By Art Patnaude
Last month, 50,000 shoppers showed up as Unibail-Rodamco SE
opened the biggest mall in the Nordic region with fireworks, music,
parties and other events billed by the Paris-based real-estate
giant as "Stockholm's largest housewarming."
The festivities at the Mall of Scandinavia reflected the splashy
side of Europe's largest listed landlord's retail strategy as it
tries to cope with competition from online shopping while
navigating Europe's uncertain recovery. The strategy's
less-exciting side involves selling off smaller shopping
centers.
But shoppers and investors are paying more attention to
Unibail's strategy to develop malls as leisure destinations.
The Mall of Scandinavia has an IMAX theater, more than 20
restaurants and a "Flagship Avenue" aligned with tony shops
sporting facades more than two stories tall. Most days the mall
features cooking demonstrations, live music and attractions like
rides on a Formula One simulator at the new Boss store.
Close to a quarter of the new mall's 1.1 million square feet is
devoted to entertainment and eating, an unusually high percentage.
"We want to create destinations where people can spend more time,"
said Jaap Tonckens, Unibail's chief financial officer. "The longer
time people stay, the more they spend," Mr. Tonckens said.
About two decades since online shopping took off, Unibail is
amping up its effort to show the world that brick and mortar stores
are still dominant players in the retail world. The company owns
office buildings and convention centers, but retail property
accounts for around four-fifths of its portfolio.
And Unibail's shopping-mall development pipeline has never been
bigger, according to Green Street Advisors. At EUR8.2 billion
($8.69 billion), the projects under way make up a significant chunk
of its overall property portfolio valued at EUR37.7 billion, Green
Street said.
The development push comes amid a consumer recovery in Europe
thanks in part to inexpensive energy prices and the relatively low
value of the euro, which is helping European exports. Growing
traffic and sales at stores are boosting the likelihood that
landlords can bet on rising rental income.
At the same time, retail landlords are growing increasingly
confident that competition from online retail won't have as great
an impact on brick-and-mortar stores as some analysts predicted.
Some traditional retailers--such as sellers of books and
electronics--have been clobbered.
But other companies, such as clothing stores, are adapting to a
world that requires retailers to have presences in stores and
online that complement each other.
"When online first came about, you were either a store or
online," said Jonathan Rumsey, of Cushman & Wakefield. "But
retailers know they need a physical store presence for branding and
so people go shop and touch the goods they're buying."
Unibail is selling smaller malls away from major cities, partly
because they are being hurt more by online retail. Without some of
the attractions of bigger malls, they are more likely to be shunned
by shoppers.
"Our focus is on large, leading shopping centers in major
metropolitan areas," Mr. Tonckens said. "It's one area we think
retail will be successful."
Unibail has sold EUR2.1 billion of property deemed not to be
core to its strategy, the company said. In the past two years,
Unbail has sold 31 properties and acquired six, according to Real
Capital Analytics.
Investors have largely applauded Unibail's moves. The company's
shares have been on a mostly upward trajectory after plummeting
below EUR75 in 2009, and hit their record high of more than EUR260
earlier this year. Currently they are trading in the EUR245
range.
Unibail was founded in 1968, and listed on the Paris stock
exchange in 1972. In 2007, the firm bought Dutch rival Rodamco
Europe NV for EUR11.2 billion, creating the current company.
Other new Unibail locations include Polygone Riviera, a
750,000-square-foot open-air shopping center near Nice, France,
that opened in October. The Mall of Scandinavia, which cost Unibail
EUR640 million, is the biggest mall in the company's portfolio and
it is also "the best mall in our portfolio in terms of technology,"
Mr. Tonckens said.
To keep people in stores longer, the Mall of Scandinavia
provides perks such as valet parking, personal shopping assistants
and cellphone charging stations. These extras are also new for
Stockholm and most other parts of Sweden, where smaller,
decades-old malls tend to dominate.
"There has been a real novelty factor to it," Mr. Tonckens
said.
But Unibail's strategy isn't without concerns. U.S. investment
bank Goldman Sachs last month downgraded Unibail's shares to a
"sell" rating from "neutral" due to "a number of headwinds,"
including lighter mall foot traffic and "tighter leasing
negotiations with retailers," the analysts said in a note to
investors. The bank also said some of the firm's EUR1.5 billion of
uncommitted development projects are likely to be delayed.
Other analysts have expressed concern about the company's
current level of debt. According to Green Street, Unibail's debt is
equal to about 42% of the value of its assets, compared with 25% in
2007. If the value of its property portfolio falls, Unibail "could
have a much worse experience than they did in the previous
downturn," said Peter Papadakos, managing director at Green
Street.
Unibail executives say the company's financial position is
solid. "We're in a stronger position now than we were in 2007," Mr.
Tonckens said. "We are prepared if things go bump in the
night."
Write to Art Patnaude at art.patnaude@wsj.com
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(END) Dow Jones Newswires
December 01, 2015 03:44 ET (08:44 GMT)
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