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Why Westfield’s Storied Shopping Mall Family Is Selling Out

Posted by Yijy8kNUMO on December 12, 2017

An octogenarian Australian billionaire wants to sell a chunk of his key U.S. and European assets, as technology upends their future. The company is currently headed by two of his children as co-chief executives, but now they seem to want to go separate ways.

This isn’t the story of Rupert Murdoch’s talks to sell 21st Century Fox to Disney, but that of Frank Lowy and his Westfield Group.

Unibail-Rodamco, Europe’s largest real-estate investment trust, announced Tuesday morning that it had agreed to pay $15.7 billion for the U.S. and U.K. mall owner—a figure that rises to $24.7 billion when debt is included. The deal would create a trans-Atlantic giant with the top shopping centres in New York, San Francisco and Los Angeles as well as London, Paris and Madrid. It is a straight up bet that the megamall has a future despite the encroachment of e-commerce.

 Deals only happen because of differences of opinion on the value of assets, and right now the future of malls is ripe for debate. The Lowys are tiptoeing out of the business, which is under siege from Amazon and others, while Unibail is betting the equivalent of its entire equity value on it. A similar divergence of opinion explains Brookfield Property Partner’s $14.8 billion offer for the shares it doesn’t already own in mall owner GGP. Both bids work out at roughly a 30% discount to the targets’ share-price peaks in mid 2016.

The offer is supported by the Lowys even though only 35% of it comes in cash; the rest is Unibail stock. Based on Monday’s closing price it worked out at $7.55 per Westfield share, a 18% premium to the last trading price. But Unibail stock slipped 3% Tuesday morning, depressing the implied offer price.

The structure is reminiscent of the 2007 all-share merger that brought together French landlord Unibail with its Dutch peer Rodamco. The deal was successful in part because payment in stock meant Unibail entered the 2008 property crash with a robust balance sheet. This and an obsessive attention to reducing its cost of debt explain why Unibail has been a star performer among shopping center stocks.

Its bid for Westfield is clever engineered to resemble the Rodamco deal, but it is still financially riskier. The cash component would push its debt load up to at least 39% of the value of its assets, from 33% at the end of June. And that counts the planned issuance of €2 billion ($2.4 billion) in subordinated “hybrid securities” as equity, rather than debt.

The European giant gets a foothold in the U.S., and the Westfield label—arguably the only one that a mall owner has ever successfully turned into a consumer brand. Unibail says it plans to re-christen its big French malls Westfield. The Lowys get an honorable retirement plan: about $527 million in cash, a stake in a more diverse portfolio, and the brand they have nurtured emblazoned across Europe. Frank Lowy will chair a new advisory board; one of his sons will join Unibail’s supervisory board.

But the Lowys only own 9.5% of Westfield. Other shareholders, who have a history of opposing the Lowys in past deals, need to decide where they stand. Those with doubts about the future of megamalls get something of a premium exit. More bullish investors may wonder if Frank Lowy has undersold.

Source: The Wall Street Journal, December 12, 2017 10:01am

Author: Stephen Wilmot

Image Credit: Mark Lennihan/Associated Press

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