Maybe Homes Can Save the Shopping Mall

Maybe Homes Can Save the Shopping Mall

Europe's largest mall landlord, Unibail Rodamco Westfield, wants to push into residential development and advertising as it tries to diversify its core business

The Westfield shopping mall in San Francisco. 
The Westfield shopping mall in San Francisco. 

Westfield's owner has given investors a preview of what shopping malls might look like in the future -- part ad platform, part housing complex. But the makeover plan is just window dressing until it can sell its American properties for funding.

Europe's top listed commercial property company in terms of gross assets, Unibail Rodamco Westfield, said at an investor day on Wednesday that it will make a bigger push into residential property development and advertising.

Unibail bought Westfield in 2018 -- an expensive deal the mall owner is now trying to reverse through sales of its U.S. properties.

Unibail wants to diversify its rental revenue by earning more from ads and brand launches.

The company already made €23 million, or $26 million, from advertising on the 1,700 digital screens installed throughout its malls in 2021 and wants to double this by 2024.

As regulation makes it harder to track consumers online, Unibail thinks that running ads in its European malls, which have an annual footfall of 550 million, will be appealing to brands.

Although a landlord won't have the same quality of customer data as a retailer, Unibail expects revenue from advertising and brand partnerships to reach €200 million by the end of the decade.

Skyrocketing house prices are the bigger opportunity. Institutional investors poured €102.6 billion into multifamily residential property in Europe in 2021, according to CBRE -- almost the same amount as was invested in offices.

Unibail owns land in major cities across Europe that can be sold to residential developers. It may also sell stakes in projects to institutional investors or do the construction itself.

Unibail has applied for planning permission to build 1,700 homes beside its Westfield mall in London. In all, it has the potential to develop nearly 16,000 residential units across Europe.

But not much can happen until Unibail cuts its debt, which it hopes to do by selling U.S. malls including the Westfield flagships in New York and San Francisco.

The company expects that to happen in 2023, but it is unclear whether serious talks are under way yet.

Chief executive Jean-Marie Tritant did mention that several potential buyers rang when Russia's invasion of Ukraine sent European equities plunging, wondering if Unibail would be forced to sell its U.S. malls on the cheap.

Unibail has enough funding for at least two years, so isn't under pressure to sell yet. But borrowing costs are going up.

The mall landlord has raised debt in the bond markets twice since the pandemic began, at a low cost of around 1%.

Today, it would probably need to pay 2.5%. High inflation in the U.S., currently running at 7.9%, will make it tougher to sell malls at a good price.

Unlike in Continental Europe, U.S. mall leases aren't indexed to inflation.

Unibail could sell its assets for 30% less than their 2021 valuations and still hit its target loan-to-value ratio. Hopefully that kind of discount won't be needed, but only a sale of its U.S. malls can pay for better prospects in Europe.

Do you like the content of this article?

Hong Kong's crypto industry eager for policy support

HONG KONG: Hong Kong's cryptocurrency entrepreneurs and investors are looking to the government to take more measures to support the industry amid growing concerns about the city's diminishing status as a crypto hub resulting from regulatory uncertainty.

25 Sep 2022

Russia vows to fix mistakes after old, sick people mobilised

MOSCOW: Russian authorities on Sunday promised to fix the mistakes in their troop call-up for Ukraine, after some public outrage over students, older or sick people being mistakenly ordered to report for duty.

25 Sep 2022

Super Typhoon Noru slams into the Philippines

Super Typhoon Noru slammed into the Philippines Sunday, battering the heavily populated main island of Luzon with strong winds and heavy rain that have forced hundreds of people to flee their homes.

25 Sep 2022