Ivanhoe Cambridge revamping its major malls in GTA, Montreal amid growing online threat

GlobeandMail.com
Feb. 11, 2019
Rachelle Younglai

Ivanhoe Cambridge Inc. is reinvesting in its suite of Canadian malls and plans to upgrade marquee properties as it combats the growing threat from online retailers.

The Montreal-based real estate company, which is owned by Caisse de depot et placement du Quebec, expects to spend about $500-million on major mall improvements this year. That includes overhauling part of Vaughan Mills, north of Toronto, and erecting an entertainment area for activities like bungee jumping.

It also plans to turn part of its Montreal Eaton Centre into a market of bars and restaurants, similar to the popular Time Out foodie destination in Lisbon.

Ivanhoe’s strategy is to transform existing malls into destinations that appeal to more than just shoppers. It is a critical investment for the real estate company as e-commerce and Amazon.com Inc. continue to play a role in decimating traditional stores like Sears and other mall owners. E-commerce currently accounts for less than 5 per cent of total retail trade but is quickly increasing.

“We have been very disciplined and I would say aggressive in investing in our assets,” Claude Sirois, retail president for Ivanhoe, said in an interview. “We live in a new normal where evidently the status quo is not an option,” he added.

Ivanhoe is upgrading malls while cashing in on some of its investments. The company is selling stakes in 10 malls across the country from Victoria to Quebec City, as The Globe and Mail reported in November.

Ivanhoe initially told potential buyers that it would retain the controlling stake, as well as the management of the mall. But the company is now open to selling 100 per cent of some of the malls that it considers non-core.

Mr. Sirois said he did not know how much capital could be raised from this current sale, which remains in the early stages. But Ivanhoe is in talks with most of the big Canadian pension funds about the properties. That includes traditionally passive mall investors, such as the Public Sector Pension Investment Board and the Canada Pension Plan Investment Board, according to sources, who were granted anonymity by The Globe because they were not authorized to speak publicly about the matter.

Mr. Sirois would not comment on the sales process or potential buyers except to say: “We want to partner with like-minded investors.” This is the second time in the span of a year that Ivanhoe has embarked on mall sales. Early in 2018, Ivanhoe sold passive stakes in a mall in Toronto and another in Richmond, B.C.

Ivanhoe currently has 28 Canadian malls, according to its website, down from 48 in 2010. The real estate company, which held more than $60-billion in assets as of the end of 2017, also has 17 shopping centres in Brazil, one in China and another in Germany.

Ivanhoe Cambridge has already spent $3-billion over the past five years, building new outlet malls in Edmonton, Winnipeg and Tsawwassen, as well as fixing shopping centres located in Victoria and Nanaimo B.C., to Ottawa, Vaughan, Ont., and Dartmouth, N.S. “We have done a lot of investments for them to remain relevant in their respective market,” Mr. Sirois said. “If we have the opportunity to enhance the existing portfolio through acquisition or disposition, we will remain active,” he said.

So far, Ivanhoe’s retail strategy is paying off. Productivity at the majority of its Canadian malls has increased. Seven of them are highly lucrative and generate more than $800 in sales per square foot, the industry’s measure of productivity.

Two of its malls, Metropolis at Metrotown in Burnaby B.C., and Conestoga Mall in Waterloo, Ont., had more than $1,000 in sales per square foot last year, according to a Retail Council of Canada study. Metropolis is one of the busiest shopping centres in the country, while the Waterloo mall became the first one located outside of a major metropolitan area to hit the $1,000 mark, according to the study.

“Top malls are focused on providing newness and heightened experiences that consumers appear to crave or otherwise risk losing out to more creative regional centres or online competitors,” said the study, authored by retail analyst Craig Patterson.

Ivanhoe isn’t the only one overhauling its retail properties. As Amazon expands into new areas, brick-and-mortar retailers are trying to entice customers through other means. Hudson Bay Co. plans to lease the top floors of its Toronto and Vancouver department stores to co-working company WeWork Companies Inc.

One of Lululemon Athletica Inc.'s stores in Toronto has a pop-up food counter that served charcoal ice cream during the summer. Clothing store American Eagle Outfitters Inc. has free laundry and a lounge at its main store in New York City.

Mr. Sirois said he is constantly on the lookout for new retail experiences and believes that the industry is reinventing itself.

“People have talked about a retail apocalypse and the malls are going to die and there is going to be lots of bankruptcies. I see more of a retail renaissance than a retail apocalypse,” he said.