Unibail Rodamco Bid for Westfield

14 December 2017

Unibail Rodamco’s bid for Westfield is earth shattering to say the least. The $32,800,000,000 offer creates the world’s largest developer and operator of shopping centres in a period in time when the distribution of goods and delivery of services is undergoing radical change. The bid, which has the support of the Lowy family, values Westfield at 22.3-times its funds from operations guidance for the 2017 financial year and places some $7bn of funds back into the hands of Australian investors. Whilst there is an opportunity for other suitors to come forward the pricing is very high. The other US leaders in the retail space are Simon Group, trading on a multiple of 14.5x and General Growth, trading at 15.0x earnings. Unibail itself currently trades at 18.6x earnings and based on recent trading Westfield is priced at 19.3x earnings. Australian flagship retail REITs trade at similar levels with Vicinity at approx 14.6x earnings and Scentre at approx 16.2x earnings. The price being paid by Unibail is clearly ahead of the market and implies a yield of 4.48% which remains well ahead of US Bonds rates and within a usual risk premium to bonds, but of course this doesn’t consider the impacts that on-line retailing will have on the sector which increases the risk more so than any time in history. The $7bn of funds coming back to Australian investors will likely stay in the A-REITs sector, however as Westfield was predominantly an exposure to US and European assets some investors may look for alternative global investors for their exposure. Locally, Lend Lease and Goodman will fulfil some of this appetite for those investors who are unable to invest offshore. Westfield will spin off the OneMarket IT platform that offers products and services to retailers to assist in the consumer experience. This is clearly an attempt to combat the Amazon platform and enables Westfield to offer each physical brand within its malls a mechanism to list and offer products to consumers. As part of the Unibail takeover, Westfield and Unibail will negotiate a network participation agreement which will likely provide OneMarket with continued access to the retailers within the Westfield portfolio. Unibail will retain acquire only 10% of the OneMarket business which will become separately listed and in my view points to the fact that the Lowy family expect the platform will grow to be a much bigger platform than Unibail or others will give them credit for. If there was ever a time for the Lowy family to transition from bricks and motor retail to an on line world, this would be the time to sell the assets (at or around the peak of the market) and accelerate the on line platform and this deal effectively achieves this. View the Westfield Announcement Presentation View the Implementation Agreement #Westfield