A French retail giant could see a financial windfall eventually after deciding not to say au revoir to America just yet.

Unibail-Rodamco-Westfield, based in Paris, is slowing plans to sell its remaining retail portfolio in the United States, where it owns more than 22 million square feet of malls stretching from New Jersey to California. That’s a dramatic change in strategy for URW, which for several years has said it was looking to shed all its U.S. malls to focus on its European holdings.

The global retail landlord has indicated, in a report by credit-ratings firm Fitch Ratings, that it’s keeping its stakes in a dozen U.S. flagship malls it still owns that generate relatively high revenue. The company has interests in 18 U.S. malls, excluding its airport retail locations.

The new tack in URW’s plans to hold onto its stakes in 12 malls makes sense, according to several retail consultants and analysts. The landlord owns Class A, top-tier malls, and these shopping centers are generating more revenue than before the pandemic in some cases, analysts said, making URW less eager to sell off its properties. URW, like fellow mall owner Simon Property Group and other retail property holders, is also redeveloping some retail locations — adding housing and restaurants — to increase foot traffic as well as value.

Barring another pandemic where shoppers are forced to stay in their homes, selling now would equate to leaving money on the table as higher interest rates crimp financing and deals, so there’s no reason for URW to rush into unloading U.S. malls at perhaps prices below what it was seeking, analysts said. The domestic economic climate has curbed commercial real estate transactions across the nation.

URW "has some of the best and most profitable malls in the country," Greg Maloney, a consultant and former president and CEO of JLL Americas Retail, told CoStar News in an email. "Keeping their top-producing malls in the U.S. makes sense. When they announced two years ago about selling all their assets, no one believed them. So, again no surprise and they will do very well."

URW’s plan to put the brakes on its mall divestitures has major commercial real estate implications nationally, involving more than a dozen potential transactions on properties valued at billions of dollars as the company has been among the most active sellers of U.S. retail real estate in recent years, according to CoStar data. URW has already somewhat weeded out its U.S. portfolio, selling a half-dozen malls or so in the past year, many of them poor performers.

Those domestic holdings have been buoyed by rising retail sales this year, which also makes URW less anxious to sell off its properties. In a major sign of progress, URW landed a $925 million cash-out refinancing last week of its most prized U.S. mall: the 1.4 million-square-foot Westfield Century City in Los Angeles that’s valued at nearly $2 billion. The mall generated better sales last year than in 2019, according to a Fitch report.

In a separate July report on URW, another credit-ratings firm, Morningstar, discussed the company’s U.S. divestiture plan.

“We wouldn’t be surprised to see further adjustments to the strategy, with management taking an opportunistic approach, with options including full or partial asset sales, and development partnerships,” the report said.

"Strong growth in retail sales has improved the appeal of owning good retail assets in the United States," Alexander Prineas, an equity analyst at Morningstar, said in an email to CoStar News. "Meanwhile rising interest rates and concerns about commercial property in general are putting pressure on property values. This means the relative attractiveness of retaining assets, selling or bringing in capital partners or development partners, is constantly evolving."

In its report on the Century City refinancing, Fitch said "Recent conversations with [URW] management representatives, during the site visit, indicated that the company intends to maintain a presence in the U.S. with a focus on its 12 'flagship' malls," with Century City considered the "crown jewel."

As of June 30, the company listed about a dozen of what it identified as flagship locations in places such as Chicago, Los Angeles, New York, San Diego, Seattle and San Francisco. It has a half-dozen regional malls, in the Washington, D.C., Los Angeles and San Francisco areas.

URW doesn’t have to follow any self-imposed rules for selling its U.S. properties. The mall owner remains committed to radically reducing its U.S. portfolio, but it has some breathing room in terms of a deadline, URW Chief Financial Officer Fabrice Mouchel said in a statement emailed to CoStar News about Westfield Century City's refinancing.
Mall

As of July 21, URW had generated $1.7 billion in proceeds from selling U.S. properties, according to the company.

Mouchel, in his email, pointed out the firm has more options now with the extra cash.

"The strong business performance across all markets, our low cost of debt, our ample liquidity position, our tight capital expense control and our [ability to pay off debt] all provide us with flexibility on the timing of this process,” Mouchel said.

One analyst said URW may not need to wait too long to achieve the sale prices it wants for its U.S. malls.

Brandon Svec, national director of U.S. retail analytics for CoStar Group, said URW could want to sell off its U.S. portfolio, but the company probably is discovering that the buyer pool is shallow due to rising interest rates. Those rising interest rates make it challenging to secure financing to purchase real estate.

"I wouldn't be surprised in a year or two from now that the depth of buyers expands," said Svec, a turn of events that could speed URW's plans to sell its U.S. malls.

URW didn't provide any further comments about its strategy to CoStar News.

URW will keep malls where it thinks there is upside potential, where company officials "feel they could create additional value through redevelopment or lease-up of certain existing properties," according to Rudolph Milian, formerly with the ICSC retail trade group and now president and CEO of Woodcliff Realty Advisors,

"If they sell those malls now ... the [net operating income] is not there to warrant the additional value they can create through redevelopments, and particularly with adding other uses, such as multifamily, hotels, etc.," he told CoStar News in an email. "For example, a highly productive mall that bears very little risk with an extensive cash flow can be expanded through densification, which could add an extensive amount of NOI ... the value would rise tremendously. At that point, perhaps a couple of years or more, when the income is stabilized, they could sell the asset at a much higher value."

Milian, who is not directly affiliated with URW, said he expects the mall owner to keep its trophy property Westfield Garden State Plaza in Paramus, New Jersey, where it "has already received entitlements for multifamily and additional development opportunities."

National developer Mill Creek Residential "will lead the multifamily phase of that redevelopment with URW," Milian said. Westfield UTC in San Diego and the Old Orchard Mall in Skokie, Illinois, might also be considered long-term holds until those redevelopments are completed, he said.

Selling those properties now "is like leaving money on the table for a developer whose skills can create such value given the appropriate time frame," according to Milian.

"URW figures, 'Why give all this upside to another developer, such as Simon, Brookfield [Properties] or Macerich to later realize when the mall asset is already a very stable asset?'" he said.

URW also has a promising financial opportunity to keep malls where there is a significant rollover of leases in the next three years, according to Milian.

"This is particularly important for malls in the highest demand where their rent spreads, new rental terms compared to rental terms for expiring leases, are significant whereby URW can significantly increase income and thus value after those leases have been renewed or re-leased at current market rents," he said.

The highest priority for URW, according to Milian, is to sell any remaining distressed malls such as Westfield Valencia Town Center and Westfield San Francisco Centre, where the debt far exceeds the present value.

"Those divestitures would come from foreclosures or sale in lieu of foreclosure," he said.

URW has been in talks to dispose of Westfield Valencia Town Center at 24201 Valencia Blvd. in Santa Clarita, California, CoStar News has reported. And URW and its partner Brookfield have already stopped making payments on their $588 million loan on Westfield San Francisco Centre at 845-865 Market St., meaning that property will ultimately be surrendered to its lenders.

URW has divested several U.S. malls already. In March last year, the company sold a property slated for redevelopment, the Westfield Promenade Mall in the Woodland Hills area of Los Angeles, for $150 million. Then in August a year ago, it sold a suburban Los Angeles mall for the highest price paid for a U.S. retail property in years. The 1.5 million-square-foot Westfield Santa Anita at 400 S. Baldwin Ave. in Arcadia traded for $537.5 million.

Late last year, URW sold two properties for $196 million: Westfield Trumbull, a mall located at 5065 Main St. in Trumbull, Connecticut, and Westfield South Shore at 1701 Sunrise Highway in Bay Shore, New York.

In May, URW completed the $220 million sale of Westfield Brandon, a 1.15 million-square-foot mall at 459 Brandon Town Center Drive in Brandon, Florida. And in July, the landlord sold the Westfield Mission Valley Mall at 1640-1750 Camino Del Rio North in San Diego for $290 million.