EUR 850.00 For Business Accounts Only

Morningstar | Unibail Deleverages Further. FVE Unchanged at AUD 12

Unibail-Rodamco-Westfield, or URW, released operational metrics for tenant sales and foot traffic for the quarter ending March 2019, but there was little to value in the data as the prior period excluded the assets acquired in the takeover of Westfield. Further, URW’s reluctance to normalise data for developments renders the data almost meaningless. The reported metrics significantly exceeded our expectations and we assume most investors ignore much of the URW’s quarterly sales and traffic measures as they align poorly with tenant operating performance.

We continue to forecast slow sales growth across the portfolio reflecting ongoing evolution in consumer spending patterns. An increasing proportion of items will be purchased online, impacting tenant sales, tenant demand and hence the rate at which the landlord can increase rents. Our fair value estimate for narrow-moat-rated URW remains at AUD 12.00 per Australian chess depository interest, or CDI, with the stock screening as fairly valued at current levels. URW reiterated 2019 guidance for adjusted recurring earnings per share in the range of EUR 11.80 and EUR 12.00 or AUD 0.937 to 0.952 per CDI. Our revised earnings forecast of EUR 12.00 per share or AUD 0.952 per CDI is at the top of the guidance range.

Separately, URW has made further progress on its deleveraging, selling the Tour Majunga office tower in La Defence, a business district 3 kilometres from central Paris. The sales price of EUR 850 million represents a small premium to the December 2018 book value. At 65,000 square metres, Tour Majunga is by far the most substantial office asset in the portfolio, the next largest being Les Villages del’Arche, at 42,000 sqm, also in the La Defence precinct.

The sale of Tour Majunga, brings divestments to just EUR 3.1 billion, with an average net initial yield of 4.5% and average premium of 7.2% to book value. We are reluctant to extrapolate the 7.2% premium to the EUR 2.9 billion of assets that are yet to be sold, as the assets already sold include a series of premium office towers whose values have held up far better than retail shopping centres.