By and
with contributions from Joelle Diderich, Patty Huntington
 on December 13, 2017

It’s a global game of buy or be bought at the mall with major developers wagering that scale — particularly at the higher-end of the market — will help them win, or at least keep up in a more digital world.The latest move comes from Paris-based Unibail-Rodamco, which put together a $24.7 billion deal to acquire Sydney-based Westfield Corp., building a $72.2 billion giant in terms of gross market value. The combined companies will have a presence in 27 countries, including the World Trade Center in New York, Southcenter mall outside Seattle and Fashion Square in Los Angeles.“Westfield is a major step forward for Unibail-Rodamco,” said Christophe Cuvillier, chief executive officer and chairman of Unibail’s management board, who will be ceo of the newly formed group. “Westfield is the perfect fit — actually, the best fit — for us and a natural extension of our strategy. It adds attractive markets to our company, it adds a unique platform of the world’s best shopping centers.”Also working the "bigger is better" angle is Brookfield Property Partners, which last month made a $14.8 billion proposal to buy out the 66 percent of mall operator GGP Inc. that it doesn’t already own. That deal would create another giant with nearly $100 billion in global real estate. And while GGP is said to have nixed the price, Brookfield clearly sees an opportunity to negotiate.On a smaller scale, Hammerson in the U.K. last week agreed to buy fellow British company Intu Properties, creating a 21 billion pound pan-European portfolio of retail and leisure destinations.One of the common threads is the desire to double down on the A and the A++ malls, while the lower-tier properties struggle to define their purpose and draw customers who now carry gigantic digital storefronts on their smartphones.For retailers, the result is a smaller pool of landlords who have a broader offering for the best names.“In this and other potential deals, you have players who can cover the key markets, give access to retailers for one-stop shopping,” said Andrew Nelson, chief economist at commercial real estate firm Colliers. “Retail is increasingly global, so this is a particularly interesting match up.“Both U.S. retailers and U.S. mall owners recognized in the last recession that they don’t need to be in every market across the country and so chain stores and shopping center owners have been scaling back and focusing on the best of the best,” Nelson said. “The pain is not nearly over, but for the strong players, the times have never been better, rents have never been higher, occupancy rates have never been higher.”But while the dealmakers prefer to focus on how their top properties are doing, the weaker locations in many real estate portfolios still face profound changes.“This particular retail format has been under a lot of stress for a lot of reasons,” said Jeffrey Paisner, a partner in Ripco, of the mall. “The traditional anchors of malls, department stores, are no longer much of a draw. Having a Neiman Marcus or Saks or Bloomingdale’s or a Macy’s or a J.C. Penney is not being perceived by retailers as great traffic generators. When you start losing your department stores, big-box retailers like H&M and Zara and Forever 21 or even Topshop, they’re vital to the mall and they’re not doing deals now.”Despite the woes of brick-and-mortar, many also saw strength in the size and scope of the Unibail-Westfield connection, which comes at a time when European developers face a call to spruce up stale shopping centers and shore up their appeal with consumers who have less time to while away at the mall.“This deal allows Unibail-Rodamco to become a true global retail player. As consumer trends and retailers are globalizing, this move totally makes sense,” said Amal Aboulkhouatem, analyst with Degroof Petercam, in a research note. While the price may look high at first glance, the deal also provides “nice projects within the development pipeline,” added Aboulkhouatem, who raised her rating on the French firm's shares to "buy" from "add."The companies estimate Westfield will add 4.9 billion euros to the development pipeline of the new group.The combined company plans to roll out the Westfield brand on its main properties across Europe including Paris, Madrid, Barcelona, Warsaw and Vienna, because of its standing and as a way to generate cost savings, Cuvillier explained.“The Westfield brand is unanimously recognized as the best brand in the shopping center industry and is recognized by international travelers, by tourists and by local people alike,” he asserted, noting the prominence of two key centers in the British capital, Westfield London and Westfield Stratford City.Regrouping separately branded malls will also result in cost savings, Cuvillier said.“When we advertise today — and we have eight or nine assets in the Paris region, for example — we advertise separately for each of these brands and each of these brands is less well-known than the Westfield brand. So by advertising all these assets for global events — like sales, like Christmas, like other events — there is a considerable amount of money to be saved by advertising with one well-known brand rather than nine individual brands, which only catch the local catchment area and do not have a global reach,” Cuvillier said.Unibail’s properties in the region of the French capital include the recently expanded Parly 2 shopping center near Versailles and Carré Sénart, a mall south of Paris.The company’s drive to refurbish existing sites illustrates the pressing need for mall owners to improve their offer, as the large majority of shopping centers in Western Europe are more than 10 years old, according to Cushman and Wakefield’s November study “European Shopping Centres: The Development Story.”“Shoppers are becoming more demanding and their needs are more complex, as they seek out more appealing and diverse environments where they can shop, eat and enjoy their free time. This has led to the growing need for more modern and fresher space. The lack of space for new development and the risks involved in new construction have encouraged developers to extend existing schemes rather than initiate new projects,” according to the report.Unibail-Rodamco expects the transaction will be accretive to its recurring earnings per share in the first full year, with expected run-rate synergies of 100 million euros a year.Under the terms of the deal, Westfield shareholders will receive a combination of cash and shares in Unibail-Rodamco valuing each Westfield share at $7.55, representing a premium of 17.8 percent to Westfield’s closing share price on Dec. 11, they said in a joint statement on Tuesday.The negotiations for what is being billed as Australia’s biggest-ever takeover took just six weeks and the transaction does not include Scentre Group, the Australian Securities Exchange-listed owner of 39 Westfield malls across Australia and New Zealand, it was revealed during a press conference at Westfield Corporation’s Sydney headquarters Tuesday evening Sydney time.Speaking via video link from Milan, Westfield’s 87-year-old chairman and cofounder Frank Lowy said it was a day of mixed emotions for him, but that it was time to move on.“I think it’s appropriate to [sell] now — firstly, it's a very good price for our shareholders and also from our point of view, I think we want to change our roles in the world. We would rather be investors than executives,” Lowy said.The Lowy family will have about $1 billion invested in the new entity, close to two and a half percent of the combined new company.Born in Czechoslovakia, Lowy arrived in Australia via Israel in 1952 and opened his first shopping mall with fellow refugee John Saunders in the Sydney suburb of Blacktown in 1959, before going on to establish a global empire of more than 80 malls in Australia, New Zealand, the U.S., the U.K. and Italy.On Friday, he received a knighthood from Queen Elizabeth II at Windsor Castle for his services to the British economy and philanthropy.“What a privilege it has been to lead this great Australian company,” Lowy said. “We started small, but we took Westfield to the world.”

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