Unibail Rodamco Westfield – A new empire

By Alistair Francis - June 6, 2018

Westfield shareholders have recently backed the takeover of Sir Frank Lowy's shopping centre empire by Unibail-Rodamco (Unibail), marking an end of an era for the Lowy family.

Read: Investment Month in Review - May 2018

Read: The retail sector - Amazon didn't invent the Internet

Sir Frank’s teary farewell at the recent combined AGM and EGM (Annual & Extraordinary General Meetings) saw him receive a standing ovation from current and former executives along with shareholders at his final appearance as the Westfield chairman.

The company was established in Sydney's west and listed on the share market in 1960, before growing rapidly under the control of Sir Frank, who was chief executive for 50 years before handing over to his sons Steven and Peter in 2011.

The terms of the deal were such that Westfield (WFD) security holders received $US2.67 ($A3.53) in cash and 0.01844 securities in the listed Unibail (stock traded at approx. €195/A$295 per share the week prior to the merger) for each WFD share. In addition, shareholders who elected to participate also received 1 share in OneMarket for every 20 WFD shares. OneMarket is a new retail data services entity that is being demerged from WFD and separately listed on the ASX.

Unibail was created in 1968 and is listed on the Amsterdam and Paris stock exchanges along with the newly created Chess Depository Interests (CDI) listed on the ASX. As a fully integrated property company, Unibail is principally focused on the ownership, management and development of a portfolio of European shopping centres. In addition to its core mall business, Unibail owns and develops office property primarily in Paris and is the owner and manager of a Parisian convention and exhibition business.

The deal has clear strategic rationale and will create a REIT (Real Estate Investment Trust) goliath with a €61bn (A$94bn) portfolio of prime assets across Europe and the US. It is taking Unibail's dominant mall portfolio and adding two major markets where it had no geographic presence: the US, set to be 22% of the combined group, and the UK, 7%.

The merger is expected to be earnings per share (EPS) accretive with two main drivers: (1) the leveraging-up of Unibail; and (2) the benefit of the €100m (A$151m) of synergies. The combined portfolio is forecast to have an average valuation yield of 4.1%. If you were to take it one step further by adding the value of the rents and capex from the development pipeline, this could lead to a 4.7% stabilised yield.

The balance sheets of both entities have historically been strong but will be temporarily stretched with gearing increased to accommodate the acquisition. Unibail however has emphasised the strength of the combined balance sheets and a plan to divest €3.0bn (A$4.5bn) of non-core assets.

Source: Company data

Source: Company data

The Westfield – Unibail merger is a transformational deal, creating the most prime retail shopping centre portfolio globally with a growth option of a large development pipeline. For Australian investors, this newly ASX listed group will provide an even more attractive global investment option in a rapidly evolving global REIT market.

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