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Edited Transcript of UL.AS earnings conference call or presentation 12-Feb-20 5:30pm GMT

Full Year 2019 Unibail-Rodamco-Westfield SE Earnings Call

Paris Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Unibail-Rodamco-Westfield SE earnings conference call or presentation Wednesday, February 12, 2020 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christophe Cuvillier

Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board

* Fabrice Mouchel

Unibail-Rodamco-Westfield - Group Finance Director & CFO Europe

* Jacob Lunsingh Tonckens

Unibail-Rodamco-Westfield - Group CFO & Member of Management Board

* Jean-Marie Tritant

Unibail-Rodamco-Westfield - President of US

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Conference Call Participants

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* Bart Gysens

Morgan Stanley, Research Division - MD

* Boudewijn Schoon

Kempen & Co. N.V., Research Division - Research Analyst

* Bruno Duclos

Invest Securities, Research Division - Financial Analyst of Real Estate

* Florent Laroche-Joubert

ODDO BHF Corporate & Markets, Research Division - Analyst

* Jaap Kuin

Kempen & Co. N.V., Research Division - Deputy Head of Real Estate

* Pierre-Emmanuel Clouard

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Sander Bunck

Barclays Bank PLC, Research Division - VP of Real Estate Equity Research

* Stuart McLean

Macquarie Research - Research Analyst

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Presentation

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [1]

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Good evening, and welcome to Unibail-Rodamco-Westfield's Full Year 2019 Results Presentation. 2019 was a very intense year in a still-difficult environment for retail real estate. So I'm very happy to announce that we delivered adjusted recurring earnings per share of EUR 12.37 per share, ahead of the EUR 11.80 to EUR 12 announced early 2019, which was then increased to EUR 12.10 to EUR 12.30 at the half year results.

I'm very proud also to announce that we've reached an agreement to dispose of 54.2% stake in 5 French assets for a price at 100% of EUR 2.037 billion, which is in line with book values. This will generate net disposal proceeds for URW of EUR 1.5 billion. Jaap will come back to this transaction in detail in a couple of minutes. This is a clear sign of the quality of URW's portfolio, and of the confidence that the investors, with which we'll be teaming up, have in our ability to generate their targeted returns. It should also be supportive of valuations of our retail portfolio.

I'd like to extend my congratulations to all involved at URW for this benchmark operation, bringing our total disposal proceeds to already EUR 4.8 billion since the Westfield acquisition 18 months ago.

As far as the operations are concerned, we had announced in July that we expected like-for-like NRI growth in Continental Europe for our retail division of around 3%. We reached plus 3.1%. In spite of so much ink being spilled about physical retail being dead, and despite a difficult month of December in France due to the longest public transport strike for years, we are posting a very strong plus 3.7% in group-wide tenant sales for 2019. However, even with the confidence in our business model and our teams, we're not blind to what's happening, and we hear concerns expressed by our shareholders. We have therefore performed an in-depth review of our pipeline and reduced it from EUR 11.9 billion to EUR 8.3 billion as at end of December 2019. And finally, we also delivered on our CSR strategy, Better Places 2030, on which I'll come back in a few minutes.

Now let's look at the detailed results for 2019. As you know, our like-for-like perimeter for 2019 is only Continental Europe. As indicated, the like-for-like growth of our NRI in shopping centers of plus 3.1%; minus 1.2% in offices, but on a much smaller basis due to the numerous disposals made in '18 and '19; plus 3.4% for our Convention & Exhibition business, i.e., plus 3% total like-for-like NRI growth in Continental Europe. Adjusted recurring EPS for the group, as I said, reached EUR 12.37. EPRA NAV stands at EUR 213.30 a share, minus 3.8% versus 2018, mainly due to a yield effect and the negative mark-to-market of our debt and financial instruments. Going Concern NAV stands at EUR 217.50 per share.

On to the operating performance in Continental Europe, before spending some time on the U.K. and the U.S., and Jean-Marie Tritant is here and will talk to you about the U.S.

As I said earlier, a very good year in terms of tenant sales, which reflect the quality of our portfolio, streamlined over the years to anticipate the retail revolution, and of course, the work of our teams. Plus 5.2% sales growth in Continental Europe as at November 2019 outperforming the national indices by 300 basis points, with an outstanding performance in the Nordics, mainly linked to Tesla. A very good performance also in France and Central Europe, and an improved performance in Germany with a strong plus 4.4% versus last year. Even more satisfying and a further illustration that the market is one thing, but the individual performance of niche actors like us is another, our year-on-year outperformance versus the market proves that our assets are the preferred destination for retailers and our strategy of concentration, differentiation and innovation translates directly into superior performance, not just 1 year, but every year or almost every year.

Differentiation pays. What we consider strategic segments such as entertainment, sports, dining, health and beauty, all outperformed. And not even mentioning auto linked to the performance of Tesla. And fashion also had a great year as some leading players continue to perform very well and some others, which had experienced some difficulties in '17 and '18 have inverted the trend in '19. I'm not saying it's easy. Just that if you invest in the rotation of declining segments or retailers and replace them by better performing ones, you can grow your sales and gain market share over other sectors even in a world where Internet sales keep growing at a fast pace. Obviously, the changes we make increase the desirability of our shopping centers and enable us to generate healthy MGR uplift, plus 12% in 2019, of which plus 13.9% for Flagships. And another very busy year for our leasing teams with 1,367 leases signed and a rotation rate of 10.6%.

Like-for-like NRI, as I said, grew plus 3.1%, thanks to a very good second half. You will remember that we were at plus 2.1% at half year with a very strong growth in Spain, plus 10.5% for the year due to a solid leasing performance and the reversal of provisions, and in Central Europe, plus 4%. An improved performance in France, plus 2.8% versus plus 2% at half year, and in Austria, plus 2.5% versus plus 2.1%. Germany is flat due to key money base effect in 2018, and the Nordics at minus 2.6% is affected by some departures and bankruptcies as well as an increase in the provisions for doubtful debtors. The strong performance in the Netherlands is mainly because of the release of a provision for doubtful debtors.

Now let's move to the U.K. and U.S. results. In the U.K., the year was contrasted in what we all know is a very changed market due to the lack of modernization of retail amplified by the weight of Internet sales, by soaring business rates and, of course, by the uncertainty around Brexit. All this led to a higher number of bankruptcies and CVAs. And in this context, tenant sales in all centers posted a strong plus 4.7% increase and footfall was up in both centers, plus 2.8% in total. Like-for-like NRI, however, suffered from the retailer failures and delayed leasing and was down minus 4.2% for the year.

Vacancy was up to 7.7% versus 7.4% at the end of '18, but it improved versus the 8.7% of H1 2019 thanks to a better second half. As explained at the June IR days in London, we're however making progress and building on the uniqueness and strength of our 2 centers ranked once again as the 2 best shopping centers in the U.K. Tenant sales and footfall massively outperformed the market by 550 and 530 bps, respectively, and we are gradually making progress to backfill the vacancy.

As you can see, we reached what we hope was a low point in June. Occupancy has since improved at both centers. We have been very successful in some leasing operations, such as the expansion of Hollister and Gilly Hicks and the backfill of the former Hollister unit with Abercrombie & Fitch at Westfield London, and the proactive replacement of Topshop with a second store for the hugely successful JD Sports, going from 900 square meters to 4,000 square meters in total at Westfield Stratford City. More positive news, hopefully, in the U.K. along the way, which however still, a very cautious view on the overall retail markets.

In the U.S., a very challenged market as well. We're now making significant progress in Flagships. The satisfaction for 2019 is that comp NOI growth is back in positive territory with plus 2.4% for the U.S. overall and plus 5.4% for the Flagships.

I'll now hand over to Jean-Marie for an update on the achievements of 2019 and the progress on his action plan presented in June.

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Jean-Marie Tritant, Unibail-Rodamco-Westfield - President of US [2]

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Thank you, Christophe. Good evening, everyone. As you see, a very solid set of KPIs, driven by our Flagships, which represent close to 90% of the U.S. portfolio in terms of gross market value, and more than 80% of its net rental income. Occupancy is down by 80 bps compared to 2018, but 140 bps up versus June 2019. Flagships are stable at 96.2%, which demonstrates the appeal of these assets for the retailers and the leasing effort of our team. Occupancy has been impacted by bankruptcies and other store closures, which are at the peak in the overall U.S. market, but have had lower effect on our portfolio.

The leasing activity with 1,029 leases signed, plus 2.5% versus last year, has been strong, and with a focus on renewals as the lease expiry profile in '19 was high. Renewals represented 66% of the leases signed versus 58% in '18. This had an impact on the rental spreads, which stand at plus 1.6% for the U.S. portfolio and 4.7% for the Flagships. Total tenant sales were up by 1.6% with Flagships up by 3.2%. Following the successful redevelopment, Westfield Century City and UTC continued to perform strongly with sales up by 10.6% and 12.6%, respectively. Specialty sales per square foot increased by 5.1%, positively impacted by the sales growth in luxury, food and beverage, culture, media and technology.

In June last year, I shared with you the vision for our U.S. portfolio, its quality and relevance, the new organization in place with a focus on putting our assets in motion while monitoring return on investments. The entire U.S. organization rallies around one claim, which is leasing, leasing, leasing. We have improved our leasing capacity, and this shows in our ability to stabilize our global occupancy while finalizing the leasing of our latest deliveries, with UTC in San Diego and Century City in Los Angeles increasing the occupancy by 400 bps to reach 95% and 96% occupancy, respectively.

The first reason to visit the mall is its offer. Then the game for us is to make sure that our mix remain attractive. The leasing effort focuses on proactively retenanting our assets with strategic categories that often have experiences that you cannot replicate online. To illustrate this, last year, close to 19% of the GLA sign was in the dining category, 12% in entertainment and more than 5% in health and wellness. Year after year, these efforts pay off. The GLA dedicated to fashion decreased by 12.5%, while entertainment increased by 35%, health and wellness by 28% and dining by 22% since 2013. And we will continue, obviously, in this direction.

This change in the mix of our offer is made easier by the transformation of large boxes that went dark. At Westfield Oakridge in San Jose, for example, we delivered in H2 the full backfill of a former Sears box leased at 99%, bringing to this mall, among others, the home category with a large Living Spaces and the fitness category with a UFC Gym. At Westfield Topanga in the valley north of Los Angeles, we launched the transformation of another former Sears box. The project, already 50% pre-let, will encompass an AMC Theater, a food hall, service-to-table restaurants as well as luxury and specialty retail stores.

By the same token, we delivered in July our first residential building at Westfield UTC called the Palisade. 300 apartments with incredible views on the ocean. This property is built on the footprint of a former [Firestone] pad. Even more exciting is the completion to come of the Westfield Valley Fair extension, which in the course of the year in the phased opening will reveal its unrivaled mix made of luxury brands like Gucci and Tiffany, an amazing Apple flagship store, a brand-new Bloomingdale's and the first Eataly in North California, which is due to open later in '21.

Regarding the Regionals as presenting during the Investor Days, we have developed plans for each and every one of them, adopting our strategy and our investment by category of assets, and we are executing on our plans. Among these assets, above $500 a square foot, they are malls like Westfield Oakridge, Mission Valley and Valencia, which are going under renovation, but also redevelopment of large boxes, which over time, will deliver growth with higher occupancy levels. For the other assets, which represent 2.1% of the group NRI. The plan is clearly to stabilize them and repurpose them by integrating new users ranging from residential to industrial.

And with that, I will hand over back to Christophe.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [3]

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Thank you, Jean-Marie. I'd like to spend a couple of minutes on the retail markets on our vision of of its evolution or its revolution. And on an update of our actions since our IR Days in June.

I read analyst reports, newspaper articles, and I agree with you. Retail is undergoing fundamental changes, essentially catalyzed by the expansion of the Internet, not only as a retail channel, but also as an information, decision and social channel. However, I also fundamentally disagree with the vision that digital will do it all in the future. While physical retail is certainly under pressure. Internet retail is also under pressure, mainly around its profitability due to lower prices, i.e. lower margins to the cost of deliveries and of excess returns. And recent trends certainly confirm that the more the world goes digital, the more people need places to be physically together, to come together, as per the Beatles song we used for the launch of the Westfield brand in Continental Europe.

Netflix is growing fast, but so are the movie theaters. You have 2 or 3 soccer matches on TV every day, yet the stadiums are full. Music is virtually free with Spotify or Apple and yet concerts are fully booked. And online sales are growing, but we welcome 1.2 billion visits in our centers every year, and our footfall is growing.

So one more time, it's not digital or physical, it's digital and physical. And our mission at URW is to reinvent being together, i.e. inventing new great place -- new great ways for people to meet at our centers, to evolve our centers and to help our retailers reinvent their stores to be the winners of this retail revolution. And there is not one answer. There are globally as many answers as there are retailers. Because all retail is not equal and all shopping center portfolios are not equal either. And as demonstrated in London in June, URW is undoubtedly the best place of all retail landlords because we own and operate the highest footfall centers, in the best catchment areas, in location best connected to public transport and because we've regularly invested to adapt our centers to the challenges of today and of tomorrow.

And retail real estate is about retailers. This is why, in spite of the current difficulties of the retail market, we keep on signing deals at higher NGLs than previous rents, with new retailers and with existing retailers choosing to stay at our centers or even to increase the size of their stores with us. More than 800,000 square meters signed last year for EUR 432 million of MGR, of which close to 300,000 square meters are relettings. This is why we're relentlessly working to expand new strategic categories, such as dining and entertainment, 160,000 square meters leased last year, i.e., 20% of the total GLA; such as sports or health and beauty, more than 100,000 -- close to -- sorry, 100,000 square meters signed; such as DNVBs -- sorry, I'm late, such as DNVBs, over only 8,000 square meters signed, but it's only the beginning. Let's face it. Amazon opens book stores in our centers. Amazon opens Amazon Go stores like the one we just opened a -- we will -- we just opened at Westfield San Francisco or Amazon 4-star stores such as the one opening soon at Westfield Topanga. I feel I'm not the only one who believes in the future of physical retail and Jeff Bezos suddenly becomes URW's best friend.

And even fashion retailers want to expand their footprint with us, especially the ones that are successful because they have seriously invested in their Internet operations, in their supply chain and in the modernization of their stores and have been very selective in new stores openings. The best example is perhaps the Inditex Group, which signed the largest Zara in France at Westfield Les at Puteaux. And very recently, the largest Bershka in shopping center worldwide at Westfield Forum des Halles, which will open this year.

Finally, the quality of our shopping centers and our 1.2 billion visits a year, enable us to generate new revenues, thanks to the Westfield expertise, brand events and commercial partnership revenues, which are, as you know, an important part of our EUR 40 million targeted revenue synergies. This doesn't mean, of course, that we're immune from retailer failures, as illustrated in our U.K. and U.S. sections, but it gives us better strength and opportunities to mitigate the impact of such failures through the proactive management of affected units as illustrated here on this slide.

Group-wide, 73% of affected units are still trading or have been relet, reducing the potential total impact from 3.2% to just 1.0% of total group MGR as of today on an annualized basis. This figure may vary, or should I say, will vary, but our teams are at work to compensate, as fast as possible and as much as possible, any further negative impact.

Now let's leave the retail and go to the Office division. Of course, our results in 2019, as I said, reflect the major disposals of 2018 and 2019. Our office NRI shrinking by minus 31% overall and by 42% in France. Like-for-like NRI of minus 1.2% is not representative anymore, as a like-for-like perimeter has been considerably reduced.

As far as the C&E division is concerned, Convention & Exhibition, 2019 was an excellent year, with recurring NOI up 11.4% over 2017, the last comparable year. A very good addition of the Paris Air Show and a great progression of our Congress business, thanks to the Paris Convention Centre inaugurated in 2017. Paris is now indeed the capital of congresses, ranked as the #1 destination for events above 5,000 participants. The number of congresses we hosted increased by 7% last year and revenues by close to plus 12%.

The recent deliveries at Porte de Versailles of the new Hall 6 and of the Novotel and Mama Shelter hotels will help boost revenue in the coming years and confirm the attractiveness of Porte de Versailles as an event destination.

Before going on to our development section, I'd like to spend a couple of minutes on sustainability. In 2019, we extended in 2 directions. Our Better Places 2030 strategy launched in 2016. We extended its geography to include the U.K. and the U.S., and we extended its reach to include new challenges such as responsible consumption, the circular economy, biodiversity and community resilience. Our revised strategy stands firm on its main goal to reduce by minus 50% the carbon footprint of the group before 2030, including, and this is quite unique in our industry, on scope 3, i.e., the carbon emissions from construction, from the operations of our tenants and the transportation of our visitors.

Our leadership in CSR is widely recognized and rewarded. GRESB elected URW Sector Leader among all listed retail real estate companies worldwide. We were included for the second year running in the A-list of the climate disclosure program and noted Prime C+ by ISS ESG ratings. Great rewards for the team at URW, and I think a true recognition of our efforts in this essential path for our industry.

Now on to our development pipeline. As I told you in my introduction, we have confidence in our strategy and are convinced that our development pipeline plays a significant role in our growth and value creation. However, we also heard investors' concern and performed an in-depth analysis of our pipeline. We removed EUR 3.2 billion of projects, all retail. We thus reduced our overall pipeline from EUR 11.9 billion to EUR 8.3 billion. Out of these EUR 8.3 billion, EUR 2.8 billion have been invested to date. So EUR 5.5 billion remain to be spent over the next 7 years. EUR 2.7 billion of the EUR 8.3 billion are committed. This exercise has led us to remove from our pipeline projects, which needed major redefinition or which had been postponed so significantly that it made no sense to keep them in the pipeline or which did not meet our return targets anymore. The EUR 8.3 billion correspond to 1.4 million square meters of new, refurbished or restructured GLA, of which now only 43% is in retail, 21% in offices and the rest in dining, hotels or residential. A clear registration, I think, of our strategy to introduce more and more mixed-use components in our destinations.

2020 will be an exceptional year in terms of deliveries, with no less than 5 major products to be delivered throughout the year, in addition to SHIFT delivered at the end of '19, fully let to Nestlé. The 46,000 square meter extension of Westfield Valley Fair, Trinity in La Défense, the Pullman hotel in Montparnasse, the 33,000 square meter extension of La Part-Dieu in Lyon and the 87,000 square meters redevelopment of Leidsenhage, renamed Westfield Mall of the Netherlands. The leasing teams will be -- get busy this year, as there are still some deals to be finalized before the projects are delivered. More news on these deliveries in the course of 2020.

Now I'll hand over to Jaap, who will give you all the details on our latest disposals and other finance matters. Thank you.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [4]

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Thanks, Christophe. Before discussing the disposal of the French -- 5 French shopping centers, one quick word on where we stand on the integration. We believe that the integration of Westfield is tracking to plan. Out of the original target of EUR 100 million in synergies, of which EUR 60 million in cost synergies and EUR 40 million in revenue synergies, we have already realized EUR 87.9 million of cost synergies, well above target, and EUR 11.1 million of revenue synergies on a run rate basis for a total of EUR 99 million. One of the revenue synergy components going particularly well, is the leveraging of the ex-Westfield expertise in commercial partnerships. And as you can see, we saw double-digit revenue growth in the Continental European markets with commercial partnerships.

With respect to disposals. As you heard from Christophe, we reached agreement today to, form a strategic partnership with our partners, Crédit Agricole Assurances and La Française, on 5 very good assets, Aéroville, So Ouest, Rennes Alma, Toison d’Or and Lyon Confluence. Collectively, these 5 centers have 270,000 square meters of URW-owned GLA with 42.5 million visits and are very productive with sales of almost EUR 6,500 per square meter for small units. The quality of these centers and our recognized operating management skills were a significant factor in achieving this transaction. The implied offer price of EUR 2.037 billion for 100% of the assets is in line with the unaffected book value -- sorry, unaffected appraisal value as December 2018 and reflects a net initial yield of 4.8%.

As I said during the London Investor Days, there's a new reality in the retail market in which institutional capital is actually looking for retail exposure, very high-quality retail at real estate but wants an experienced manager with skin in the game. And transactions, like leasing for that matter, they're taking more time than it did a couple of years ago. And so it was on this transaction. And following receipt of nonbinding letters of interests -- of intent last year, the 2 partners have today irrevocably committed to acquire a 54.2% stake in the JV. Our stake is 45.8%, and now we expect this stake to come down further, now that the transaction has been publicly disclosed and more discussions are ongoing for others to join.

In addition, a syndicate of banks has provided an underwritten nonrecourse EUR 1 billion financing. URW will continue to manage centers under a long-term management contracts pursuant to which URW will be paid the arm's length fees by the JV. And because of the governance, we will account for the JV on the line, share of the results of companies accounted for using the equity method. The transaction is subject to standard closing conditions, and we expect to close it in mid-Q2 of this year. And net disposal proceeds for us are expected to be EUR 1.5 billion, and obviously, will increase if more investors were to join.

Now we understand the market's desire to have us make rapid progress on the EUR 6 billion disposal plan. We've been told in no uncertain terms, there were significant concerns about our ability to sell retail or if we could even sell it at a real price or a realistic price. In fact, looking back since 2000 -- sorry, June 2018, we have consistently made excellent progress in our median disposal targets. We've sold 5 office assets for EUR 2.4 billion at a 6.2% premium to book and 12 retail assets for a total of EUR 2.4 billion at an average premium of 3.3% to book and a net initial yield of 5.1%. And that in a market that is currently not exactly the most conducive for retail real estate transactions. I think the quality of the assets, the team and the prospects for investors to invest and attain their returns is reflected in the pricing that we've received for these assets.

We want to move quickly but not so quickly that we're going to be forced into the type of discounts that we've observed over the last 1.5 years or so in the market. We're going to be realistic and pragmatic. But we have very good assets, and we believe it's really important to find the right buyer and not frankly try to rush things and then fall into the negative spiral trap. And I trust that the transaction announced today actually proves my point.

The financing, again, a very good year. We've raised EUR 4.6 billion of long-term capital at very attractive rates in Europe as well as the U.S. The average maturity of the debt raised in euros and the U.S. market was almost 12 years at an average cost of 1.7%. I think another note where the financing by Fabrice and the treasury team was the refinancing of the 2.7% Westfield Stratford City CMBS maturing in 2019. They raised GBP 750 million with a 7-year maturity at a coupon of 1.64%, which is 105 basis points below the old bond, represents the lowest coupon ever for a British pound benchmark offering.

The active liability side management has resulted in an average cost of debt at 1.6%, which is stable compared to last year. And this represents the blended average of 90 basis points for euro-denominated debt and 3.4% for the dollar-denominated and pound-denominated debt.

Now with the average cost of debt being so low, we don't -- shouldn't expect this to continue forever. We would expect that the average cost of debt for 2020 will be higher, but still well below 2%. For those with the right memory -- good memory, this was exactly what I said last year. Extending the debt maturity average to a record 8.2 years, while keeping the average cost so low was a very good accomplishment by the team also.

As to the balance sheet and NAV. As explained by Fabrice during the IR Days in London, we showed the loan-to-value of URW as defined by the credit agreements. Those ratios govern our access to liquidity. Now under those definitions, the LTV as of December 31 was 38.6%, 40.5% on a proportionate basis. A pro forma for the closing of the disposal of 5 French assets, this ratio as of December would have been 37.2%. We do appreciate that from an equity perspective, you will likely use a different calculation. And we provide you with all the details you need to actually calculate this. But again, for us, based on the terms of the hybrid, we don't count this as debt, nor does IFRS, for that matter. And even a research -- equity research firm well-known for its aversion to leverage gave this hybrid a 75% equity credit. Interest coverage ratio was 5.7x. That was obviously down from last year, but it counts to full year effect of the debt incurred to acquire the Westfield assets, as well as the full year cost of the Westfield -- existing Westfield debt. We expect the cost of debt to remain controlled. The debt we expect to raise over the medium term, well hedged, with 100% over the next 2 years, 95% in year 3 and 85% in years 4 and 5.

Now since this will be the last year for the EPRA NAV, I may yet come to miss my usual cracks at NAV. Our Going Concern NAV came to $217.15 (sic) [$217.50]. It represents the value creation of EUR 4.55, after deducting from last year's number, the EUR 10.80 dividend and the EUR 10.15 per share of the negative mark-to-market of the debt and financial instruments. The EUR 4.55 is the sum of the EUR 12.72 of recurring earnings per share. Now as we don't include the hybrid to calculate the NAV, we're also not taking the coupon on the hybrid to calculate the recurring earnings. This was partially offset by the asset revaluation of minus EUR 6.79 per share and the impact of others, which are mostly changes in the transfer tax and deferred tax adjustments of EUR 1.40 per share. The asset revaluation reflects the positive impact of the non like-for-like assets, meaning delivery and intangibles such as airports and management contracts. On a like-for-like basis, the rent effect had a EUR 4.08 positive impact, while the yield effect caused a negative EUR 13.58 a share.

You'll recall that last year's results presentation, we laid out the strategic priorities for the group. You can see those here in the column on the left. First, we unveiled an increased disposal target of EUR 6 billion. And today, we've sold or agreed EUR 4.8 billion of disposals, representing 80% of the objective, which leaves us with EUR 1.2 billion out of the EUR 6 billion to do. And the last batch is about half offices, half retail. In addition, as per this year's BP exercise. We've identified a further EUR 2.5 billion of disposals over the next couple of years. Now this is not all going to be done in 2020. And we expect to provide you some coverage. We expect to see, as we're talking about leverage, the net debt-to-EBITDA ratio back to the levels before the Westfield transaction, as we said during the Investor Days, by about 2023. That's just somewhere around 8.5x.

Second, we said we would review the development pipeline in the terms of capital allocation. EUR 3.2 billion has been removed. And we will prioritize the spend on standing assets, flagships, mostly, and then extensions and mixed-use projects.

And third, we said we joined capital partners on select projects, which we've done at Cherry Park, Westwood Stratford City with QuadReal and PSP, and we expect we'll be doing more of this.

And lastly, we'd be looking to improve the cost base and realize revenue synergies. And as I showed you a bit earlier, we're well on track to do so. And we're hard at work to reach the total EUR 40 million revenue synergies target by 2023.

As to the outlook for 2020, in the medium-term and the dividend. One of the key assumptions that -- on the left, the key assumptions that underpin the budget and the medium-term outlook. You've all seen these before, but there's 2 major changes from last year. First, increased disposals. Having disposed the EUR 4.8 billion so far with EUR 1.2 billion left. Deleveraging is still very much front of mind, hence the additional EUR 2.5 billion of disposals I referenced. Now these disposals will obviously have an impact in both 2020 and 2021.

The second main difference from last year is a significant reduction of our pipeline, which obviously, will have an impact on the medium-term growth rate. For 2020, the disposals made in 2019 and those we're expecting to make in 2020, including from the sale of the 5 assets, will have an impact of around EUR 0.50 a stapled share. This will be partially offset by the growth in the portfolio and to a more limited extent, the 2020 deliveries, which are mostly going to be coming online towards the end of 2020. As a result, 2000 (sic) [2020] AREPS are expected to be in the range of EUR 11.90 to EUR 12.10.

As for the medium-term cash flow growth of the portfolio, the substantial disposals are a critical part of our model as well as the deleveraging objectives that we set ourselves. However, they do tend to mask the underlying performance of the portfolio, and this obviously represents the operational growth, the delivery of development projects, albeit fewer than last year's BP and the controlled cost of debt. So to illustrate the impact of disposals and the underlying growth, assuming the disposals had all happened on January 1, 2020, the underlying operations generate a compound annual growth rate of between 3% and 5%. Obviously, below the CAGR, calculated the same basis for last year's BP, but it reflects the reduced deliveries and a somewhat more cautious outlook in light of the current environment. Yet contrary to many, we continue to see growth in our portfolio.

We proposed a dividend of EUR 10.80 a share for fiscal 2019. We proposed to the annual meetings, which are to be held this spring, and reflects a payout ratio of 87% of the adjusted recurring earnings, 89% if you strip out the IFRS 16 impact on the AREPS. Based on the output of the 2020, 2024 business plan, even considering the disposals made in the plan, the expected AREPS minus the replacement CapEx covers the dividend of EUR 10.80. With respect to replacement CapEx, as I said in London in June, the run rate CapEx on our retail assets is expected to be -- continue to be expected to be EUR 150 million a year. That hasn't really changed fundamentally. That's approximately 6.5% of the current NOI.

For 2019, we had planned EUR 200 million. We did about 166 million on retail, actually. And that included a EUR 50 million catch-up for the U.S. Now because of the young average age of our retail portfolio, we simply don't need to spend the EUR 300 million, as I read in a recent report recently. Group-wide, replacement CapEx was EUR 176 million in 2019, and we expect this to be broadly similar in 2020. We expect to maintain the dividend at this level for 2020 and '21, and then, again, grow it broadly in line with the growth of AREPS.

We've always had a very active asset rotation strategy and those who followed us for some time know that disposals are not a stranger, if you will, to the URW operating model. But they've never impacted our ability to pay the dividends, and we don't expect them to do so either. We have a long track record of paying stable dividends and from time to time, it stays flat for a while. And the payout ratio has varied between 86% and 94% and we fully expect to remain within this band.

In summary. Operationally, 2019 was a very good year. Tenant sales up by 3.7% group-wide, Continental like-for-like NRI up by 3.1%, company-wide in the U.S. flagships, up by 5.4%, AREPS have exceeded guidance, vacancy in Europe that's low and stable and improvements in the U.K. and the U.S. in the second half. Two, we're executing on our strategic plan, integration on track, Westfield brand is launched and EUR 99 million of synergies achieved. We have heard our shareholders. 80% of the EUR 6 billion disposal plan is achieved in line with or above book value. EUR 1.2 billion to go on that, and a further EUR 2.5 billion identified in the BP. The pipeline has been scaled back, more flexible, focused and diversified.

And lastly, going forward, we'll continue deleveraging. We'll be aiming to outperform in what is a difficult market. The Brazilian portfolio will drive the underlying compound annual growth rate between 3% and 5%. And we plan to maintain the dividend.

Well, there's clearly some strong headwinds. But as a senior management team, we all believe that URW is very well positioned for the future.

With that, let me open it up for questions.

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Questions and Answers

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Pierre-Emmanuel Clouard, Kepler Cheuvreux, Research Division - Equity Research Analyst [1]

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Yes. Pierre Clouard from Kepler Cheuvreux. I've got a couple of questions on the disposal plan programs on the French portfolio. The first one is idealistically, what would be the perfect tech that you want to own in this portfolio? And is it subject to see -- can we see further assets to be included in this portfolio that, let's say, (foreign language) anyway.

On the guidance, can you give us the impact on this disposal plan for 2020 and 2021? And another, broadly on the strategy, as you said it, so Amazon is going physical. Can we expect a global partnership with Amazon in the future?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [2]

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Let me first deal with the first couple of 3 questions, and then Christophe will answer the last one. The percentage that we have, we're perfectly happy with, right? These are good assets. We haven't set ourselves an absolute target. We think that because of the appeal and the recognition of Crédit Agricole Assurances and La Française as smart investors that there could be others that are interested in Inditex. And we'll be able to sell down if there's a needed interest. But at this point, there's no objective to come down to de minimis stake, if you will. There are good assets if you think about this. But with the structure we have, about 74% of the equity in these assets have been taken out, the EUR 1.5 billion for URW, so the return on equity for us and the remaining equity in the portfolio goes up as a result of the fees that we're getting paid by the JV.

In terms of your questions about more assets, possible, not under discussion at this point in time. The impact of the disposals that we've made in 2019 and the ones that we're looking to make in 2020, including the impact of this is around 50 basis -- EUR 0.50, sorry, for 2020.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [3]

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And on the strategy, we basically have partnership with most retailers we deal with, but no large scale partnership with Amazon is under discussions as you can imagine. But why not one day, but not today.

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Bruno Duclos, Invest Securities, Research Division - Financial Analyst of Real Estate [4]

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Bruno Duclos for Invest Securities. Regarding the asset that you are going to dispose. Are you required to have a minimal stake in the fund?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [5]

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Yes, there is a requirement that we hold, the de minimis stake. Because as I said, the idea is that the institutional investors, they want an asset manager with skin in the game, so there's alignment. So the old model where you just have an adviser or -- I'm naming names. I'm not saying names better good, but AW or Jones Lang LaSalle ready to manage this on behalf with no financial investment. That model, we believe, is no longer one that is credible for institutional investors who are committing serious capital to this. But we'll have a minimum stake.

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Bruno Duclos, Invest Securities, Research Division - Financial Analyst of Real Estate [6]

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Okay. These are not included in the EUR 2.5 billion assets that you are going to dispose?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [7]

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We have the -- we have the 48 -- sorry, 45.2% -- 45.8%, sorry, of the stake. That's the one that we have modeled it on. And there's no -- we have identified a number of assets in the plan that don't involve this.

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Bruno Duclos, Invest Securities, Research Division - Financial Analyst of Real Estate [8]

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Okay. Could you give us an update on the Trinity Tower in La Défense, because I think it's mostly delivered right now?

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [9]

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No. It's not yet delivered. It will be delivered in H1 2020. And I get your next question, it's not pre-let. But most of our projects, if not all our projects, in La Défense had not been pre-let before they were delivered. If you recall, it was the case for Majunga, which was not pre-let when delivered, but pre-let -- but let, sorry, very successfully 18 months after delivery. So it's nothing but normal at this stage.

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Bruno Duclos, Invest Securities, Research Division - Financial Analyst of Real Estate [10]

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Okay. And 2 small questions. You mentioned that Topshop was replaced by JD Sports in Westfield Stratford. Could you give us an idea of the change in MGR?

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [11]

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I'm not sure JD Sports would love it, okay? But as you can imagine, the space is very good. It's very well located, and the rents -- sorry, the sales per square meter of JD Sports are just unbelievable at Westfield Stratford City and trust them for negotiating a deal, which makes a lot of sense for them, okay? We have a lot of respect for JD Sports. They're actually doing very well everywhere. And I think it's only a good sign that they are multiplying by more than 4, that GLA at Westfield Stratford City, I think, this is a very strong tribute to the quality of the retailer, but also at Westfield Stratford City.

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Bruno Duclos, Invest Securities, Research Division - Financial Analyst of Real Estate [12]

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And last question, regarding the Nordics. We have seen among the portfolios of [OSI] REITs that it's not performing that well. Is there a special reason for this?

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [13]

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As I said, I mean, there are various -- there are a couple of bankruptcies of major retailers in the Nordics like everywhere. We are playing field. I mean, you know how many assets we've got in Sweden. So our playing field is more restricted than in other countries like France for example. The -- and the quality of Mall of Scandinavia for example, Westfield Mall of Scandinavia now is absolutely not at stake. The number of operations at Westfield Mall of Scandinavia is not high enough.

Because people, even if we consider they could be performing better, they don't want to leave. So it's very difficult to find space there, i.e., very difficult to generate MGR uplifts with new tenants because the existing tenants are just there and don't want to leave. And we've had some recent examples I can't talk to you about, about a retailer which is close to a market entry. But we -- the unit we hadn't identified. The current tenant doesn't want to let go. So very difficult for this respect. You all know the Solna and other assets in Sweden, which are not exactly the same playing field for us to generate MGR uplift least at this stage.

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Florent Laroche-Joubert, ODDO BHF Corporate & Markets, Research Division - Analyst [14]

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So Florent Laroche-Joubert from ODDO BHF. So congratulations for the disposals. So I would have a sort of quick questions, if I may. So first question, so in the United States and in the U.K., so you are facing challenging conditions. So how are you more maybe optimistic for 2020 if you are still cautious in these 2 regions? So that's my first question.

So question two. Is it possible to have the figure of the growth of sales on tenants without Tesla?

And question #3. So you have told us that your dividend is sustainable. But can we understand that once you have completed your disposal plan, shall we expected -- shall we expect further growth of the dividend?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [15]

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I'll start with the last question first. The disposals that we have in the plan have all been factored in into what we're saying with respect to the sustainability of the dividend. We do expect of the business plan to have the AREPS. The impact of disposals of AREPS starting to actually outpace -- sorry, to have that disposal, be outpaced by the growth in the underlying business as well as the deliveries.

If you heard what we were saying about a record number, the EUR 2 billion of deliveries coming in mostly towards the second half of 2020, that's obviously going to start delivering significant rental growth. And as those assets stabilize, we believe that will continue to pick up. So yes, we do expect, based on a 5-year BP, that there will be a growth in the dividend.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [16]

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As for the growth in our shopping centers, excluding Tesla, Fabrice, 3.3%?

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Fabrice Mouchel, Unibail-Rodamco-Westfield - Group Finance Director & CFO Europe [17]

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Yes.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [18]

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3.3%, excluding Tesla. So it's still a very healthy growth. But of course, Tesla has performed very well last year. Don't blame our teams for having negotiated the only 2 Tesla stores in the Stockholm region and the only 3 Tesla stores in shopping centers in France, right? So it's -- we benefit from that, obviously. But at each quarter, we gave you the sales without Tesla, so you can follow this.

And your other question was U.K., U.S. So in the U.S., I mean, Jean-Marie explained all the efforts that he's put in, especially in leasing, leasing, leasing. Now Michel is in the same situation in the U.K., but he's added 1 leasing. So for the U.K. is leasing, leasing, leasing and leasing. Of course, all the teams are at work there, and I think the -- as you know, and as we show their vacancy at Westfield Stratford City, it's only 4%, which I think for the U.K. market is very strong.

You know that West -- Stratford City has got, I think, with your -- off the top of my head, but Fabrice would know that better because he discussed all this with -- for the refinancing of the CMBS at Stratford City. But these 2 assets have got an incredible lead over the other U.K. assets on sales per square foot to sales per square meter. And they've got -- I think, Westfield Stratford City is 50% more productive than the third shopping center; and Westfield London, 33% more productive than the third shopping centers. So they're way ahead, and this gives us confidence. There is probably a bit too much space at Westfield London, as we said, in the IR Days in London. And we are working and pretty well advanced in repurposing some of the retail space and some other activities, which will, I think, have a great effect on the shopping center, on it's attractiveness, but also on our rents and our vacancy.

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Operator [19]

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(Operator Instructions) We have 1 first question from Mr. Bart Gysens from Morgan Stanley.

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Bart Gysens, Morgan Stanley, Research Division - MD [20]

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Can I ask you a question about your disposal? So do I understand it right that you have taken 5 assets worth about EUR 2 billion in a vehicle? You've injected about EUR 1 billion of debt, and therefore, released about EUR 1 billion of equity for you to the firm. And then you've sold half of that remaining billion of equity to a third-party or just over half. And therefore, you've got about EUR 1.5 billion of cash flow on effectively EUR 1 billion of disposal, is that right?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [21]

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The structure, the timing and the steps may not necessarily follow the way that you laid it out. But in effect, as we said, there's a EUR 2 billion portfolio, EUR 1 billion of leverage for a 50% LTV portfolio, right, and then we will hold 45.8% as currently announced. So the numbers all come together.

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Bart Gysens, Morgan Stanley, Research Division - MD [22]

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And when you talk about that you've -- to date, on EUR 4.8 billion of disposals, do you include EUR 1 billion or EUR 1.5 billion for this transaction in there?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [23]

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Just our proceeds, Bart. EUR 1.5 billion.

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Bart Gysens, Morgan Stanley, Research Division - MD [24]

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So the fact that you've sold EUR 1 billion, but you're actually gearing this vehicle up, and therefore, because of the equity accounting of the vehicle, you'll be able to derecognize some debt, you count it as a disposal.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [25]

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That is correct.

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Operator [26]

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Next question is from Mr. Stuart McLean from Macquarie.

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Stuart McLean, Macquarie Research - Research Analyst [27]

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A first question is just on the guidance. So you achieved EUR 12.4 a share in FY '19. If I take off your EUR 0.50 for disposals, maybe they get to the bottom end of that good target range. Given that you do have EUR 2 billion of developments coming online, given that you are expecting underlying growth, I'm just wondering what are the headwinds that there might be in the P&L in FY '20. I think you mentioned cost of debt, but what else is going on there?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [28]

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Stuart, appreciate you staying up this late. The -- obviously, we are not blind to what's going on. We're taking a somewhat cautious perspective on the outlook. And if you assume that the cost of debt is going to be a little bit higher, right, you'll have a couple of pieces that, that -- that obviously bring us to the range that we have -- that we've provided for. For those who have followed us in the -- over the years, URW has typically been able to deliver -- well deliver, if you will, on its guidance.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [29]

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One additional word on the deliveries. As was noted, there are more to get towards the end of the year than in the beginning, so reduced impact in 2020 of these deliveries. And as I also answered the question on Trinity. Trinity for the moment is not pre-let, and therefore, the rents will not start to kick in before it's actually let. So this is the explanation on the EUR 2 billion, which is of deliveries, which is a big number, but which is more kicking in at the end of the year than at the beginning.

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Stuart McLean, Macquarie Research - Research Analyst [30]

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Yes, okay. Okay. I believe if we take the EUR 0.50 of disposals, yes, it's down to 11.9% per share, underlying growth of, let's say, 2% NOI growth. I'm not sure if that's too aggressive or not, but that gives you an extra EUR 0.35 this year, EUR 0.30 to EUR 0.40 quite easily.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [31]

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I'd invite you to come down and do the leasing for us. It's clearly easy, right? But now to be fair, Stuart, the question is not wrong, right? There is -- there's going to be like-for-like growth. We expect that, that some of that's going to be offset by the somewhat high -- slightly higher cost of financing.

So all in all, you're going to get a number. And as I said, we want to be a little cautious in terms of this environment. We think we have a pretty good idea about what will happen. Obviously, these long-term contracts, right, provide us with certain amount of visibility. But there's always stuff that goes -- bump in the night. And we just want to be cautious, considering what's going on both in the U.S. side. In Europe, we don't expect major things, but we do want to make sure that we take account of what there may be.

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Stuart McLean, Macquarie Research - Research Analyst [32]

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Okay. Next question is just on FY '19. At the start of the year, you set out and said there'll be EUR 0.90 impact from disposals and a negative EUR 0.50 impact from the Westfield transaction. I was just wondering how the numbers went according to those initial plans.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [33]

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Broadly.

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Stuart McLean, Macquarie Research - Research Analyst [34]

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Broadly in line for both?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [35]

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Yes.

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Stuart McLean, Macquarie Research - Research Analyst [36]

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Okay. And my last one on FY '19, one half was EUR 6.4 this year. Second half was EUR 5.9 this year. Just wondering what that drag was going into the second half, which I think could actually help me into my FY '20 bridge.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [37]

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I think the one element, right, that we saw during the first half, we obviously had a like-for-like net rental income growth of only 2.1% in Continental Europe. And so that's moved up to 3.1%, as Christophe noted, so you see a significant pickup in the second half.

We've also seen occupancy increase during the second half of 2019 on both the U.S. side as well as in the U.K. Obviously, the beneficial impact on the stabilization of powerhouses like Century City and UTC are showing -- are contributing significantly to rental growth. And as you saw, right, we saw the uptick, if you will, in comp NOI growth in the U.S. for the whole year at 2.4%.

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Stuart McLean, Macquarie Research - Research Analyst [38]

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Sorry, but 2 half earnings were less than 1 half earnings?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [39]

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What was that? Sorry, Stuart. Can you repeat, please?

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Stuart McLean, Macquarie Research - Research Analyst [40]

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Yes. So 1 half earnings per share was EUR 6.45 million, which implies 2 half with EUR 5.9 million. So I was just wondering what that drag was.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [41]

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The impact of disposals. Obviously, during the first half, we had not yet sold Majunga, which the deal closed there on July 3. So we have the full half year of the disposals. We also sold a smaller shopping center, Ring Center, which had enough significant impact, but obviously, that was part of the drag.

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Stuart McLean, Macquarie Research - Research Analyst [42]

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Okay, perfect. And maybe just one last one for me, sorry. Just on a question before on the gearing up the JV. So how are you -- that doesn't come in at all into your loan-to-value ratio, that extra debt. Just how are you thinking about gearing maybe on a look-through basis now if you're doing more JVs going forward?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [43]

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Well, it goes back -- again, it goes back to the equity consolidation because the joint venture control gives control of the JV to the partners. We are an operating manager, pursuant to the long-term management contract. It's not all that different, except for the management part of some of the JVs that we have in the -- or the remainder interest we have in assets we've sold in the U.S. like Blum Capital and Starwood Ventures.

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Stuart McLean, Macquarie Research - Research Analyst [44]

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The like -- kind of on a like-for-like basis, the proportionate gearing though potentially becomes more important if you're doing more JVs. Just wondering how you're thinking about that.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [45]

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Well, I think the key element here is that what we've been trying to do is to create a dynamic whereby we can execute on the deleveraging plan, and realizing EUR 1.5 billion worth of proceeds, taking out 75% of the equity in the JV of the assets effectively for us. We felt that this was the right thing to do. So again, if there are further investors that would want to come in based on the returns, the leveraged returns, our shares may shrink further.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [46]

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I think this is an illustration of the -- sorry, just 1 second. This is an illustration also of the creativity and the skills of the team to find solutions in a market, which is difficult. And 5 assets in 1 go is, of course, a big chunk. You're talking about EUR 2 billion, so getting EUR 1.5 billion of net disposal proceeds from this operation. This transaction is actually a great outcome, I think. And it's EUR 1.5 billion of deleveraging, because this is not consolidated. And yes, we'll be probably be reducing our stake if there are more investors which join in. And I think this can be anticipated, although, as Jaap said, we'll be keeping skin in the game because this is what -- and these assets are actually quite good assets, okay?

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Stuart McLean, Macquarie Research - Research Analyst [47]

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Yes. I'm just curious, because it gives you a very good benefit on an equity accounted basis for your loan-to-value ratio. But on a proportionate basis, the benefit isn't quite as positive, albeit it's still a positive transaction.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [48]

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Right. I mean, that's -- listen, you can take both ways and look at this transaction. We're choosing to look at this as the glass half full, generating EUR 1.5 billion of the disposal proceeds for URW, which we can use to actually dispose -- deleverage on, which is I think one of the elements that people were very focused on. And there will be more disposals. And it's not entirely clear yet on what form that will take and whether that's 100% stake -- 100% assets or that is a joint venture. So that will all be part of the plan. We have a plan, as one of the presidential contenders in the U.S. tends to say. We have a plan for each one of them.

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Operator [49]

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Next question is from Mr. Jaap Kuin from Kempen.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [50]

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Just a final question maybe on the JV leverage. The fact that it's kind of higher than your target group leverage, is it your own choice or is it kind of the buyer's choice that want to lever up their returns?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [51]

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The discussion with the buyers, gave -- made it very clear what it was they would like to see on the JV and the returns, and obviously, leverage helps in that respect.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [52]

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Yes. Okay. So I should interpret that the buyers prefer the 50% on the value.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [53]

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You know URW's policy towards leverage.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [54]

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Okay, clear. And just for completing the stake. You reported as an equity stake, and you have -- it will be deemed you have no control, right? Is that the right way of looking at it?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [55]

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The partners have the majority of the vote as we have under the joint venture agreement, a number of blocking rights that you would typically have as a minority shareholders with respect to disposal of assets and the like. And those would require, obviously, reaching a super majority. Again, normal JV. There's nothing structured. No preps, no nothing, very straightforward JV. But considering the control that the JV partners have, it is no longer proportionately or fully consolidated.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [56]

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Clear. Then maybe on to the development pipeline. I see in the list of canceled projects a couple of names, including Croydon, which is probably not unexpected. Should we see any write-downs connected to cancellations or postponements of these projects? And then secondly, I see Westfield Milan is kind of untouched. Does that mean this is kind of fully confirmed at the printed scope we've seen right now? Yes, that's on the pipeline, and I have a couple left.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [57]

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Sure. With respect to write-downs in the portfolio, as you know, we're marking the assets to market. And that includes the assets that are in the pipeline on which the -- on which capital has been spent. And we have seen over the last year and 1.5 years already some value reduction on assets that have already been reflected in the overall balance sheet value and valuation of these assets. So they have been -- they, too, have been marked to market.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [58]

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I think regarding Croydon, and I described in my presentation the pipeline, the reasons and the categories of assets that have been removed from pipeline, projects which needed major redefinition or we had -- which had been postponed or which didn't meet our return targets anymore. And Croydon is clearly a project as we have announced which needs major redefinition. The project as it was originally needs to be reviewed. And this is what we've announced actually publicly. And so we are working on this. And -- but at this stage, we don't have a final project. So we are working on it, okay? And more news later on this. But today, it needs so much redefinition and much more time than to be included in our pipeline.

As Milan, it's in the pipeline today because we have redefined the Milan, but it's not in the committed pipeline. It's in the controlled pipeline. And therefore, it still needs some work on it like all projects in the controlled category.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [59]

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Okay. So I tell you this, we will see something further down the road on that one then. And then maybe on the like-for-like, you still report like-for-like on kind of excluding U.S. and U.K. even though you show in the presentation, I think, U.K. minus 4. Could you maybe approximate for us? I would be guessing that you actually have today the kind of group-wide NRI like-for-like evolution?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [60]

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We can give you an approximation of that number with Sam. I think the key element is here from an accounting perspective. It's not like-for-like, right, because we've only owned it for 18 months.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [61]

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Yes, okay. Yes, okay. But I mean, okay. And then...

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [62]

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You will see this from this year going forward, right, where we compare '20 to '19. That will be a like-for-like basis, and we'll report on the EPRA basis -- standards.

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Boudewijn Schoon, Kempen & Co. N.V., Research Division - Research Analyst [63]

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Yes. Okay. That's clear. And then maybe last one for me. On the like-for-like other category, there's indeed the 10% in the Netherlands and 5% in Spain. Is it all bad debt write-ups or write backs? Or is there other stuff included there as well?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [64]

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It's kind of funny because we try to be fairly conservative. And when there's litigation within tenant, we try to be fairly conservative and make the appropriate provisions, right, just in case something goes bad. This case didn't turn out to be -- that didn't turn out to be the case this year. And so those have been -- those provisions have been released. So in effect, you've seen the "hit" from those provisions in prior years.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [65]

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Sure. But that's also the case for Spain then?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [66]

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Yes.

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Operator [67]

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We have 1 last question from Mr. Sander Bunck from Barclays.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [68]

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Two questions from my side. First one, again, on the JV. Just wanted to make sure that I understand correctly in terms of the CapEx and letting fees, et cetera. Are you responsible for just 46% of the cost of that or are you resuming 100% of the overall cost of CapEx and letting fees, et cetera? And the second one is kind of more of a broader question on the disposals. Because as you say, you're selling good quality assets in quite a difficult and illiquid market. At the same time, you actually know that the LTV doesn't really move either -- in whatever way you consolidate it. So why continue down this path and not look at potential alternatives to reduce leverage?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [69]

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Thank you, Sander. I think that there may have been some deals that were done where you might have thought that this is something URW would have to do. But in short, the answer to that is the JV pays for the CapEx and the letting fees for running the business. If we were not to do so, you'd have a very weird structure with some kind of preferential return for the investors.

And as I said, that's not the case. So there's no sponsoring, if you will, for URW of the operations of the joint venture. We will manage it. We'll make recommendations to the partners as to the spending of money, to the extent any is necessary. And they have the freedom to decide to -- whether to do so or not.

In terms of disposals on an LTV, the V is something that we don't fully control, right? We're not chasing as such a loan-to-value. We obviously want to see that the absolute amount of leverage comes down over time, which is why I gave you the indication of net debt to EBITDA to be back around where it was prior to the Westfield transaction, around 8.5x by 2023. This is still where we were at the Investor Days in London. But the key here is that the value -- you can always keep chasing the value. We're going to execute. We're going to execute on the disposal of assets that, over time, we don't think have a place in our portfolio, which is ever -- becoming ever more concentrated in these large, very large flagships in very wealthy catchment areas.

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Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [70]

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Sure. But in theory, it could -- in that case, following your analogy, which I understand, it could, in theory, be that you're being forced to sell assets, which you ideally do not want to sell for the reason you mentioned. And I think that's very valid. But ultimately, if you do want to bring down absolute debt levels into an environment, regardless of the V, why not explore alternatives? For example, access to the capital market, to the equity capital markets to reduce debt levels that way instead, because it will be a lot easier in a way to deleverage rather than go down this route where you're disposing in a very illiquid market.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [71]

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I think that the transaction that we have just announced shows you there is liquidity for the right assets with the right managers. And I could have a very smart alecky answer to your question, Sander, but I won't do that. Trying to be mature. But seriously, I mean, the whole idea is I'd be delighted to see the research report you would write if we were to decide to go equity, equity issuance. And you've heard this from other leading players in the industry, that these type of levels is not a very -- it's not very sustainable nor for that matter, an easy fact.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [72]

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Don't write on it. It won't happen. Now I think, looking back, there was some skepticism on our capacity to sell retail assets. So we sold offices, of course. And everybody said, yes, yes, yes, it's easy, but we did. And we sold Majunga, for example, in very good conditions. We sold our remaining stake in Jumbo in very good condition. We sold minor but still center in Germany called Ring Center. And we now announced a pretty interesting disposal of EUR 1.5 billion net disposal proceeds, which leads us to EUR 4.8 billion out of the EUR 6 billion that we had announced, increased in January '19 or February '19. So we are at 80% of this new increased target, which I think is quite an achievement.

Now of course, the LTV announced at the end of the year does not include the proceeds from this operation, the 5 French shopping centers, but it's indicated that the LTV will go down to 37.2%. And of course, this also helps to fund the pipeline and the EUR 2 billion deliveries that we're going to deliver at the end of 2020. So -- and all this will generate also returns, okay? So all this is a fine mechanism, as we say in French, but I think the -- this disposal of the stake of these 5 franchises is a very, very good news for the company.

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Operator [73]

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We have another question from Mr. Jaap Kuin from Kempen.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [74]

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Sorry to come back on this. On the press release, on the JV, you said the disposal was in line with the latest unaffected appraisal. Could you maybe share your definition of in line? For example, would it be close to 0% or 5% below the last appraisal values? And could you maybe shed some light on the definition of a sale lease, including transfer tax? And was it also the case, let's say, in 2018? And then the second kind of housekeeping question. Could you kind of highlight the underlying assumptions that drive the key changes for the growth of 3% to 5% from before, 5% to 7%.

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [75]

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With respect to the concept of in-line, I think it behooves me just to say there was no discount. In terms of the underlying assumptions, but as I said, the removal of EUR 3.2 billion of development projects from the pipeline will obviously have an impact on the ultimate compound annual growth rate.

We have looked at this. We have always said that deliveries account for approximately 30% of longer-term growth rate, right? And so if you start taking out significant amount of disposals -- sorry, of the pipeline, that will definitely have an impact. I'm not going to specify in absolute percentages, but that's a very significant contributor to it. And again, we have -- the irony here. I'm sorry, I'm laughing. I get asked this a lot, right, is that you guys are projecting growth. There is no growth, right? Well, we still see growth, but we're not ignorant of kind of what's happening around us. So we've been a little more cautious in terms of the operational assumptions that underlie the business plan.

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Christophe Cuvillier, Unibail-Rodamco-Westfield - Group CEO & Chairman of Management Board [76]

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I think there's one other point because we hear a lot that what's happening in the U.K. could come to the continent. There's one major difference, is that the negotiations are not happening in the same way. And there's something in Continental Europe, which is about 70% of our income, which is called indexation, which there, again, is a pretty good protection against no growth because it grows with indexation, okay? So it's another difference that you have to take into consideration and not extend what could happen or what is happening with some players in the U.K. to Continental Europe, very important.

And by the way, the shopping centers in Continental Europe are also anchored by hypermarkets, not by department stores. And hypermarkets, although they're also reinventing themselves, are doing pretty well and attract people every week. So the footfall is there as well as you can see via growth numbers. So it's a very different picture.

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Operator [77]

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Thank you, sir. We have no other questions.

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Jaap Kuin, Kempen & Co. N.V., Research Division - Deputy Head of Real Estate [78]

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Yes. Just one last question on the guidance, just to understand correctly. You are being conservative I might say on the 2020 guidance. Is it because you intend to announce new disposals in the coming weeks without the need to rebase the guidance?

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Jacob Lunsingh Tonckens, Unibail-Rodamco-Westfield - Group CFO & Member of Management Board [79]

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You clearly have seen a lot, right? I think what we're -- let me put it this way. There are discussions ongoing on other assets, and we have in our 5-year business plan, and in particular, the 2020, we have made assumptions on to the timing of those. But you'll appreciate that I'm not going to go into a great amount of detail on exactly when we expect certain things to happen. You guys will be beating us up for not meeting the exact date.

No. But seriously, there's ongoing discussions, right? And those we are -- we're very confident about. And everything that we're planning to sell in 2020 has been taken into the guidance. So only if there were disposals that will go ahead of what we had planned for, would that have an impact. I hope that's helpful.

All right. Thank you very much. Thank you for attending. Thank you for your questions.