{"id":5633,"date":"2019-10-23T21:21:07","date_gmt":"2019-10-23T21:21:07","guid":{"rendered":"http:\/\/ardatz.cl\/eng\/?p=5633"},"modified":"2019-10-23T21:21:11","modified_gmt":"2019-10-23T21:21:11","slug":"the-worlds-second-biggest-retail-owner-is-kicking-tenants-out","status":"publish","type":"post","link":"https:\/\/ardatz.cl\/eng\/news\/the-worlds-second-biggest-retail-owner-is-kicking-tenants-out\/","title":{"rendered":"The World\u2019s Second-Biggest Retail Owner Is Kicking Tenants Out"},"content":{"rendered":"\n

\n\nAt Bisnow London\u2019s Retail: An Industry In Flux event, Unibail-Rodamco-Westfield Chief Financial Officer Jaap Tonckens explained how, as counterintuitive as it might seem in a world where retailers are closing stores at an unprecedented rate, the landlord is looking to cull retailers that don\u2019t add anything to its centres. In a keynote interview with Montagu Evans Head of Planning Julian Stephenson, Tonckens explained how the Paris and Amsterdam-listed company is trying to adapt to the rapid pace of change in retail, which goes way beyond the already-cliched idea of adding more food and beverage units. After the $16B acquisition of Westfield\u2019s UK and U.S. business, Unibail will be focusing on selective development, more mixed-use and taking back space from struggling department stores. And he defended the deal \u2014 which created a company with a \u20ac56B (\u00a348.5B, $63B) portfolio of shopping centres in the UK, U.S. and Europe \u2014 in spite of accusations that Unibail paid too much at just the wrong time.  Tenants are going bust, closing down stores or demanding rent cuts across U.S. and UK retail. Shopping centre owners could be desperate to keep as many retailers in place as possible. Not Unibail. \u201cOur objective is to turf out 10% of our tenants in all of our shopping centres every year, proactively,\u201d he told the 200-person audience at London\u2019s Cafe de Paris nightclub. \u201cThat is those that no longer fulfill a reason to be in a centre. Free-riders are not very interesting to us. Those that don\u2019t drive footfall shouldn\u2019t be in a centre, so they are a free-rider; turf them out.\u201d Tonckens said in order to succeed in retail real estate today, owners have to leave behind a mindset where they leased a store to a retailer for the highest rent possible for the longest time possible, in order to achieve a high capital value.  \u201cYou need to get involved in your tenants\u2019 business,\u201d he said. \u201cThat is why short-term leases are actually better because it doesn\u2019t cost as much [to kick them out], and if a tenant isn\u2019t doing well they aren\u2019t going to want to stay either. Just ask those investors that leased stores to [bankrupt UK department store] BHS for 30 years how it worked out for them.\u201d He said that one excellent strategy undertaken by Westfield before Unibail bought the company was forcing retailers that leased space at its two huge London malls, Westfield London and Westfield Stratford, to provide data on the turnover they made at their stores. This allowed it to gauge how well retailers were performing and weed out the weaker ones, and also set its rents more accurately. It is a strategy that will be rolled out more widely by the merged company. \u201cIn the absence of turnover information, everyone is just guessing,\u201d he said. \u201cYou end up charging the same rent for a grocer and a jeweller, which makes no sense. But people are afraid to change. They worry if they change, they are affecting the comparable rent for their next store. But a shopping centre is a living, breathing thing which changes according to the conditions in the market.\u201d<\/p>\n\n\n\n

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Courtesy of Unibail
Unibail’s Jaap Tonckens <\/figcaption><\/figure>\n\n\n\n

\n\nThat change needs to include accepting when a concept or a place is no longer relevant, he said. \u201cLet\u2019s face it, there are a lot of secondary places where with great effort they have been kept up, often with entertainment and dining, which now accounts for about 15% of stores in UK centres. But dining in the wrong location is not going to solve your problems.\u201d Landlords need to be more aggressive about cutting their losses and pivoting away when they misstep, Tonckens said.  \u201cWe know we make mistakes, but you have to be willing to write down the value of assets and be ruthless, because if you don\u2019t, you don\u2019t have the flexibility to change and keep the real estate you have profitable or find an alternative use for it. Sitting on a centre you have bought and hoping to be bailed out doesn\u2019t work, because the yields might compress, but not because the rents are going up.\u201d This last comment shows why the company is selling \u20ac4B of non-core assets in Europe, having already sold \u20ac2B. The proceeds will be used to pay down debt and fund its \u20ac12B development pipeline, he said. Ousting underperformers opens room up for redevelopment, and Tonckens believes reconfiguring existing space, including taking back large units from department store retailers that are looking to reduce their footprint, is one of the biggest points of opportunity over the next few years.  \u201cThere\u2019s one of our shopping centres in London where we can\u2019t wait for some of the department stores who have been in the news to vacate,\u201d he said. \u201cThere is an opportunity to create a helluva more profitable use for it.\u201d Unibail will be moving its centres to becoming mixed-use destinations that use more than just retail to draw people in. At its Stratford City centre, Unibail is adding a 1,100-unit rented residential scheme, and in West London it is converting a former bus garage adjacent to Westfield London into a 3,000-capacity events venue. In the case of London, it is likely to be office space, potentially coworking.<\/p>\n\n\n\n

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Wikicommons<\/a>
Westfield London <\/figcaption><\/figure>\n\n\n\n

\n\n\u201cA shopping centre is like a canvass, you create events, and create opportunities for people to discover the centre. We held a virtual reality event at Westfield London, and 75% of the people who came had never visited the centre before. It is about creating an all-encompassing place for people to enjoy themselves.\u201d There is, however, a caveat to this, which won\u2019t please the owners of small or medium-sized malls. \u201cYou need a canvass that\u2019s big enough,\u201d he said. \u201cIf it\u2019s too small, you can\u2019t afford to do this, as a lot of these things get paid for by the retailers. But footfall creates opportunities to be creative about generating more revenue. We have a video screen in New York that generates $20M a year in advertising revenue.\u201d And of course you need one thing above all others to make projects successful: money.  \u201cWhat is critically important is to have capital available to execute,\u201d he said. \u201cIt is not just about talking about doing mixed-use, it\u2019s about actually doing it. You need to know that a lot of the time investors [in your shares] have a shorter time frame than you, and that value creation takes time. You have to be very cold-eyed about where the opportunities are.\u201d Tonckens said that cold-eyed view for opportunities was behind its acquisition of Westfield, a massive purchase done at a time of significant uncertainty. Since the deal was announced in December 2017, shares in the company have dropped 27%, partly because in February Unibail announced that the assets acquired from Westfield had not performed as well as it had expected. Occupancy remains high at 95% and overall income grew in the UK and U.S., but like-for-like income did not. As a result, the company reduced its earnings guidance for 2019. But Tonckens stands by the deal. \u201cThe transaction created unique opportunities,\u201d he said. \u201cOpportunities come along when they do, not necessarily when you want them to. Had this transaction happened in 2015 when we first approached the Lowy family, it would have been a lot more expensive. If you\u2019ve seen what\u2019s happened with REIT pricing since 2018, then the transaction couldn\u2019t have been done later than it was. So in this sense the timing was just about right. The fundamentals for it are there.\u201d Unibail took a lot of what Westfield does well on board and applied it to its own portfolio. As an example, he said the company expected to make an extra \u20ac40M of revenue by applying the commercial partnerships and specialty leasing deals at which Westfield has excelled to the rest of its portfolio. The Westfield brand will be rolled out across large malls in Continental Europe in September.<\/p>\n\n\n\n

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Flickr
Westfield’s mall at the World Trade Centre

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\n\nIn terms of new schemes, it seems that for Unibail at the moment it will be as much about what it doesn\u2019t choose to build as what it does commit to. For example, Unibail decided not to start developing a \u20ac1B Paris office scheme because it thinks it will be delivered during a recession. (Unibail is known for its retail, but it does have a small office presence.) \u201cWhen we think about new centres, it\u2019s about demographics, and what does a catchment area fundamentally need. You wouldn\u2019t build a 64-storey tower in the middle of the countryside. Connectivity is critically important, it has to be simple to get to. Public transportation is a critical component. People would love to live, work and play in the same place, so it\u2019s critical to create that right environment.\u201d Only a fifth of Unibail\u2019s \u20ac12B development portfolio is committed. It will be interesting to see what schemes Unibail does choose to kick-start on both sides of the Atlantic. In the U.S. it is not planning any new malls, only extensions, and projects to add other uses like hotels and offices to existing schemes. In London, the key decision will be when to start its 2M SF joint venture scheme with Hammerson in South London \u2014 the scheme sits in the \u201ccommitted\u201d section of Unibail\u2019s financial results, but earlier this year Hammerson said the scheme was under review to make sure it met the needs of future users.<\/p>\n\n\n\n

Source:
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At Bisnow London\u2019s Retail: An Industry In Flux event, Unibail-Rodamco-Westfield Chief Financial Officer Jaap Tonckens explained how, as counterintuitive as it might seem in a world where retailers are closing stores at an unprecedented rate, the landlord is looking to cull retailers that don\u2019t add anything to its centres. In a keynote interview with Montagu …<\/p>\n","protected":false},"author":1,"featured_media":5635,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/posts\/5633"}],"collection":[{"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/comments?post=5633"}],"version-history":[{"count":1,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/posts\/5633\/revisions"}],"predecessor-version":[{"id":5634,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/posts\/5633\/revisions\/5634"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/media\/5635"}],"wp:attachment":[{"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/media?parent=5633"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/categories?post=5633"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ardatz.cl\/eng\/wp-json\/wp\/v2\/tags?post=5633"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}