At face value, a company earning 85% of its income from retail shopping centres, the majority located in Europe, does not sound appealing. We’ve all heard of the “Amazon effect” and it seems like Europe is just limping from debt crisis to debt crisis.
Welcome to Unibail Rodamco Westfield (ASX: URW), a global commercial real estate company, headquartered in Paris, France. The company is traded on the ASX as a CDI (Chess Depository Interest) on a 20:1 basis. That means, 20 URW‘s on the ASX are equivalent to 1 URW stock traded on the Paris exchange.
Westfield’s Global Arm
URW was the vehicle that bought Westfield’s shopping centres in mid-2018. The newly formed group hit the ASX boards in June 2018 at $14.65. Since then, the company has lost about 20% of its market capitalisation.
URW is heavily exposed to retail shopping centres (86% of assets are shopping centres). However, a key differentiator when compared to many A-REITs listed on the ASX is that the majority of URW centres sit right in the middle of global centres such as Paris, London and Amsterdam – prime real estate.
At current prices, URW is trading at significant discount to its net book value of ~A$16.73, a discount of ~33%. At current prices, you could expect to earn a gross distribution yield of ~7.7%.
URW’s management has guided an FY19 result to be in line with FY18 and then grown at a targeted compounded annual growth rate of 5% – 7% for the next few years after that. It is intended that 85-90% of earnings will be distributed to investors. This looks like a relatively attractive growth profile in a low growth world.
Disappointing Results
Markets were disappointed with URW’s full year result delivered in February. Management announced poor performance associated with the newly acquired US portfolio, as well as the intention to continue with the deleveraging process.
This deleveraging appears sensible, given current gearing is at 37%, although borrowing costs for the company are extraordinarily low and long-dated. URW’s debt currently has an average maturity of 7 years and the average debt cost is 1.5% (remember interest rates are still negative in parts of Europe!).
Buy, Hold OR Sell?
To be a buyer, you need to be a believer in the long term value of flagship real estate and shopping centres and you need to be comfortable with European and US exposures. Given the majority of ASX investors have limited overseas exposure, an investment in URW could be a nice portfolio diversifier for long term investors to put in their bottom drawer.
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At the time of writing, Matt owns shares of Unibail-Radamco-Westfield.
