Unibail-Rodamco-Westfield seeks to absorb additional costs in a flagship project

Certainly, the Franco-Dutch real estate company can boast of positive financial results. Recurring net profit, its benchmark indicator, increased slightly in the first half, by 0,7% to 764 million euros.

Its revenues have increased in its three asset categories, and it is the smallest, that of convention centers and exhibition centers, which is doing the best, boosted by the Paris-2024 Olympic Games, of which URW hosts several installations .

The vacancy rate in its shopping centers stands at 5,5%, compared to 6,3% a year earlier and 5,4% at the end of 2023.

The net result, less representative because it depends a lot on the value of its assets, is also back in the green with a profit of 72 million euros compared to a loss of 538 million a year earlier.

The group is keeping its financial and dividend payment targets unchanged for the year.

Extended construction

But the group is embarrassed by the discovery of an additional cost of more than 500 million euros in the Westfield Hamburg-Überseequartier project, a large complex including shopping center, hotels and housing in the center of Hamburg.

URW readily presented it as an exemplary project, emblematic of the “mixed use” that more and more real estate players are defending, going against segmented urban planning between housing, shops and offices which has long been the norm.

The chairman of the board, Jean-Marie Tritant, announced that an audit had been commissioned from the firms Accuracy and White&Case, in order to determine how its cost could have increased from 1,64 to 2,16 billion euros.

A water infiltration problem on the top floor of a building forced the group to postpone the opening of the shopping center from April to October, causing 160 million euros in additional costs, detailed Jean-Marie Tritant.

The remaining 360 million come from "additional services, an expansion of the scope of work (...) and a bad estimate in particular of the costs of everything electrical, mechanical and plumbing", he added.

Deleveraging

This significant additional cost will have consequences on the group's investment policy, announced Mr. Tritant.

“We have launched an action plan” which includes “in particular a re-prioritization and phasing of investments in our centers, which will cover around 50% of the additional cost announced, in such a way that it does not have an impact on the long-term value of our assets,” he declared in a conference call.

“We also made changes in the project management and supervision teams of these teams,” added Jean-Marie Tritant.

The financial impact of these additional costs will be felt especially in the accounts in the second half of the year, warned financial director Fabrice Mouchel.

It also has consequences on the group's debt, which is increasing again and stands at 20,4 billion euros.

"The market's attention could probably focus on the increase in net debt (+ EUR 400 million due to Hamburg), the low level of disposals (EUR 300 million in the first half) and the increase in LTV (ratio loan-to-value, which measures the weight of its debt), however, warn Jefferies analysts.

Around 9:45 a.m., the group's price was down 3,56% to 69,30 euros on the Paris Stock Exchange, in a market down 1,64%.

But debt should start to fall again in the second half, assured Fabrice Mouchel, counting on asset sales to offset the costs.

URW, which for several years has had to undertake the "radical reduction" of its presence in the United States, continues to procrastinate, judging the market conditions to be too unfavorable.

It sold 300 million euros worth of assets during the half-year, and indicates that it is in discussions for assets worth a billion euros.