Unibail forges path to U.S., U.K with $16B Westfield deal
As mall owners around the world seek a defense against Amazon.com, Europe's largest commercial landlord is betting the solution lies across the Atlantic.
Unibail-Rodamco SE's agreement to buy Australia's Westfield Corp. for about A$21 billion ($15.8 billion) gives it control of mega malls in North America and London as landlords try to compete with Internet retailers by focusing on the best properties. The Paris-based company also wants to boost demand for its stores by tempting U.S. retailers in Westfield's malls to expand into Europe and its own tenants to open in North America, according to a person with knowledge of the matter.
Fears that more malls will become redundant as online shopping grows has caused share prices across the retail property industry to fall, prompting a wave of consolidation as the biggest operators try to take advantage of the discounts to add better malls and cut operating costs.
Unibail-Rodamco began negotiations with Westfield about six weeks ago, the Australian company's billionaire founder Frank Lowy said at a press conference on Tuesday. The landlord saw an opportunity as the Lowy family sought to move from being managers to investors, the person said, asking not to be identified as they were not authorized to speak to the media. A spokeswoman for Unibail-Rodamco declined to comment.
"The deal shows that scale is essential in a market where mall-space requirements are changing rapidly, a motivation that also triggered the recent Hammerson-Intu deal," Bloomberg Intelligence analyst Sue Munden wrote in a note Tuesday. The acquisition "creates a dominant European and U.S. mall operator with an unrivaled portfolio of destination malls and a portfolio value of $72 billion."
Unibail-Rodamco was formed in 2007 from a merger of France's Unibail — an owner of malls, offices and convention centers — and retail specialist Rodamco Europe, which was based in Rotterdam, the Netherlands. The company, run by Christophe Cuvillier since 2013, has been selling large office developments and weaker retail assets across Europe and reinvesting the money into developing new, dominant malls. The firm expects to sell a further 3 billion euros ($3.5 billion) of assets over the coming years, according to a statement announcing the deal.
Unibail-Rodamco expects the Westfield purchase, due to complete in the first half of 2018, to result in savings and synergies of about 100 million euros annually, the company said in a statement. It is expected to be accretive to earnings in the first full year.
"People may have thought back in 2007 when Unibail and Rodamco got together that you can't apply the skillsets" of being a mall landlord in different countries, Unibail-Rodamco Chief Financial Officer Jaap Tonckens said in an interview with Bloomberg Television. "I think we've proven we can and we believe we'll be able to do the same" with Westfield.
Unibail-Rodamco shares have gained about 46% since the end of 2007, the year the two companies merged. That compares with a 23% decline for Chicago-based GGP Inc. and a 108% increase for Simon Property Group Inc. stock in the same period.
More recently, the pessimism about the future of bricks and mortar stores has prompted more deal making. Hammerson Plc announced a plan to buy U.K. rival Intu Properties Plc last week and Brookfield Asset Management Inc. expects to buy the portion of mall owner GGP Inc. it doesn't already own.
Still, some analysts argue the cash and stock offer that values Westfield at 18% more than Monday's closing price is a high price, given the challenging times for the industry. The implied yield on the acquisition of less than 4% is aggressive as cap rates and yields are likely to be stable or rise in the U.S. and U.K., said Peter Papadakos, an analyst at Green Street Advisors in London.
Founded by Lowy in 1959, Westfield demerged its Australian and New Zealand assets from its U.S. and U.K. properties in 2014 as it sought to lure international capital for expansion. The firm has two malls in London and a stake in a development site for a third, make it the biggest private sector owner of shopping malls in the U.K. capital, according to broker Savills Plc. It's the 12th largest U.S. retail property owner, according to data compiled by National Real Estate Investor in 2016.
The billionaire's family will maintain a substantial investment in the group following the merger and serve on various boards. The deal "is the culmination of the strategic journey Westfield has been on since its 2014 restructure," Lowy said in the statement. "We see this transaction as highly compelling."