Moody's cuts Unibail outlook to negative, as debt drives doubts

Credit ratings agency Moody's has downgraded the outlook of international property giant Unibail-Rodamco-Westfield (URW) from stable to negative, citing the group's financial policies and the retail sector's declining prospects globally.

Following the completion of the merger with Westfield in 2018, URW is currently the largest shopping centre landlord in Europe and one of the three largest shopping centre landlords worldwide with a portfolio valued at €65.2 bn.

While Moody's affirmed the company's ratings at A2, it said the outlook downgrade was 'driven by uncertainties around the ability to delever towards 40% debt to gross assets, given the cyclical stage of the property market, increasingly weaker economic outlook for larger parts of the European economies, and headwinds for the retail sector starting to affect even prime landlords'.

The note recognised some success in URW's planned disposals programme at prices 'at or above book value' and suggested that 'URW also has a sufficient amount of high quality assets that will meet existing investment demand'. The firm recently disposed its Tour Majunga asset for €850 mln, exceeding market expectations.

However, Moody's said that the firm's ambitious development pipeline would absorb a 'substantial part of property sales proceeds, which reduces the absolute paydown of debt possible, while EBITDA generation will only occur at a later stage'.

The note added: 'At the same time, the company utilises most of its free cash flow to pay dividends, leaving limited other cash sources to pay down debt.'

Moody's said that the retail sector's problems in the US were also weighing on the group. 'We still see risks related to the integration of Westfield into the group, also reflected in weaker US operational performance compared to still very solid European results,' the note said.

Brighter outlook for offices
By way of comparison, the ratings' agency altered the outlook of Spanish REIT Inmobiliaria Colonial to stable from negative this week, citing the positive performance of offices in its key markets. Colonial agreed a merger with peer Axiare last year to create a €10 bn office giant.

The outlook change reflects 'a sustained robust operating performance supported by its leading position in the prime office markets of Paris, Madrid and Barcelona, cities that benefit from favorable economic environment and positive momentum of its key occupier and investment markets,' Moody's noted.

The agency also commended Colonial's debt position, stating that it believed that 'the swift reduction of its leverage supported by the prompt integration of Axiare's portfolio and non-core assets disposals' together with its 'ample liquidity and commitment to maintain conservative financial policies' would allow Colonial to 'navigate through a potential stabilisation of the real estate cycle'.



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