Analysts keep an eye on mall giants’ future

Raisings by shopping centre giants Scentre and Unibail-Rodamco-Westfield are being watched by analysts Picture: AFP

Raisings by shopping centre giants Scentre and Unibail-Rodamco-Westfield are being watched by analysts, who are giving as much weight to future indications of shopping mall performance as they are to current company indicators.

In a note, analysts from UBS said Scentre’s hybrid issuance of $US3bn ($4.1bn) reduced financial risk for the company as the 5 per cent coupon rate was used to retire bank debt and short-term bonds of $US500m.

The analysts said the “true leverage” for investors would be a gearing level of about 40 per cent once capital that ranked ahead was taken into account, but given hybrid notes were not included as liabilities for banks and bond covenants there was still “substantial” room from a covenant perspective, ensuring continued access to debt capital markets.

However, while a forced de-leveraging scenario was no longer a glaring issue for Scentre, the analysts said long-term threats to income remained as retail tenants reassessed their store footprints.

The analysts said top tier assets would largely perform well, with the threat of reduced income coming from the lower end of Scentre’s pool of 30 shopping centres.

Analysts from Macquarie were less confident in Unibail-Rodamco-Westfield’s €9bn ($14.61bn) “reset plan” comprising a €3.5bn capital raise, €1bn in retained earnings over the next two years, €4bn of disposals and €0.8bn in capex reduction.

In a note, the analysts said although the plan would reduce gearing below 30 per cent, it could be 50 per cent dilutive to earnings per share and 66 per cent dilutive to net tangible assets. These assumptions were based on the presumptions that the raising would be conducted at €25 a share.

The analysts also said successful execution of the €4bn of asset sales was “crucial” to the plan, stating that if asset values fall by 20 per cent, gearing could increase to 36 per cent.

Given the goal of retaining €1bn in earnings over the next two years, the analysts said it was likely that Unibail would seek to reach that amount by paying dividends in scrip.

Estimating that over two years the company would retain €780m worth of cash from a lower payout ratio, the remaining €220m would be paid in scrip.

The analysts said there were several factors in Unibail’s favour, with foot traffic in its European centres increasing in recent months from -37 per cent below the previous comparable period in June to 10-20 per cent within the past week. Basket sizes increased from -33 per cent pcp to -16 per cent pcp in August.

Rent indicators also improved, with 70 per cent of rent being collected in August.

Additional reporting: Lachlan Moffet Gray