Westfield malls are missing ‘rental tension’: Unibail
Westfield’s key malls have become so big they had lost “rental tension” with their new owner no longer on the expansion trail, it was revealed in a UBS research note after the investment bank hosted Unibail-Rodamco-Westfield’s chief financial officer at its global conference.
Westfield, taken over by French giant Unibail Rodamco in a $33 billion deal earlier this year, its spin-off Scentre Group and more recently Vicinity Centres pursue the flagship or destination mall strategy, which has seen their shopping centres regularly expanded to dominate their locations.
But URW chief financial officer Jaap Tonckens told UBS the newly merged group will focus on refurbishment rather than enlarging the footprint of some of the centres, which are already among the biggest in the world.
Commercial Insights: Subscribe to receive the latest news and updates
“Some of the Westfield US malls are so large that they have lost the rental tension,” Tonckens says. However, Tonckens notes that size does have its benefits, saying two retailers have closed shops in competing malls but not in URW centres due to the benefits of scale.
UBS analysts Grant McCasker and James Druce visited Westfield London and Westfield Stratford last week.
While the 465-store Westfield London boasts £1 billion ($1.74 billion) a year of retail sales, the centre had vacancies after its 76,000sqm expansion that finished in March, the analysts note.
A Westfield mall.
Westfield Stratford chalks up retail sales of £1.2 billion a year and will benefit further from the area’s demographic boom.
UBS has a neutral rating on the stock, with McCasker noting that URW traded on a 8% distribution yield and is a “very interesting proposition for investors”. He says URW, “from a global perspective, was one of the most interesting names at the moment”.
In Australia, URW trades as CDIs and has a $8.4 billion market value. But its index weighting will fall as investors shift to the European-listed stock and it becomes apparent that not all Westfield shareholders converted to the CDIs, he says.
UBS was surprised Unibail had noted collaboration and disclosure across the Westfield portfolio as an area of “relative weakness”.
URW, which has completed a review of all its malls and finalised a five-year plan, will provide medium-term guidance at the company’s full-year result.
UBS questioned whether the flagship malls were still gaining market share. URW expects to lose 30% of its retail sales to online commerce in five years. However, retail built on experiences is doing well and internet retailers are leasing stores in shopping centres.
Tonckens also notes that Westfield’s focus has been development and it has not put significant capital into leasing.
UBS says the giant mall owner is committed to selling €3 billion ($4.66 billion) of assets and is likely to sell even more.
This article originally appeared on www.theaustralian.com.au/property.
