finally, there is tenant compensation for delayed opening. The EUR 160 million shown on the slide is a conservative figure that does not include insurance proceeds. The EUR 360 million was identified by the Steering Committee as it dug deeper into the finances and management of the project. This overrun mainly relates to change orders and scope gaps, primarily in mechanical, electrical and plumbing contracts, and additional quantities in open quantity contracts. These issues were caused by an insufficient level of design detail at the time of contract signing. It also includes the additional cost of extended active construction contracts and other settlements and provisions for past and current contracts. This is our best estimate of both the additional costs and the anticipated recoveries. It is based on the review performed by our quantity surveyor on the most significant work packages as well as the analysis of our legal counsel on the main claims already received. To support these efforts, we have reinforced the contract management team, who will focus on the reconciliation of contracts and final quantities. Now let's look at the impact of these figures on the group. As announced last week, the project delay and cost overruns are not expected to have an impact on the group's full year average guidance for 2024. The increased TIC has a plus 50 basis points impact on our H1 loan-to-value ratio. In order to mitigate the impact of the overrun on our LTV, we are reprioritizing and rephasing some of our asset plans to reduce our CapEx spending over the next 18 months in a way that protects long-term value creation in our assets. This is expected to offset around half of the overruns. As previously announced, we are working towards a retail opening on October 17, followed by a phased opening of the hotels and offices. The whole Management Board is focused on achieving this goal. Now I want to reiterate, this situation is unacceptable. Changes to the executive leadership of the project and its oversight have already been made, and we are launching a comprehensive independent investigation into exactly how the overrun occurred. It is vital that we learn lessons from this and make any further necessary changes. We'll be able to talk more about this in the Q&A. Now let's take a closer look at our solid performance for the first half of 2024, starting with key financials. Like-for-like NRI is up 5.6% year-on-year, reflecting our solid operational performance. Our cost of debt remains low, thanks to our hedging program and higher cash remuneration. Our adjusted recurring earnings per share was EUR 5.14. This was down 2.7% versus the same period last year due to the refinancing of our 2023 hybrid in July of last year. H1 2024 performance is fully in line with our guidance for the full year. And our net debt-to-EBITDA ratio stands at 9.3x, stable versus the end of 2023. Let's take a closer look at the operational performance for our shopping centers, which are continuing the same positive trends we saw last year. Tenant sales grew by over 4% supported by footfall growth, up almost 3%. Vacancy improved 80 basis points versus H1 2023, also up very slightly versus the end of last year, which is a typical seasonal trend in the first half. Our proactive management delivered a healthy MGR uplift of 7.4% and almost 80% long-term deals in H1, both in line with last year's performance. Looking at footfall and sales more closely. In Europe, footfall is up 2.5% and tenant sales are up 4%. When compared to blended national sales indices for the European markets in which we operate, our performance suggests that we continue to gain market share. This higher sales performance also results in higher sales-based rents in Europe, EUR 36 million versus EUR 30 million for the same period last year. Other variable income is up, primarily driven by new revenues in Retail Media, which I will come back to later. In the U.S., footfall and tenant sales are both up by around 5%. Tenant sales are double the national sales indices, illustrating the rebalancing of retail real estate in the U.S. as retailers concentrate on stores in the best-performing locations. In this context of growing sales, the level of sales-based rents seen here is a result of 3 elements: our successful leasing strategy to convert SBR into higher MGR, a high comparison basis in H1 2023 due to settlements from the prior year, and lower sales in the Home segment. Following the positive evolution of footfall, other variable income in the U.S. has continued to grow, up 11.4% from the same period last year. Let's come back to our market share gains in Europe and the U.S. by looking more closely at the fashion segment, which represents around 1/3 of MGR in each of our regions. For years, top retailers have focused on the best stores in the best locations, expanding flagship stores while they close less-performing units. The quality of our portfolio and our proactive management of our tenant mix means that we are the preferred destination for this expansion, with a group-wide average GLA per fashion store that has increased 12% over the last 5 years. These expansions, when combined with accelerating retailer drive to store strategies through services such as Click & Collect, which the majority of our fashion retail units now offer, translates into real market share and growth. Over the past 6 months, fashion sales at URW locations have outperformed the market by between 5 and 8 percentage points. Moving next to Westfield Rise, our in-house retail media agency, where our in-mall network now totals almost 1,800 screens in Europe. In H1 2024, we delivered a 25% net margin increase in Europe versus H1 last year and a 21% increase in average revenue per visit. Our Retail Media offer gives brands the unique proposition of immediate interaction with the physical audience close to a retail store or a point of purchase. This includes brand experiences where our major brands use our centers to engage directly with customers. In H1, we executed 545 of these physical activations, up 7% from the first half last year. Westfield Rise has already secured 63% of its budgeted 2024 revenue, giving us confidence we will achieve the EUR 75 million net margin target set out in our 2024 and beyond plan. Moving to our 4 project deliveries in H1 that represents a total investment cost of EUR 826 million at URW share and a combined yield on cost of 5.9%. This includes Westfield CNIT in Paris La Défense, a 29,000 square meter of development that is 98% let and has already seen a 40% increase in weekend footfall since opening in May. The site also includes CNIT Forest, a new 20,000 square meter of convention and exhibition space operated by Viparis, which has already hosted 40 conferences and welcomed over 350,000 participants. At Westfield Old Orchard in Chicago, we have successfully converted a former department store box into 6 retail units, including a flagship Zara store. While at Fisketorvet in Copenhagen, we have refurbished the center's dining and entertainment experience, bringing in new and attractive offers. In addition to Hamburg in October, in H2, we will deliver the highly sustainable Lightwell office development in La Défense. Now on to disposals. Investment market conditions remain challenging as interest rates stayed higher for longer than expected. Rate cuts in the U.S. have not yet materialized, and the first rate cut from the ECB only took place in June. In this environment, we have completed or secured EUR 0.3 billion of transactions in the year-to-date and are currently in active discussions on EUR 1 billion of assets. We are fully committed to our deleveraging plan through disposals in Europe and the radical reduction of our financial exposure to the U.S. A final word on our Better Places plan, where we have been making good progress since we first shared our updated sustainability road map in October last year. This includes progress against all of our targets, in particular the reduction of our Scope 1, 2 and 3 emissions and the implementation of programs such as the Better Places certification and Sustainable Retail Index. You can find a full update in our CSRD-format report, which we are one of the first 5 industrial companies in Europe to deliver. Our performance against our targets, combined with our comprehensive approach, has led to further recognition in the year-to-date. URW was recently ranked as one of the top 100 most sustainable companies in the world by Time Magazine and specialist data from Statista. And we were named among the top 10 French companies for gender equality and ranked 75 worldwide by Equileap, a leading diversity research company. With that, I will hand it over to Fabrice and be back for some closing remarks ahead of the Q&A. Now over to you, Fabrice.

Thank you, Jean-Marie, and good morning, everyone. Our H1 2024 financial performance confirms the positive operational dynamic seen in 2023, with further improvements in terms of tenant sales, leasing and retail media activity. Together with indexation and new revenues, this progress translated into strong like-for-like net rental growth. Our Convention & Exhibition business also performed strongly, benefiting from a full recovery in activity, seasonality effects and the Paris Olympics. Net debt increased by EUR 0.4 billion as a result of the CapEx spent in H1 on our committed pipeline and following the resumption of shareholder distributions. Net debt to EBITDA remained stable and interest coverage ratio improved thanks to increasing EBITDA and stable financial expenses. Recurring earnings per share for H1 2024 stood at EUR 5.49, up 0.7% year-on-year. Adjusted recurring earnings totaled EUR 5.14 per share, a 2.7% decrease on H1 2023. The difference between these two figures is explained by the increase in the hybrid cost following the exchange offer completed in June last year. Overall, EBITDA was up 3.3% compared to last year, even when considering the impact of 2023 disposals. On a like-for-like basis and excluding the positive impact of the Olympics, EBITDA was up 5.8% compared to last year. This was supported by a 5.6% increase in like-for-like NRI, with strong contribution from all activities. H1 2024 like-for-like EBITDA is now 4.9% higher than 2019 levels, demonstrating the proactive management of our high-quality portfolio. So let's break down now the key components of our AREPS for the first half. As mentioned earlier, our H1 AREPS was impacted by higher hybrid costs, accounting for minus EUR 0.18. As you can see on the chart, recurring earnings are EUR 0.04 higher than the same period last year if you exclude the hybrid effect. On top of that, the disposals completed in 2023, which delivered a EUR 1.1 billion reduction in proportionate net debt, had a minus EUR 0.29 impact on H1 2024 AREPS in NRI terms. A strong operating performance from shopping centers, offices and convention, exhibition was a positive contributor to H1 results, adding EUR 0.66 to AREPS. This strong operating performance had a mechanical effect on taxes and minority interest of minus EUR 0.24 in total. Moving now to net rental income for URW's core shopping centers, which was up 5.3% on a like-for-like basis, including 2.1% from indexation. Strong leasing activity in 2023 and H1 2024 delivered both rental uplift and vacancy reduction. This is reflected in the 2% positive contribution to like-for-like NRI growth in the renewals and relettings, net of departures column. There was also a positive contribution from commercial partnership, parking income, utilities in the U.K., all included in the other category. Commercial partnership income was up by 16.3% on a like-for-like basis, and this includes the Westfield Rise net margin increase of almost 25% compared to last year. Parking income was another strong performer in H1 2024, up by 15.3% on a like-for-like basis. Doubtful debtors had a positive contribution, with lower bankruptcies and normalizing rent collection at 97% in H1 2024. U.S. flagship like-for-like NRI growth was up 4.2% driven by positive leasing activity at plus 7.4% and higher parking income. This was also partly offset by lower SBR due to crystallization into MGR and a positive impact in H1 2023 of 2022 SBR settlements, as mentioned by Jean-Marie. Moving to bankruptcies next, which are below H1 2023. 123 units were affected in H1 2024, representing just 1.2% of total stores. This compares to 2.3% of stores last year. Austria, Northern Europe and France were most affected. In total, 64% of bankrupt units saw the tenant still in place or replaced, thanks to strong store performance, limiting the negative impact of bankruptcies and vacancy levels. Moving now to vacancy at a group and regional level. Group vacancy as of June 2024 stood at 5.5%, up marginally compared to 5.4% at year-end 2023 and down from 6.3% at the first half of 2023. In Continental Europe, the vacancy rate has edged lower in the past year, reaching 3.5%, but was slightly up compared to December 2023. This is mainly due to the bankruptcies I've just outlined. U.K. vacancy is down to 6.4% from 6.9% at year-end 2023 and 8.5% a year ago. The vacancy rate in Westfield Stratford continued to decrease and is now below 3%. Westfield London vacancy is below 10% and is being proactively addressed through leasing efforts as well as the repurposing of excess space added by the 2018 extension. This includes the conversion of the former House of Fraser department store into a high-quality office space that can accommodate up to 2,000 workers. U.S. flagship vacancy stands at 7.4%, down from 7.9% at H1 2023 and below pre-COVID levels of 7.7%. Moving now to leasing. Overall MGR signed amounted to EUR 217 million, a 1.4% increase compared to H1 2023 and 36.6% above H1 2019 levels. The primary focus of our leasing activity is executing higher value long-term deals. This made up 79% of MGR signed in H1 2024. Continental Europe and the U.K. saw higher leasing volumes, with MGR signed up 26% compared to H1 2023. In the U.S., volume of MGR signed was down as a result of lower vacancy to address and focus on higher value-added deals. This is reflected by the positive rents per square foot evolution on MGR signed in H1 2024 in the U.S. This stood at $75 per square foot, representing a 6.7% increase versus last year, including plus 12% on long-term deals. Retailer demand is also visible in the rental uplift that we've achieved. Starting on the right, total group H1 2024 uplift was 7.4% on top of indexation. This was almost 12% on long-term deals over 36 months. In Continental Europe, the uplift stood at 2.6%, including a 5.4% uplift on long-term deals on top of indexation above last year's level. Excluding the impact of indexation, the uplift in Continental Europe would be 5.2% on all deals and 7.9% on long-term deals. The strong uplift in the U.K. results from improving pricing tension as a result of lower vacancy and positive sales evolution. It also includes the reletting of units signed at discounted levels during COVID. The uplift in the U.S. was 14.7%, including 31.9% on long-term deals, in line with levels achieved in previous quarters. Moving now to our occupancy cost ratio, which stood at 15.4% in Continental Europe, in line with last year supported by an increase in tenant sales. In the U.K., OCR decreased from 17.4% to 16.8% in H1 2024, thanks to stronger tenant sales and the decrease in the U.K. business rate since April 2023. In the U.S., OCR for flagship assets, excluding department stores, was 12.8% compared to 12.9% in 2023. And as we have demonstrated previously, 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 store returns, which have huge value for retailers and are strong contributors to the margin but are not captured in the 2024 OCR. The strong performance of our retail assets in H1 2024 was mirrored by our offices portfolio, where NRI amounted to EUR 50 million. The 20.4% increase was thanks to leasing activity, in particular the full letting of Trinity and the performance of the Pullman-Montparnasse hotel. On a like-for-like basis, offices NRI was up 23.3% on a group basis, including 32.3% in France. Vacancy for the Office division in Europe was 6.2% at the end of June 2024, down from 11.1% at the end of 2023. Moving now to the Convention & Exhibition activity. Recurring net operating income amounted to EUR 109 million compared to EUR 71 million in H1 2023 and EUR 81 million in H1 2018, the last comparable year pre-COVID. The usual seasonality effect is reflected in the H1 2024 results with biannual shows and even triennial shows such as Intermat taking place this year. It was also positively impacted by the first revenues from the Paris Olympics, which led to an increase in our venues' occupancy rates in H1 2024. Restated for the triennial shows and excluding the Olympics impact, C&E NOI was up 25.4% versus H1 2023 and plus 13.2% above H1 2018. C&E recognized EUR 15 million of NOI from the Paris Olympics in H1 and will continue to benefit from the Paris Olympics and Paralympics for the full year with a high degree of visibility. 97% of 2024 expected letting revenues have been secured to date. Here, we have highlighted the Viparis venues that will host the Olympics and Paralympics activity this summer. 10 sport competitions will be held across 2 URW venues, Paris Nord Villepinte and Paris Porte de Versailles. The Palais des Congrès de Paris will serve as the main presenter as well as the headquarter for the International Olympic Committee and Paris-Le Bourget will act as the international broadcast center. The Olympics is a great opportunity to demonstrate the quality and flexibility of our C&E venues in Paris. We have also highlighted the location of our shopping centers in the Paris region. While the direct impact of the Olympics on our shopping center is difficult to assess, operational performance data from the run-up to the event has been encouraging. Looking at Westfield Forum des Halles, in the heart of the city, there has been an average increased footfall of 4% on the first 3 weekends of July compared to last year. H1 2024 results were also supported by a 3% decrease in our general expenses, excluding noncash benefits to EUR 81 million. This is on top of the 5% decrease achieved in full year 2023. Compared to 2019, we have significantly reduced our administrative expenses by 14% despite the high inflation experienced over the period. We have been able to deliver efficiency gains, including head count reductions, and have launched additional measures in 2024 to reduce cost further. In total, these are expected to generate savings on 2024 general expenses compared to last year and to offset the expected full year increase in financial expenses generated by the overruns of the Westfield Hamburg project. Moving now to our portfolio values, which stand at EUR 49.8 billion, a 0.4% increase versus year-end 2023. CapEx has a positive impact of EUR 0.8 billion. Portfolio value saw a like-for-like decrease of minus 0.7% compared to December 2023, i.e., minus EUR 0.3 billion. Non like-for-like revaluation was negative at minus EUR 0.6 billion, the majority of which was as a result of the increased TIC at Westfield Hamburg. FX had a positive impact of EUR 0.4 billion, mainly due to the strengthening of the U.S. dollar against the euro. Net reinstatement value stood at EUR 142.50 per share at the end of June 2024, a 2.9% decrease compared to year-end. This evolution is mainly due to the negative non like-for-like valuation, offset by the retained earnings. Net reinstatement value also takes into account the return of shareholder distributions with the EUR 2.50 per share paid in May 2024. Moving to group shopping center valuation on the like-for-like basis, where we are seeing the stabilization of retail values in Europe. Like-for-like valuation in Continental Europe was positive in the first half, up 0.7%, driven by a positive rental effect of 1.7%, partly compensated by a yield impact of minus 0.9%. Like-for-like valuation in the U.K. was up 1.4% in H1 2024 after an increase of 0.6% in 2023. U.S. valuations were down minus 4.7% in H1 2024, and this includes flagship values, which were down minus 3.9% on a like-for-like basis, mainly resulting from a negative yield effect of 2.8% as appraisals increased both exit cap and discount rates. On a group basis, the retail portfolio like-for-like valuation decreased by 0.5% in H1 2024. This increase in like-for-like values in Europe combined with higher rental levels resulted in stable net initial yield. In Continental Europe, net initial yield stood at 5.4%, while the net potential yield assuming 100% occupancy was 5.6%. The net initial yield for the U.K. portfolio stood at 6.2%, with a net potential yield at 7% in view of the higher remaining vacancy in the U.K. The net initial yield for U.S. flagships has increased from 4.8% at year-end 2023 to 5% in H1 2024 following the H1 valuation decrease. The net stabilized yield for the U.S. flagship, i.e., based on appraisers' rent estimate in 2027, stood at 5.8%. This is above potential yields in Continental Europe. And this stabilized yield illustrates the growth embedded in URW's U.S. flagship assets. Now on to development. The total investment cost of the group's pipeline increased to EUR 2.9 billion, mainly as a result of the EUR 0.5 billion increase in the total investment cost of Westfield Hamburg. Pre-letting of the Hamburg project now stands at 93% for the retail component and 62% for offices. The H1 deliveries shared by Jean-Marie, including CNIT Eole project in La Défense, Fisketorvet Dining and the Lord & Taylor unit at Old Orchard, represent a total TIC of EUR 0.2 billion, and these assets are 94% let. We also added 2 projects for a total cost of EUR 0.1 billion. The first is a densification project, including residential at Westfield Garden State Plaza in New Jersey. This will be done with a JV partner with limited investment by URW. The second is an extension of Westfield UTC in San Diego that already has a very high pre-letting level. Both projects are forecast to generate attractive yields on cost. In total, projects to be delivered in H2 2024, meaning Westfield Hamburg and the Lightwell office redevelopment in Paris, are 87% pre-let, including 93% for the retail component. In 2024, we have also taken full ownership of 2 jointly held assets. These off-market transactions built into our JV agreements were achieved at attractive conditions. Taking full ownership gives us greater flexibility to work on value creation on these assets. In February, we acquired a partner stake in Centrum Ursynów in Warsaw, a 47,000 square meter shopping center, with an opportunity to improve the rent roll and expand the asset. In July, we acquired full ownership of Westfield Montgomery, a 105,000 square meter flagship destination in Maryland. This is an asset with strong reversionary and densification potential. Once this value creation work is completed, we will consider capital recycling opportunities. Moving now to financial ratios. IFRS net financial debt has increased from EUR 20 billion to EUR 20.4 billion since year-end. This is mainly as a result of the EUR 0.7 billion of CapEx spent in H1. The reintroduction of a shareholder distribution had a EUR 350 million impact on H1 debt. These elements were partly offset by the EUR 0.8 billion in earnings generated over the period. The IFRS loan-to-value stands at 42.5% compared to 41.8% as at December 2023. This increase is a result of the net debt evolution and the Westfield Hamburg valuation decrease, with a 50 basis points impact in H1 2024. H2 net debt and ratios will be impacted by the cash spent to complete the Hamburg project. And URW will reduce its CapEx spending over the next 18 months, which is expected to compensate around half of the other rents of the Westfield Hamburg project. Our net debt-to-EBITDA ratio is stable at 9.3x, while the interest coverage ratio improved from 4.2x in 2023 to 4.6x, thanks to increasing EBITDA and stable financial expenses. The net debt-to-EBITDA ratio pro forma for the CapEx to be spent on projects to be delivered in 2024 and the full year EBITDA contribution is expected to remain stable. URW's cost of debt was slightly up in H1 2024 at 1.9% compared to 1.8% last year. This is a result of the higher cost of funding raised in 2023, partially compensated by a higher rate on the group's deposit in H1 2024 compared to H1 2023. The group also benefited from a higher average cash position in H1 2024 compared to last year. The group also has significant hedging instruments in place covering the group's anticipated debt in 2024, '25 and '26. The group's cash position stands at EUR 4.6 billion as at June 2024. This compares to EUR 4 billion last year and EUR 5.5 billion in December 2023, reflecting the reimbursement of EUR 0.6 billion in bonds maturing in H1 2024. The group also raised EUR 2.1 billion of mortgage debt and credit facilities refinancing. Credit facilities were stable at EUR 8 billion. In total, the group has EUR 12.7 billion in cash and available lines, and its average debt maturity stands at 7.4 years at the end of June. Thanks to this liquidity, we have the resources to cover all debt maturities for at least the next 3 years even in a scenario where we raise no new financing and make no further disposals. That is all for me. Now back to Jean-Marie for some closing remarks.

Thank you, Fabrice. Before we open up for questions, a few closing remarks. The group confirms its full year AREPS guidance to be in the range of EUR 9.65 and EUR 9.80 per share in view of the positive operating performance in H1 2024. The main assumptions behind this are, operating performance in H2 2024 in line with H1, the positive effect in the second half of the Paris Olympic and Paralympic games for Convention & Exhibition, the impact of 2024 project deliveries, our ongoing focus on cost discipline, the impact of 2023 and 2024 disposals as part of our ongoing deleveraging plan, a slight increase in our cost of debt with the full year effect of 2023 financing activity and anticipated lower expected cash remuneration, and the full year effect, obviously, of our successful hybrid exchange offer. Regarding shareholder distribution, the guidance we provided in February is unchanged. With that, it's now time to start the Q&A.

[Operator Instructions] The first question comes from Florent Laroche-Joubert of ODDO.

Thank you for this presentation, so two questions for me, if I may. Maybe the first question on Hamburg. So we understand that you have provided your base estimate. Could you maybe tell us more on your view on when you will have maybe a better view or a definitive view? And how are you sure now that you are going to open straightforward on October 17 at Hamburg, so that could be maybe quite useful? And maybe a second question linked to disposals and valuation. So we see now a stabilization of the valuation in the assets. Why could we consider now this valuation as conservative when we make the link with the potential discussions that you could have with the potential buyers in Europe and in the U.S.?

Thank you, Florent. For Hamburg, as we said, we made the estimation. Our best estimate based on the work that has been performed by the quantity surveyor or Optima on the main work packages and also the work done by our legal counsel on the claim received. We are pursuing and continuing that work on the other work packages. And at that stage, I would say that, again, the best estimate is this 360. We'd get more visibility going forward. But again, this is a review where we have considered 100% of what we had as information. And as I said, we have launched an independent investigation with a forensic specialist and a legal counsel to review each and every step of the project since inception to now and completion, and we'd get further visibility around why such an overrun occurred at the end of the project and how we can then take measures and decisions around the way to improve our processes. But again, I think we are here with our best estimates. On the opening, here, we have reinforced our teams as well. And you mentioned as well, sorry, for the total overrun cost, that we have also reinforced the contract management teams to review all quantities and perform the negotiations with the construction companies to stabilize this global estimation. And when it comes to the opening of the retail of the project, we are working towards this October 17 date.

And when it comes to your question on values and disposal price, as mentioned by Jean-Marie, the EUR 0.3 billion of disposals that we have secured in H1 2024 were at prices in line with less appraisal. And so this is also consistent with the over EUR 5 billion of disposals that we have completed in the last 3.5 years.

The next question is from Frederic Renard of Kepler Cheuvreux.

I have two questions. The first question is on the acquisition of the remaining stake for Montgomery. I understand the rationale. But can you give more detail on pricing and yields on the deal? And how does it compare to the existing valuation? And then the next question on Hamburg. The cost of overrun obviously will lead to a higher LTV and it's a bit blurring then the net debt predictions specifically in a very sluggish investment market. So how will it impact your view on the dividend? As you mentioned in February that the distribution of the dividend was to significantly increase based on operating performance, the leveraging progress and valuation evolution. I understand in your last comment that you mentioned that it doesn't change the guidance, but if I look at the slide, it is not included.

So starting with your first question on Montgomery, so basically, this acquisition is the result of the liquidity provision that we have on these assets, which are quite usual with JV partners when you have assets in JVs. And so when I said that we did it at attractive conditions, we can't disclose the yield, but it was at a price that was below the last valuation. And the reason why we did that is, a, because there was a willing seller; and it is all a matter of circumstances in these conditions and it was also could be done at a price that made sense for us. Taking also into account that there is a huge potential on these assets where our JV partners was reluctant to put any CapEx at work to improve the asset. And ultimately, there's an important dimension to take into consideration, which is the fact that there was a financing on these assets, which matured in August and which we have been able to extend for another 2 years at very attractive conditions, at 3.8%. And so this is why we felt that this deal was a deal that made sense. Now when it comes to this question of the distribution, as mentioned by Jean-Marie, we confirm the distribution guidance, which shows to significantly increase our distribution. And as you've reminded us, it was based on three elements. One is operating performance. And as you can see, in H1, we had a strong positive performance and a positive dynamics. So here, I'd say we are on track on that one. The second is valuation. And so in H1, we saw a decrease in like-for-like valuation of minus 0.7%. But when you look at retail asset values, they start stabilizing and have a positive evolution, plus 0.7% for Continental Europe and 1.4% for the U.K. So we'll see at year-end where we stand on this valuation, which is, again, an important element when it comes to the LTV. And last, but not least, of course, there's this question of leverage and debt. And of course, Westfield Hamburg has a negative contribution on this front. By the way, the hit on valuation has been taken in H1 already on the valuation of Westfield Hamburg and its overrun costs. And so this overrun cost and so the CapEx to be spent on Hamburg in H2 will have to be looked into perspective and put into perspective with, a, the retained profit in H2; the fact that also we'll be implementing mitigating measures that will cover half of the overruns. And then, ultimately, as mentioned, the disposals out of which, as mentioned, we have EUR 0.5 billion of disposals being secured plus, on top of that, EUR 1 billion of disposals or ongoing active discussions ongoing for further disposals. So we look at where we stand in terms of overall disposals at the end of the year. And we will decide on the proposal for the distribution for next year. As we have done, by the way, last year on the basis of the LTV, the credit metrics of the company by that time.

The next question is from Paul May of Barclays.

Just a couple of questions from me. What year-on-year decline do you expect in 2025 in the convention business? Obviously, it's been a big increase in terms of the like-for-like but also including the Olympics, it'd be great to get some color on that. And then secondly, how do you plan to manage your leverage ratios moving forward given disposals seemed to be slowing? And while they have been in line with book values, they tend to be a much higher yield than the rest of the portfolio. And other market transaction yields are also much higher than valuation yields. Implying further disposals, you'd probably continue to struggle to manage your leverage ratios. So I was wondering how you're planning to bring those leverage ratios down.

So starting with the Convention & Exhibition topic. So the like-for-like figure that we have provided to you, the sort of plus 25%, excludes the Olympics. So basically, this is really on the basis of the recurring activity and, in particular, the fact that we benefited from the recovery in the activity and the seasonality. And so this is an element that gives you an insight of the evolution for 2025. Even though, again, in absolute figures, we should get a decline in 2025. And by the way, we give you the amount of the Paris Olympics in terms of contribution to the NOI, which is EUR 15 million in H1 and which is likely to double in H2. Now when it comes to the deleveraging path, as mentioned, again, we have EUR 0.5 billion of secured transaction at levels which are in line with book values. We have EUR 1 billion of assets under discussion. And as we've said in the past, and this is still true, we have EUR 4.6 billion of cash on hand, EUR 12.7 billion of credit facilities plus cash on hand, which gives us the visibility to complete the disposals at the right time and at a good condition. So this is why we feel that effectively, the deleveraging will continue to be done through the disposals.

The next question is from Jonathan Kownator of Goldman Sachs.

So as you just pointed out, you have EUR 4.6 billion of cash on hand. What are you planning to do with that cash balance? Are you planning to keep it? Now that valuations are stabilizing, would you reinvest it? Or are you going to use it to take your debt balance down or repay any debt that comes to you?

So the use of the cash, and this is why, by the way, the cash has come down from EUR 5.5 billion in December to EUR 4.6 billion, is to repay the debt that we have ahead of us. And so basically, we had EUR 0.6 billion of bond maturing in H1 2024. That was the green bond issued in February 2014. And so we repaid this. It was in excess of EUR 6 million. So we used the cash in order to repay this bond. And by the way, as mentioned, this liquidity will be used to repay the maturing debt that we have ahead of us. Now when it comes to what we do with this cash position, in fact, we place it. And it's true that we benefited in 2023 and still, at the beginning of 2024, of attractive conditions in terms of placement, both in the Europe and in the U.S. at pretty attractive levels that help also to support the cost of debt of the company and reduce the financial expenses of the company.

Okay. Very clear. I just wondering if you're able to give us a bit more color on the disposal program, what kind of interest you're seeing from buyers. Is it still very slow? You had mentioned that you were seeing potentially more buyers coming in. Any color, obviously, would be appreciated.

Jonathan, on the type of buyers that we're seeing, it's really a variety of buyers from private equity forms to our institutional money. It's the pace at which it goes that is slow. But we are pretty confident in our ability to continue deleveraging full disposals based on the level of active discussions that we have today. And you have sometimes as well some external elements like the outcome of elections that slow down a little bit the process as well, where people try to understand what will happen and then from there maybe make a final decision. So it's plus and minuses around the pace. But we have really active discussions with a variety of investors, again, from institutional money to private equity funds.

And in terms of geographies, are you able to give any sort of color? I mean, obviously, you're mentioning elections. So I guess France is part of that, right?

Yes, but the U.S. as well.

The next question is from Pierre-Emmanuel Clouard of Jefferies.

Two questions on my side, maybe coming back on Überseequartier. What has been the value adjustment following the increase of EUR 500 million cost of the project? And maybe what is the final yield on cost that you're expecting on this asset? The second one is a clarification on the like-for-like valuation change in the U.S. Maybe can you help me reconcile the net initial yield extended by 30 bps to 5.2%? But the yield impact is only negative by 2.6% and the rental impact is negative by 2% as well. So just to understand why there is a negative rental impact in the U.S. And maybe finally, do you think the 5.2% net initial yield is high enough to execute the radical reduction that you are targeting today?

So on the net initial yield, so basically, what you see in the documentation is the impact of both the flagship and the CBD assets. In particular, Westfield World Trade Center which has been impacted in H1 in terms of NOI. And this is what we also mentioned in the MD&A, in particular, on the back of higher vacancy that we suffered on this asset in H1, plus some termination income that was received in 2023. So that's why, in fact, when you look at it, this highly negative amount mainly results from World Trade Center because, in fact, we combined both World Trade Center and the flagship asset in the document. And what was the other question?

Yield on cost on more adjustment.

So basically, the adjustments. So here, we have taken the full hit of the overruns, and this is why we explained that this had a 50 basis points impact. So basically, the value has come down by EUR 560 million in total, so in H1. And so we have registered another impairment on the value compared to the cost to date. So this has been fully taken into consideration by the appraisers and in our accounts. Meaning that effectively, the CapEx has been increased by this amount of the overruns and therefore, this reduces mechanically the value of the asset. Now when it comes to the yield on cost, it's around 3.5% in terms of yield on cost, which is effectively very low, lower than what we had in December. Now when you look at what has happened on other development projects and, in particular, when they are successful, like Mall of the Netherlands, you see an increase in your NOI. It was plus 30% of NOI increase following the launch of Mall of the Netherlands. And so if these assets are successful, as we expect them to be, again, in view of the quality of the location, quality of the tenant base, with the increase in NOI, you would see an improvement in the valuation of these assets. And just as a comparative measure for Westfield, so Mall of the Netherlands, there was an improvement or an increase in values by 13% following the delivery of the asset. But effectively, as of now, the yield on cost is below 4%.

The next question is from Rob Jones of BNP Paribas.

Two for me. So one is on the opening day. I appreciate you're saying October 17. When I look back through your various different annual reports over the years, we've got opening dates for Hamburg going back to H2 '22, so kind of 2 years prior to that October 17 date. So the question is, and I appreciate you've got the Board very focused on the opening of that asset on that date, I guess they were also focused on development pipeline being delivered on time previously as well, but kind of what gives you that confidence that we might not see this slip into H1 '25? And then the other one on Hamburg, again, unfortunately, am I right in saying that you said on the phone that the kind of power or some of the power kind of hardware for the center is located kind of below the water line, below sea level rather than above? Just wanted to check that was what I heard on the phone earlier in the call.

Yes. On the opening date and the delayed opening date, and you were referring to previous dates, we suffered a different crisis. So we need to remind that we went through at least 2 major crisis in Europe at least, COVID for the world, and then the impact of the Ukraine crisis and then the related energy crisis but as well the fact that, on the construction side, you had a lot of people that were from Ukraine and these countries, which had an impact as well on the mobilization of workers, so we went through that. And then, we are now really working with the teams. And we have reinforced the contract management team and the construction teams, asking some of our team from the U.K. to supplement and reinforce the local team to have clarity around what are the different steps to work towards the opening on October 17. And this is where, what all of us, including the management team, we are working towards to. So it's really focused on the retail opening and making it happen on October 17. On the technical equipments, you're right, this is what I said. We have technical equipments that are based on the third level of the basement, which is the lowest level. And that is at 14 meters below the water level of the Elbe River. And we had some cracks in the rut that appeared. And we had water leaks, water coming in and, in particular, in some technical equipment. So we have then worked with our engineers and designers to somehow, first, do the remediation on the water leaks but as well make sure that going forward, through additional installation, that we secure our technical installation if water was to come back.

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

It's Markus from Bank of America. I have three questions. First one is on the disposal. You said you have EUR 500 million signed for H2. Is it on top of the EUR 300 million you already signed? This would be my first question.

Basically, the EUR 500 million includes the EUR 300 million that we have secured in H1 2024. And we've EUR 200 million secured before.

Okay. Second one is if you can repeat what you said on the dividend distribution guidance. So I understood the operational performance ticks the box, valuation ticks the box. So what is the increase in distribution depending? Is it the H2 valuation moves? Or was there something else?

What we said is that valuation, in fact, is seeing a stabilization in values on retail assets in Europe. And so we still need to see the full year valuation evolution of the values. But when it comes effectively to Europe for retail, we see a positive evolution in H1. And the last element is obviously the debt evolution. And so the deleveraging progress. And as I've mentioned, this includes the negative news flow coming from the overruns of Hamburg and the expectation that this would be mitigated by, a, the mitigating measures that we've announced, covering half of the overrun costs; the second is, of course, the retained profit that we'll be benefiting from in H2 and ultimately, the level of disposals. And this is why I mentioned that we had already secured EUR 0.5 billion in total. So this is EUR 0.3 billion signed this year and the EUR 0.2 billion that were outstanding from 2023 plus, again, the EUR 1 billion of discussions. And depending on the progress that we will have achieved on this disposal front, we will decide what is the right level of distribution, the one that makes sense, for the exercise 2024.

The next question is from Ventsi Iliev of Kempen.

First one on the EUR 1 billion of potential disposals for which you're in discussions, could you perhaps indicate the pricing levels and whether they're in line with book values mostly? And second one, of course, it is a positive sign that valuations are stabilizing, but then the transaction markets remain very sluggish. So shouldn't there be more write-offs in light of that?

So I'll start with the second question. So yes, in fact, it takes longer, in particular, for the reasons that Jean-Marie mentioned, including the political environment. Now effectively, when you look at these valuations and the disposals, as I said, the EUR 0.3 billion have been secured at levels that were in line with valuations. Now when you look at the comparable transaction that happened and that occurred on the market and this is sometimes a question that we have, obviously, those transactions are taken into account by the appraisers. And so when you ask them, what happens, why do you have net initial yields in our book that are below the yields at which those assets are sold, in fact, there are three elements. The first is overall the quality of the asset, which is different, in particular, the sales intensity. If you look at the assets that were sold, like Islazul, even the Polish assets of Cromwell, the sales intensity is half or even 1/3 of the sales intensity of our assets. And this is one important statistic because, in fact, this is one that is key and crucial for the profitability of the retailers and therefore, the appeal of these assets for retailers and ultimately, the rental levels. The second element relates to when you could look at the net initial yield, the sustainability of the rents of those assets that have been acquired, that have been traded on the market, and the level of CapEx that is needed to support these assets and to support the rents in place and this is, for instance, the case of Hermès. And ultimately, the third element is the situation of the buyer, all of the sellers, so what is the perspective in which the seller is. And if you take, for instance, Paris Nord, the seller was the bank whose interest was more to recoup its nominal amount than to optimize the price. So basically, at the end of the day, those valuations are coming from appraisers, which have an extensive look at the transactions. By the way, we could have noticed also the full offer transaction in Germany that was completed at a 4% yield and for a huge amount of EUR 700 million. And ultimately, when you look at the prices at which we have sold our assets over the last 3.5 years, they were usually in line with last appraised values.

And we'd obviously not comment on the ongoing negotiations. But as previously mentioned by Fabrice and by myself, by the way, for the EUR 300 million that we secured during H1, they were in line with the last unaffected book values.

The next question is a follow-up from Markus Kulessa of Bank of America.

Just wanted to confirm the Hamburg yield on cost is 3.5%, you said, and this is after the write-down you had in H1. So my question is will this project enter your book at 3.5% net yield? And are there further risks maybe on top of another delay or another write-down on this project?

So 3.5% is not what we have in our books. So basically, 3.5% corresponds to all the CapEx that will be spent on this project. Now when you look at what we have in our books, in fact, this includes the negative revaluation coming from the overruns, meaning that, as mentioned today, when you look at the total investment cost on this project, this is around EUR 1.6 billion. And we have already taken impairment in the region of EUR 700 million, meaning that effectively ultimately, or more precisely, the yield on cost is the one based on the CapEx. But what we have in our books is much lower because this asset has already been significantly impaired in our books. And so this is why, again, you had this negative 50 basis points impact on LTV in H1 2024.

Is there risk of an impairment or you think the yield that enters your book is the right yield for German prime office retail asset?

Higher because, in fact, when you look at it, so the 3.5%, again is based on the CapEx. But as you've seen, the impairment means that, in fact, the value that we have is below the price, the CapEx that we spent so far. So basically, if you were to recompute the yield at which it is in our books, you would need to add the impairment, so basically, the EUR 700 million of impairment, meaning that, in fact, this would increase to levels that would be more in the 5% plus area.

The next question is from Valerie Jacob of Bernstein.

I've got two questions. My first question is on your guidance. If I look at the moving parts of your guidance, one of the moving parts is disposals. And you haven't made much progress on that and they tend to be dilutive on earnings. So I was wondering if there is any reason why you're not raising your guidance based on the fact that you had limited disposals. That's my first question. And my second question is on Page 19, when you give the NRI growth, you are conveniently excluding all your weaker assets. So I was wondering if you could give us the number if we include all of your shopping centers.

Sorry, what was the last question, Valerie?

On Page 19 of the presentation, you gave the NRI. And in the note, you're saying that you're excluding CBD assets. So you just mentioned that WTC has been very weak and the U.S. regionals as well. So it looks like you're excluding your weaker assets. So I was wondering if we could have a number, including all assets.

Yes, it would be something like 1% below. And again, here, we have a very specific situation. So we're looking at the regional. On a like-for-like basis, they are still positive. It's up 6%, but it's a minor portion. And as I've mentioned, what you would have in terms of the impact of World Trade Center would be much more significant. So you're talking about more than double-digit reduction. And so that's really specific to World Trade Center, which is undergoing a large work of repositioning. And this is why, again, you have this negative evolution on World Trade Center, but which is not representative of the overall activity of the business.

Okay. So when you say 1%, it's 1% on the U.S. or it's 1% overall?

Overall. And by the way, when you look at these assets in total, they just represent 3% of the total GMV of the company and something like 14% of the U.S. So basically, I mean at the scale of the group, this is quite limited.

The next question is a follow-up from Paul May of Barclays.

Just wanted to follow up. You mentioned a lot of sales being in line with book values, lost book values. What are the average yields on your disposals? How does that compare to the remainder of the assets? As I think there was a question earlier that wasn't answered, which was the yield on your U.S. assets, is that now at a level that you feel you could sell those assets and radically reduce exposure? So just trying to get a feel. I appreciate in line with book value is one thing but that book value could have easily been written down materially ahead of disposals like we saw with, say, San Francisco on the foreclosure there. So I just wonder if you could give some color on the yield on disposals.

So when you look at the U.S. assets, in particular, when you look at the regionals, they are more in the 8% to 10% area. And when you look at the other ones, in particular, the ones in Europe, the ones that are included in the secured one, you would be in line with the average or at around 6%, for instance, for APAC. So basically, these are yields which are in line with what we see on our books. And when it comes effectively, and again, as I said, this one is in line with the overall valuation, and when you look at the U.S. assets, the regional ones, the yield is obviously higher, which is also consistent with what you see in terms of valuations with net initial yields that are close to double-digit.

I'm just checking whether flagships, you feel confident you could sell those at the valuation yields where the flagships are?

They stand at 5%. And as we've mentioned, so this is due to the fact that you have a high level of growth embedded into those assets with a CAGR of 4.5% over the next 10 years assumed by the appraisers. And even when you look at the shorter time horizon, over the next 3 years, this 5% equates or would correspond to 5.8%. So basically, this shows that effectively this net initial yield is also explained by the growth embedded into those assets.

The final question is from Neil Green of JPMorgan.

Just a quick one on the radical reduction of the U.S., please. So I hear you're reiterating the plan. But also you are deploying incremental capital there, whether it's Garden State Plaza, UTC or Montgomery, first, the acquisition and then the mention of there being an opportunity there perhaps to redevelop. I guess are you seeing more development opportunities emerging in the U.S. relative to Europe, perhaps given the operating performance there? And how, if at all, does this potentially impact the timing of the radical reduction, please?

I think we announced as well that, for example, we launched the expansion of Cerný Most in Prague. So here, what we have always said is that we are working on really creating value long term for all assets, including our flagships in the U.S., as we did with Topanga and the delivery of the former sales box refurbishment, which, by the way, was not a refurbishment but an extension. We've been able to add a lot of luxury brands that were not present in Topanga and creating a unique collection for this asset. So we continue to do so, such as we optimize and maximize the value of what we own. For Garden State Plaza, it's a process that has been launched, I think, 8 years ago. And we are pushing and moving in the right direction. We have finalized an agreement with the developer. And as mentioned by Fabrice, we contribute the land and then they will contribute the CapEx, so which has a limited impact on our spending over the next few years. And that's what we are doing. We just continue to work on maximizing the value of what we own wherever it is.

Ladies and gentlemen, thank you for joining. The Group URW conference is now over. You may disconnect your telephones.