Mall operator Unibail-Rodamco-Westfield SE (URW) is reportedly looking to divest most of its U.S. retail properties by the end of 2023, according to The Wall Street Journal. The plan, which was first announced in February 2021, may end up seeing a loss on the $14 billion it spent four years ago to acquire some of the country’s top-performing malls.
URW valued its U.S. portfolio at $13.2 billion at the end of 2021, though commercial real estate analytics firm Green Street estimated that the assets are worth closer to $11.5 billion. Green Street also believes URW could have a tough time finding buyers on its short timeline, Rob Virdee, Senior Analyst at Green Street told the WSJ.
“Who is the buyer in the U.S.?” said Virdee. “If the bidder knows you’re on the run and you have to make a sale, they’re not going to offer you a good price.”
However, URW executives believe the company can reach its targets even if the portfolio sells at a 30% discount compared to the 2021 valuation. On a call with investors, CEO Jean-Marie Tritant said he believes URW will be able to sell its U.S. properties in the given timeframe “thanks to the quality of our U.S. assets…and the overall strength of the recovery, which is driving occupancy and long-term lease rental growth.”
URW acquired Westfield in 2018 in a deal that included major shopping centers such as the Westfield World Trade Center in Manhattan, Century City in Los Angeles and the Garden State Plaza in New Jersey. The company incurred major debt from the transaction, and URW began selling off properties as a result.
The mall operator’s current leadership came into power in 2020 after an activist investor campaign against the former management’s plans for a dilutive-rights issue worth $3.8 billion. The activists were advocating for a sale of URW’s U.S. malls to reduce its debt, leading to the current push.
URW let its lenders take back five underperforming U.S. malls in 2021, and it sold the 34-acre former site of the Promenade Mall in Los Angeles in March 2022. The remaining portfolio consists of approximately 24 mostly Class A malls, but even though higher-tier malls have performed well in recent years, COVID-19 has still taken its toll.
Retailers closed a record 12,200 stores in 2020, with an outsize share coming from malls and one-third of the total from department stores specifically, according to data from CoStar Group. These properties have shifted priorities to give shoppers new reasons to visit, including shared BOPIS programs and mall-wide BNPL programs for flexible payments.
URW’s American malls actually recovered more quickly than the firm’s European properties due to public health restrictions lifting sooner in the U.S., and Tritant believes the U.S. market “will be seen as a safe haven” as international retailers pull out of Russia due to the war in Ukraine. However, URW is still betting its future on an asset-cutting strategy that sees its U.S. malls as prime targets.
The company plans to diversify its revenue streams with more advertising and brand partnerships once its debt has been curbed, and also will look into residential development in Europe. URW expects these combined strategies to help it return to its 2019 EBITDA by 2024.
“One could make the argument [that] things are getting better in the U.S., so why are you getting out of this?” said Green Street’s Virdee. “When you have too much debt and the market turns, you have to sell some of your good assets.”