Unibail-Rodamco/Westfield – first questions answered

Europe’s largest commercial property company Unibail-Rodamco wants to create the “world’s premier developer and operator of flagship shopping destinations” with its £18.5bn acquisition of Westfield.

Christophe Cuvillier, chairman of the management board and chief executive of Unibail-Rodamco, said the deal represents “a natural extension of Unibail-Rodamco’s strategy of concentration, differentiation and innovation.”

The acquisition of this scale is an unusual move for the Dutch/French retail giant, which has previously favoured organic growth through individual acquisitions.

But this gives it instant access to strong assets in the UK and US markets simultaneously for this first time.

How will it improve its portfolio?

Unibail has said it wants to create “the world’s leading platform for global retailers”. The acquisition will bolster its portfolio with 35 new shopping centres, including trophies such as the Westfield centres in London and Westfield World Trade Centre in New York, which GlobalData retail analyst Charlotte Peace believes is intrinsic to the strategy.

“Likely to be central to the deal, Unibail-Rodamco will gain the top two supermalls in the UK in terms of retail sales, according to GlobalData’s estimates – Westfield Stratford City and Westfield London – as well as Croydon’s Westfield, which is in the pipeline, allowing it to benefit from the growth in the UK supermalls market which is forecast to rise 7.2% over the next five years, reaching £12.3bn in 2022,” she said.

Through acquiring Westfield’s prime assets, Unibail will also acquire a new set of joint venture partners.

Although it has hailed its similarities with Westfield, such as its renowned successful history as a developer and investor, Unibail prefers to own its assets alone, whereas Westfield jointly owns many of its properties, including Westfield London, which it owns in a joint venture with German open-ended fund manager Commerz Real.

However, Cuvillier does not believe this will be an issue. He told investors: “The fact we prefer to own alone doesn’t mean we don’t have a lot of joint ventures, so we believe we will be able to extend these relationships seamlessly and none of the findings from our due diligence has led us to any concerns at this time.”

How long has the deal been on the cards?

Rumours of a Unibail-Rodamco takeover of Westfield circulated in 2015, when it was reportedly looking for a takeover target.

Westfield was cited as the most obvious candidate, but no deal was agreed.

Cuvillier said he would not comment on previous press speculation, but confirmed the deal was something that had been considered for a long time.

“We have known the family for a number of years and we have a huge respect for what they have achieved,” he said.

“People had been thinking for some time about a possible combination, but something like this takes a certain amount of time.”

The deal is expected to complete in the first quarter of next year.

What might be disposed of?

Exact disposal figures and a strategy have been kept vague at this stage, but Unibail has said it will recycle some assets to streamline the portfolio as part of the merger.

Much of Westfield’s non-flagship property is in the US, which, coupled with the tribulations of the current US retail market, means the majority of the disposal strategy as far as Westfield’s assets are concerned is likely to be focused there. However, no sales are expected to be imminent.

Cuvillier said: “The market for these in the US is not that buoyant at the moment, and so we will run them and make them the value that they can be.

“At Unibail we are very focused on asset rotation and we have identified the assets that no longer meet the return [requirement].

“There have been some recent disposals and we are reviewing opportunities. The market is not that buoyant and it is a bit too early to say how we are going to manage these assets so we will be reviewing with the Westfield teams what can be done.”

One source said: “It may prompt one or two things in Europe, and they may see it as a time to come out of some of the US shopping centres but they will hold on to the stronger assets.”

As much of the rationale in the acquisition lies in finally gaining exposure to the UK market, it is likely that there will be not be many UK disposals on the horizon of Westfield’s key assets.

“Why would they buy into the UK and then dispose of some of their best assets?” asked a source.

“They have bought these in the UK and now they will be able to crack on with Croydon.”

What will happen to the combined development programme?

If the deal completes, it will add €4.9bn to Unibail’s current development pipeline, which currently includes £7.5bn of planned development projects. The European trophy is Westfield’s €1.4bn Milan retail and leisure development, which will comprise around 1.8m sq ft of retail and leisure space.

In the UK, Unibail will now also acquire a stake in Westfield’s Croydon development, which is being built in a joint venture with Hammerson.

Tony Newman, leader of Croydon council, said: “The merger between Westfield and Unibail-Rodamco is extremely positive news for Croydon and will only have a positive impact on the development planned for our borough.

“The presentation on the merger given to the international market today features Westfield’s Croydon development as one of the major UK projects for the new group, alongside the extension of Westfield London and the building of new Westfield shopping centres in California and Milan, putting our town alongside some of the best shopping destinations in the world.”

What does this say about retail brands?

In a move similar to that in Hammerson’s takeover of intu last week, all of the shopping centres in Unibail’s portfolio will gradually take on the Westfield name, suggesting the strength of having a retail property brand in the current climate.

One source said: “Westfield and intu are both branded shopping centres and it is interesting to see  both have been targeted so they [the new owners] must see the value in having these names. Everyone knows Westfield and the branding there.”

What does it mean for the occupier market?

Unibail has said its centres will be “the greatest locations for brands to express their concepts” and will likely have much occupier overlap between its centres.

However, following Hammerson’s merger with intu, concerns have been raised whether such landlord scale can put brands and occupiers trying to secure a deal in a difficult position.

One source explained: “It could be a real problem for the occupier market. If you are a brand looking to open in several locations owned by the same landlord then they can hold you to ransom over a deal.

“However, Westfield’s centres are made up of a variety of owners, so although their portfolio will be larger, in reality it is still a fragmented ownership which will help the occupiers being held to ransom.”

What does this mean for the retail market?

This £18.5bn deal, Hammerson’s £3.4bn deal for intu and Brookfield’s $15bn bid for GGP across the pond have shone the spotlight on physical retail space after a quiet year of investment.

The big players are all vying for critical mass in an attempt to succeed.

Charlie Barke, head of retail investment, Knight Frank, said: “This is another shot in the arm for the retail market, demonstrating the ongoing appeal of the sector, despite some of the immediate challenges it faces.

“Westfield’s stock is undoubtedly at the prime end of the market and the consensus agreement is that such stock will thrive going forwards, working well as part of a multi-channel retail offer.”

Peace added: “With consumers favouring destination shopping locations that appeal to shoppers’ desire for a social and lifestyle experience, and Westfield setting the bar in terms of focus on overall experience, this is a beneficial move for Unibail-Rodamco.

“Like the Hammerson-intu deal announced last week, the takeover will enable Unibail-Rodamco to benefit from cost savings but, more importantly, it will allow the company to strengthen its position in the global retail market and gain insights into global shopping trends.”

The deal also promotes the often cited importance of having retail destinations, rather than shopping centres, and solidifies their position in the future of the retail market.

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