European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

Event-Driven

<a href="https://www.smartkarma.com/entities/unibail-rodamco-westfield-30ce548a-619c-4f94-9cdc-69d80f811709" target="_blank" data-smartkarma-citation="entities:27912:1" rel="noopener">Unibail-Rodamco-Westfield (URW NA)</a> has <a href="https://cdn.urw.com/-/media/Corporate~o~Sites/Unibail-Rodamco-Corporate/Files/Homepage/INVESTORS/Press-Releases/Others/2020/20200916-URW-announces-9Bn-RESET-plan.ashx?revision=" target="_blank" rel="noopener">announced a plan</a> to restore financial health, which involves €4.0 Bn of disposals and a massively dilutive €3.5 Bn fully underwritten rights issue to be conducted before year-end.
<ul>
<li>the rights issue is equivalent to c. 83% of the current market cap (it was two-thirds of the market cap pre-announcement)</li>
</ul>
URW is exposed to a highly cyclical and structurally declining retail sector. Moreover, the not-so-new URW's leverage woes have been compounded by the Covid-19 pandemic and fear of rebounds, which has indeed brought along a lower demand from public, affected the ability of tenants to pay rent and accelerated the penetration of eCommerce.
Although URW's portfolio has some of the best European shopping centres, the company has been forced to shed some high quality assets in Europe to reduce leverage. This may weaken future income.
As a result of the current economic downturn, URW has found itself in the wrong place of real estate: retail is lagging other sectors such as industrial, logistics or residential, with implications for index compositions. On a comps basis, URW seems overvalued (18.3x EV/Forward EBITDA vs. 15.5x for comparable companies).
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The rights issue will be massively dilutive, which explains the share price weakness. Institutional holders will subscribe for the new shares, which is the only way they can recover some of the money, and probably not all retail shareholders (up to 49% of shareholders according to Capital IQ) will subscribe the cash call. The size of the issue makes it akin to an IPO, a massive wave of shares coming onto market; hedge funds are positioning for it (please see table further in the insight).
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I recommend a straight short in URW.
Depending on the sources, between 15% and 20.3% of URW's shares are on loan, with up to 16 days to cover.

Unibail-Rodamco-Westfield (URW NA) has announced a plan to restore financial health, which involves €4.0 Bn of disposals and a massively dilutive €3.5 Bn fully underwritten rights issue to be conducted before year-end.

the rights issue is equivalent to c. 83% of the current market cap (it was two-thirds of the market cap pre-announcement)

URW is exposed to a highly cyclical and structurally declining retail sector. Moreover, the not-so-new URW's leverage woes have been compounded by the Covid-19 pandemic and fear of rebounds, which has indeed brought along a lower demand from public, affected the ability of tenants to pay rent and accelerated the penetration of eCommerce.
Although URW's portfolio has some of the best European shopping centres, the company has been forced to shed some high quality assets in Europe to reduce leverage. This may weaken future income.
As a result of the current economic downturn, URW has found itself in the wrong place of real estate: retail is lagging other sectors such as industrial, logistics or residential, with implications for index compositions. On a comps basis, URW seems overvalued (18.3x EV/Forward EBITDA vs. 15.5x for comparable companies).

The rights issue will be massively dilutive, which explains the share price weakness. Institutional holders will subscribe for the new shares, which is the only way they can recover some of the money, and probably not all retail shareholders (up to 49% of shareholders according to Capital IQ) will subscribe the cash call. The size of the issue makes it akin to an IPO, a massive wave of shares coming onto market; hedge funds are positioning for it (please see table further in the insight).

I recommend a straight short in URW.
Depending on the sources, between 15% and 20.3% of URW's shares are on loan, with up to 16 days to cover.

Unibail-Rodamco-Westfield Looming Rights Issue