PARIS — Unibail-Rodamco-Westfield plans to shed an additional 4 billion euros of real estate in the coming years as the mall giant bets on a streamlined collection of top shopping centers, in step with the global retail industry’s focus on fewer, more select stores.
“We do not want to have pressure on our shoulders to dispose, there is no urgency as such, it’s a strategic decision,” said Unibail-Rodamco-Westfield chief executive officer Christophe Cuvillier in a conference call with analysts, citing a five-year plan. Disposals could vary year by year, and the company, which owns 93 shopping centers in the U.S. and Europe and has already sold 2 billion euros worth of assets, will consider the performance of its assets one by one as it seeks to lower its ratio of debt, he added.
Up for disposal are offices and retail assets in Europe and, in the U.S., regional malls that are not part of the so-called flagship category, said Jaap Tonckens, chief financial officer. The executive noted a lack of financing for potential buyers of malls with less than $500 a square foot in sales.
“And that’s the one element we are reviewing to see how we can actually maximize value from those regional malls. Are they a long-term part of our portfolio? Unlikely. But we do need a market,” he said.
In its first major earnings report since formed by a merger of Unibail-Rodamco with Westfield last June, the company posted 2.16 billion euros in annual net rental income, a 4 percent rise on a like-for-like basis. The recurring net result totaled 1.61 billion euros, a 33.9 percent rise following the merger. Pledging to reduce the company’s debt ratios, executives painted an optimistic outlook for the future of the sector, suggesting it is a matter of getting strategy right.
“When everybody’s talking about the retail apocalypse you actually have a lot of retailers that are doing extremely well…when retailers invest in the brand, control their distribution, are selective, transform their customer experience, invest in a highly efficient supply chain for their click and mortar strategy, they are actually doing quite well in spite of everything that is said,” noted Cuvillier. The group seeks to draw crowds into malls by offering consumers new brands, a good food selection and more entertainment options.
In Europe, the mall operator brought the first Hugo store, by Hugo Boss, to Sweden, a Mercedes store featuring electric cars to France and the first Victoria’s Secret stores to France and Spain.
It also introduced the Korean beauty brand Innis Free to the U.S., H&M Home and Chinese fast-fashion label Urban Revivo to the U.K.
On the entertainment side, the group is investing in new activities, including virtual reality, with Dreamscape at Westfield Century City and Devoid at the Westfield center in San Francisco.
An increased emphasis on food includes home delivery services from the mall as well as spruced-up dining options, including Eataly, Din Tai Fung chains and Ichiba, the largest food hall in London. Future plans include Ateliers Gaîté, a nearly 52,000-square-foot space in Paris due to open in 2020, which the mall operator is billing as the largest food hall in continental Europe.
Cuvillier also sees opportunities in businesses built in the digital sphere that are looking to branch out into physical store space, like Amazon Books, Warby Parker, Peloton and Casper in the U.S. and Livy, Jimmy Fairly, Morphe, Daniel Wellington and Notino in Europe.
“They don’t open stores anywhere, they invest only in select locations, the best shopping centers, or best city centers,” said Cuvillier.
The executive noted digitally native brands may lack experience in building store operations, or operating in a shopping center environment, and has fashioned teams to help this type of potential client. He cited Westfield Valley Fair mall in Silicon Valley and its future extension due at the end of the year as catering to such demand.
“These brands are clearly part of the future of retail, which will be click and mortar,” he said.
Listed on the Amsterdam and Paris stock markets, the bulk of the group’s business comes from shopping centers, with France and the U.S. as its largest markets.
Adjusted recurring earnings per share are 12.92, a 7.2 percent increase from the previous year.
Brexit is likely delaying decisions from European retailers to invest in the U.K. market at the moment, observed Cuvillier, who added he expects more resilience from London than the rest of the U.K. when it comes to economic uncertainty.
The company is reviewing development projects in Croydon in London as well as Milan to make sure they have the right proportion of fashion, dining, department store and leisure, he added.