Unibail Buys Westfield for $16 Billion as Mall Owners MergeBy and
Stock, cash offer values Westfield at A$10.01 per share
Westfield board has unanimously recommended the takeover
Unibail-Rodamco SE, Europe’s largest commercial landlord, agreed to buy Australia’s Westfield Corp. for about A$21 billion ($15.8 billion) 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 percent more than Monday’s closing price, according to a statement Tuesday. The offer has been unanimously recommended by the board of Westfield, the biggest private sector mall landlord in London and the 12th largest U.S. 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 four percent,” said Peter Papadakos, an analyst at Green Street Advisors in London. “If you think about where cap rates and yields are going in the U.S. and the U.K., 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 centers. Unibail-Rodamco’s fell as much as 4.1 percent, 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 center owners and managers. Westfield owns and operates 35 malls in the U.S. and U.K. valued at $32 billion, according to its website.
“The U.S. 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 percent of its $1.8 billion annual revenue in the U.S., where companies are trying to re-purpose struggling brick-and-mortar shopping centers.
“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 $16 billion, a deal that was completed in 2013.
The transaction implies an enterprise value of $24.7 billion, according to the statement. Unibail offered 0.01844 of its shares plus $2.67 in cash for each Westfield security, representing 65 percent stock to 35 percent 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 8.1 billion euros ($9.5 billion) of planned projects, according to its website.
The landlord will continue with a plan announced earlier to sell 3 billion euros of malls that are non-core, Tonckens said in the interview.
Shares of Westfield have declined 9.4 percent 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 percent since the beginning of the year.
The deal will lead to speculation that Simon Property Group Inc., the biggest U.S. mall owner, will also look to expand, Munden said. The firm, which has seen its shares fall 8.7 percent this year, owns about one-fifth of Klepierre SA, the Paris-based shopping center owner that’s been renovating its properties.
The U.K.’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 3.4 billion pounds ($4.6 billion).
“We’re going into London, we believe it’s a global city and will be fine” despite the slowing U.K. economy, Tonckens said. “Will it be choppy? Probably.”
— With assistance by Timothy Sifert, Sharon R Smyth, Anna Edwards, and Matthew Miller