US Calpers and SBA to vote against URW’s rights issue

Calpers and SBA, which are both believed to hold a stake of less than 5% in URW, had initially voted in favour of the capital raise and against the nominations in their previous declaration dated October 30th.

The news is a major blow to URW which is seeking a two-thirds majority approval for a €3.5 bn capital raise at an extraordinary general meeting scheduled for November 10.

A rebel consortium of investors led by former Unibail-Rodamco-Westfield CEO Léon Bressler and French telecoms billionaire Xavier Niel last month called on all investors to oppose the European listed property giant’s recently announced €9 bn ‘Reset’ plan, calling the programme ‘a failed strategy’ and saying the capital raise part of the plan would be ‘devastating’ for shareholders.

The investors, which include the Gallardo family and together represent over 5% of URW’s share capital, argued that the company should refocus instead on its European prime shopping centre portfolio and sell its US assets. Proceeds should then be used to repay its €24 bn debt load, instead of carrying out a ‘severely dilutive’ rights issue.  

The supervisory board of URW has expressed its 'strong disagreement' with the consortium's proposals, arguing they add 'significant uncertainty and risk in the current complex environment'. The retail property giant has also released a recommendation from Proxinvest, an independent proxy advisory firm, backing the capital increase. URW describes this as 'an essential element' of the group’s proposed restructuring plan, which is seeking to create a capital cushion of up to €9 bn to strengthen its balance sheet and prepare for 'uncertain times' ahead.

Separately, advisory firm Gouvernance en Action, which was called in by URW and some of the shareholders to look into the situation, has written a letter to the French stock market regulator AMF as well as to the rebel consortium rhetorically asking why investors holding a 5% stake should be granted 25% of the seats on the supervisory board.
 
In the letter Fabrice Rémon who heads Gouvernance en Action also called for more transparency on the financial situation of Bressler’s Aermont fund as well as on the agreement between Bressler and Niel.

‘Bressler, representative of Aermont Capital Real Estate Fund IV, is in an uncomfortable situation. In view of the usual rules for spreading risk in a fund, Aermont’s Flagship Retail Investment may simply be prohibited from increasing its risk in URW. This may therefore lead him to oppose a transaction which would be in the interests of shareholders, but which he would not be allowed to subscribe to,’ Rémon wrote in the letter. Finally, Rémon suggested that since the URW shares were bought by the rebel consortium over the past year, they implicitly underwrote the ‘failed strategy’. ‘You do not invest €340 mln in a company that has just made an acquisition of around €13 bn without knowing what the company's strategy is,’ he said.

Reset plan
URW announced Reset - its largest restructuring programme ever – in mid September. As part of the plan, URW will seek to complete €4 bn of property disposals by year-end 2021, carry out a fully underwritten €3.5 bn capital raise, reduce its development and non-essential operating capex by a further €800 mln and limit cash dividend payments, resulting in €1 bn of savings over the next two years.

‘This plan is designed to enable the group to preserve the group’s strong investment grade credit rating and maintain a sustainable capital structure with an LTV(5) below 40%,’ the company said in a statement at the time.

In terms of asset sales, the company has earmarked €2 bn of retail properties for sale and €2 bn of offices & others, particularly JV stakes in its most liquid and mature assets. Around €1 bn of disposals are well advanced, URW added.

Disappointing 2020 results
Earlier this week URW reported a 29.5% year-on-year drop in its net result for the first nine months of the year. While office income year-on-year fell just 1.3% in like-for-like terms, its shopping centres saw net rental income slide by 12.3%. However, URW's worst performing segment remains its convention and exhibition portfolio, where income has slumped by a massive 88.7%.

Across Europe, tenant sales are holding up better than footfall, supporting an industry-wide trend of larger basket sizes. URW reported that tenant sales were down just 15% in September in Continental Europe, recorded a 19% fall in Europe, and dropped 17% in the US for opened stores. This compared favourably to lower footfall figures of -21% in Continental Europe and -24% in Europe.

Collection rates improved in the third quarter of the year. After reaching 95% in Q1, 52% in Q2 and 79% in Q3 - of which 91% was in Continental Europe - URW warned that new restrictions in place in Europe may affect further recovery and Q4 results.

Said Christophe Cuvillier, group CEO: 'In October, a worrying increase in Covid-19 infections has led to a return of government restrictions, including renewed lockdowns, hence adding further uncertainty. 'These extraordinary challenges reaffirm the necessity of the group’s €9+ Bn Reset plan, to immediately strengthen the capital structure and reduce risk.'

The quarter saw URW achieve disposals of €0.6 bn with the sale of the Shift office building in October. URW said it had also scaled back its development pipeline to €5.4 bn, €2.9 bn less than planned as of 31 December 2019.

'Taking into account the new restrictive measures in place and their impact on the Group’s operations, URW currently expects its 2020 AREPS to be between €7.20 and €7.80 per share,' Cuvillier added. 'For 2021, the Group expects like-for-like retail NRI to grow by between +15 and +20% on a cash basis versus that expected for 2020.'