Unibail-Rodamco SE, Europe’s largest commercial landlord, agreed to buy Australia’s Westfield Corp for about A$21bn ($15.8bn) in the biggest property acquisition since 2013 as declining store sales push mall operators worldwide to merge.
The Paris-based company offered a combination of cash and stock that values Westfield at A$10.01 per share, or about 18% more than Monday’s closing price, according to a statement yesterday. The offer has been unanimously recommended by the board of Westfield, the biggest private sector mall landlord in London and the 12th largest US retail property owner.
“Our first take is that we are not over-excited about the price – Unibail is buying at an implied initial yield of below 4%,” said Peter Papadakos, an analyst at Green Street Advisors in London. “If you think about where cap rates and yields are going in the US and the UK, which we think will be stable to upwards, the pricing is aggressive.”
Unibail is mounting the biggest takeover of a company in the Asia-Pacific region this year – and the largest ever in Australia – as mall owners seek to contend with relentless pressure from online commerce. Shares of such companies have been hit hard and store closures are accelerating, pressuring landlords to fill empty space and reinvent shopping centres. Unibail-Rodamco’s fell as much as 4.1%, the most since October 2016, after the deal was announced.
Founded by billionaire Frank Lowy, Westfield began in 1959 with one shopping mall in the outer suburbs of Sydney and has grown to become one of the world’s largest shopping centre owners and managers. Westfield owns and operates 35 malls in the US and UK valued at $32bn, according to its website.
“The US is probably not the market where you’d try to sell” lower quality malls “at this point,” Unibail-Rodamco chief financial officer Jaap Tonckens said in an interview with Bloomberg Television. “I think we’ll focus on improving them, ride out the storm and see where we go from there.” The deal should be accretive to earnings from the first full year, he said.
Westfield’s properties include shopping malls in east and west London and the retail space in New York’s World Trade Center. It gets almost 70% of its $1.8bn annual revenue in the US, where companies are trying to re-purpose struggling brick-and-mortar shopping centres.
“This is a combination of two of the best-in-class mall operators in the world,” Bloomberg Intelligence analyst Sue Munden said. “They will become a dominant player, have the best relationships with retailers and therefore be best placed to create the malls of the future.”
The latest transaction is the largest in real estate since Lehman Brothers Holdings Inc sold an apartment owner to a consortium led by Equity Residential for more than $16bn, a deal that was completed in 2013.
The transaction implies an enterprise value of $24.7bn, according to the statement. Unibail offered 0.01844 of its shares plus $2.67 in cash for each Westfield security, representing 65% stock to 35% cash, according to the statement.
Unibail-Rodamco has been selling smaller and less-dominant assets in its European retail portfolio and reinvesting the proceeds in its development pipeline which includes larger malls which are expected to be more resilient to the growth of online shopping. The company has €8.1bn ($9.5bn) of planned projects, according to its website.
The landlord will continue with a plan announced earlier to sell 3bn euros of malls that are non-core, Tonckens said in the interview.
Shares of Westfield have declined 9.4% this year, headed for their worst performance since 2011. The shares were suspended Tuesday ahead of the announcement.
“Assets I’ve spent my life building, I could not imagine a better home for them than in this new company,” Frank Lowy said via a webcast from London. Lowy will chair a newly created advisory board, and the family will maintain a substantial investment in the group, according to the statement.
In other signs of consolidation in the industry, Brookfield Asset Management Inc is seeking to buy the portion of mall owner GGP Inc it doesn’t already own. New York-based hedge fund Third Point is pushing for change at Macerich Co, including a possible sale, after building a stake in the real estate investment trust, people familiar with the matter said last month. Even after getting a boost from Brookfield’s interest, GGP shares are down 6.4% since the beginning of the year.
The deal will lead to speculation that Simon Property Group Inc, the biggest US mall owner, will also look to expand, Munden said. The firm, which has seen its shares fall 8.7% this year, owns about one-fifth of Klepierre SA, the Paris-based shopping centre owner that’s been renovating its properties.
The UK’s biggest publicly traded mall owners are also combining forces. Hammerson Plc this month agreed to buy its smaller competitor, Intu Properties Plc, in a deal that values the latter at about £3.4bn ($4.6bn).
“We’re going into London, we believe it’s a global city and will be fine” despite the slowing UK economy, Tonckens said. “Will it be choppy? Probably.”
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