Unibail-Rodamco Still Reshaping Retail Portfolio

Jaap Tonckens, chief financial officer of Unibail-Rodamco (Paris: UL.PA), joined REIT.com for a video interview during REITWeek 2015: NAREIT’s Investor Forum, held in New York.

Unibail-Rodamco began work in 2009 to reshape its portfolio and focus on large shopping centers located in wealthy and densely populated areas of major European cities. Tonckens said that although the company has exceeded its stated intentions in terms of culling the portfolio, the process is ongoing.

“We re-underwrite every one of our assets every year, so we can never say it’s complete,” Tonckens said. He explained that any asset that does not generate a double-digit internal rate of return at the pre-tax and pre-leverage level gets disposed of.

Turning to development, Tonckens noted that about two-thirds of the company’s pipeline is focused on retail. Unibail-Rodamco has not set any geographic limitations, Tonckens said: “Wherever the opportunities deliver the highest returns is where we will invest capital.”

Meanwhile, Tonckens said Unibail-Rodamco has identified 15 cities in which international retailers want to have a presence. Most of the international retailers are from the United States, but Asian retailers are also active, according to Tonckens.

“Despite what you hear about Europe not being particularly U.S.-friendly, the U.S. is a culture carrier, and people wish to buy the U.S. brands,” he said.

Tonckens also said retailers want to have fewer stores and larger flagship stores in better locations. Retailers see physical stores as crucial to interacting with their customers, Tonckens noted.

“Despite everything you hear about online retailing replacing offline, it’s not happening,” Tonckens said. “You’re seeing retailers wanting to interact with the customer because the experience people have online is a very focused one. You go online to get something you want, and that’s it.”