A plan by Unibail-Rodamco SE—Europe’s largest listed commercial property company—to buy Australia’s Westfield Corp. for nearly $16 billion will create a global leader in flagship shopping destinations, but it may also be the beginning of more consolidation in the coming year.
“It made a lot of sense even though they paid a premium for it. Mall prices have been depressed but the flip side of that is now they have re-set the mall prices to a higher bar,” Jeff Green, a retail consultant, president & CEO of Jeff Green Partners in Phoenix, told Commercial Property Executive.
The deal, announced Tuesday and expected to close in the second quarter of 2018, would create a global company with a gross market value of $72.2 billion, that has 104 assets in 27 of the world’s most attractive retail markets. Stretching across 13 countries, the combined portfolio would feature flagship properties in cities such as London, Paris, Munich, Stockholm, Vienna, Madrid and Warsaw in Europe and Los Angeles, San Francisco and New York in the United States.
Westfield has interests in 35 shopping centers in the U.S. and London and total assets under management of $32 billion. Westfield Century City, a 1.3 million-square-foot upscale shopping center in Los Angeles, which reopened in October following a $1 billion makeover, and Westfield World Trade Center, a $1.4 billion mall with 365,000 square feet of shopping and dining options in Lower Manhattan that debuted in August 2016, are among the company’s premier U.S. assets.
“I believe Westfield is at their optimum value,” retail expert Michael Lagazo, vice president, SRS Real Estate Services in San Diego, told CPE. “My thought is they’re capturing as much appreciation as they can rather than anticipating sustained income growth from retail rents.”
Unibail-Rodamco has a presence in 11 EU countries and a portfolio of assets valued at €42.5 billion, including 69 shopping centers in major European cities and office buildings and convention centers in the Paris region. It has at €8.1 billion of projects in development, including the Mall of Europe in Brussels. The combined company would have a development pipeline of projects valued at €12.3 billion.
“The acquisition of Westfield is a natural extension of Unibail-Rodamco’s strategy of concentration, differentiation and innovation. It adds a number of new attractive retail markets in London and the wealthiest catchment areas in the United States,” Christophe Cuvillier, chairman of the Management Board & CEO of Unibail-Rodamco, said in a prepared statement.
Westfield was founded in 1959 by Frank Lowy in Australia and grew into one of the biggest owners and operators of shopping centers and malls in the world. Under the deal, the Lowy family would no longer run the company but would have a 2.8 percent stake in the combined entity.
Lowy said the deal is “a culmination of the strategic journey Westfield has been on since its 2014 restructure.”
The deal calls for Westfield shareholder to get a combination of cash and Unibail-Rodamco shares at a price of $7.55 per share, a 17.8 percent premium above Westfield’s closing price on Dec. 11. The transaction implies an enterprise value for Westfield of $24.7 billion.
“If you are the Lowys and are looking to exit the investment cycle, this would be it,” Lagazo said. “If I were part of the Lowy family, the best transaction would be to capture as much valuation as possible.”
More Consolidation to Come?
In addition to selling non-core assets in recent years, Westfield has been one of the industry leaders in reshaping America’s malls and shopping centers into more experiential destinations featuring upscale dining, entertainment and shopping options. Still, the U.S. retail market is facing a wave of bankruptcies and store closings as brick and mortar outlets contend with the rising impact of online retailers.
Both Lagazo and Green said the acquisition of Westfield by Unibail-Rodamco is probably the harbinger of more consolidation next year. This deal was announced the same week it became public that Brookfield Property Partners offered GGP, Inc., offered $14.8 billion to buy the remaining portion of GGP that it doesn’t already own. The $23-per-share cash and stock offer was rejected in November by Chicago-based GGP, one of the largest owners and operators of U.S. shopping centers.
“They’ll get General Growth eventually. That was just the first volley,” Green said. “I don’t think anyone expected it to go on the first round and on the first bid and now that bid goes up. Now Brookfield is going to have to really sweeten their deal.”