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In Spending Spree, Shopping Mall Operator Bets on Westfield In Spending Spree, European Mall Operator Bets on Westfield
(about 9 hours later)
LONDON — In the era of online shopping, a European property company is making a nearly $16 billion bet that shoppers will find enduring appeal in New Jersey’s Garden State Plaza and shops in the World Trade Center. In recent years, the news has been nothing but bad for malls.
Unibail-Rodamco said on Tuesday that it had agreed to acquire the Westfield Corporation, the Australian owner of the Garden State Plaza and the shopping center at the World Trade Center in Lower Manhattan, for $15.7 billion. The transaction would combine two large operators of shopping malls and give Unibail-Rodamco access to a variety of well-known properties in the United States and Britain. The combined company would hold property valued at about $72.2 billion. With the rise of Amazon and other online shopping options, consumers have skipped treks to the sprawling malls that dot the American landscape, preferring to click-and-shop from the comfort of home. Struggling to adapt, the stores that once lined the interiors of malls, from RadioShack to The Limited, filed for bankruptcy. Then, department store giants like Sears, J. C. Penney and others — long the reliable anchors of malls everywhere — began shuttering properties at a fast and furious pace.
It comes as traditional retailers are feeling pressure from the growth of online shopping and malls are seeing a decline in foot traffic. But now, a megadeal is signaling that there may still be life after all in the American mall — especially the luxury version. On Tuesday, the European property company Unibail-Rodamco said it had agreed to acquire the Westfield Corporation for $15.7 billion.
“The acquisition of Westfield is a natural extension of Unibail-Rodamco’s strategy of concentration, differentiation and innovation,” Christophe Cuvillier, the Unibail-Rodamco chief executive, said in a news release. “It adds a number of new attractive retail markets in London and the wealthiest catchment areas in the United States.” For Unibail-Rodamco, which is based in France and has a bevy of glitzy shopping centers across Europe, including Le Forum Des Halles in Paris, the deal means a significant foothold in the United States — one defined by a number of trophy mall properties, including Westfield Century City on the west side of Los Angeles and the shopping center at the World Trade Center in Lower Manhattan.
Mr. Cuvillier would be chief executive of the combined company. For Westfield, which was built by Frank Lowy, the Australian billionaire tycoon who started with one shopping center outside of Sydney in 1959, the deal allows the family to exit at a hefty premium. Unibail-Rodamco’s cash-and-shares offer was 18 percent above Westfield’s closing price on Monday. The Lowy family said it intended to retain a stake in the company.
Westfield was built by Frank Lowy, the billionaire shopping center tycoon who started with one shopping center outside of Sydney in 1959. It now includes premier shopping malls in California, Connecticut, New York, New Jersey and London, as well as shopping areas at Newark Liberty International Airport in New Jersey and Kennedy International Airport in New York. Westfield is also the developer behind the Century City retail hub on the west side of Los Angeles and a new shopping center adjacent to Linate Airport in Milan that is expected to be completed in 2020. The acquisition came amid growing expectations that mall operators, many which have seen their real-estate investments battered badly, are ripe for alliances. Just this week, GGP, the rebranded General Growth Properties, turned down a $14.8 billion bid from Brookfield Property Partners for the shares of GGP it didn’t already own. Activist hedge fund investors have taken stakes in Macerich and Taubman Centers.
Like many in the shopping mall business, Westfield has struggled with the emergence of online retailers like Amazon. The company has focused on marquee properties that can still draw shoppers, rather than regional malls that are more susceptible to online competition. Its shares picked up steam in the second half of this year but are still down by roughly one-fifth since the middle of last year. European shopping center owners have fared relatively well this year, with many of the biggest owners reporting gains in rental income. Unibail-Rodamco, whose real estate portfolio also includes office and convention space, said that rental income from its shopping center arm was up 4.1 percent to 781 million euros, or about $920 million, in the first half of the year.
Under the terms of the deal, Westfield investors would receive 10.01 Australian dollars, or about $7.50, in cash and stock for each of their shares, representing a nearly 18 percent premium to the company’s closing price on Monday. But their counterparts in the United States have struggled. That’s due, in part, to the fact that retail real estate expanded at a much more rapid clip in the United States than it did in Europe, so the pullback has been much sharper.
The transaction is expected to close in the first half of next year. In the United States, there appears to be two bets emerging on the future of malls, analysts said.
The combined company would be based in Paris and the Netherlands, with regional headquarters in Los Angeles and London. Higher-end malls — those that are in wealthier suburbs and have attracted a blend of luxury retailers with gyms, organic grocery stores, and even urgent-care centers — will survive or even thrive. Lower-end malls located in less-prosperous locations will continue to see stores shutter and will most likely be snapped up by bargain-hunting investors, who may seek new tenants for the properties — or just raze them.
Westfield spun off its Australian and New Zealand businesses into a separately listed company in Australia three years ago. This summer, a group of Wall Street analysts predicted that nearly a quarter of the roughly 1,100 malls in America would close in the next five years.
The Lowy family has agreed not to sell its interest in Westfield during the period of the transaction and to vote in favor of the deal in absence of a superior offer, the companies said. “There are a fair amount of distressed malls out there where an experienced owner is going to get a distressed buy and figure out what type of tenants can support a particular area,” said David Kessler, a managing partner in the real-estate practice of CohnReznick.
Before the closing of the transaction, Westfield is planning to spin off a 90 percent interest in OneMarket, its retail technology platform, into a newly listed company in Australia. The combined company would own a 10 percent interest in OneMarket. Westfield, analysts said, has focused its efforts on marquee properties that can still draw shoppers, rather than regional malls that are more susceptible to online competition. The real-estate giant spent $1 billion giving the Westfield Century City mall a makeover in the hopes of driving foot traffic.
Deutsche Bank and Goldman Sachs and the law firms Darrois Villey Maillot Brochier; Allens; NautaDutilh; Shearman & Sterling; Clifford Chance Europe; and Capstan Avocats advised Unibail-Rodamco. Westfield was advised by Rothschild, Jefferies and UBS and the law firms King & Wood Mallesons; Skadden Arps, Slate, Meagher & Flom; and Debevoise & Plimpton. There, shoppers who sign up online for a reserved parking place have their license plates scanned before the gate is lifted and are directed to a space under a monitor. While the mall has its share of typical fashion retailers, it also has an Equinox gym, a medical clinic and, next year, a cryotherapy clinic.
Westfield also owns a number of premier shopping centers in Britain and is developing a new shopping center adjacent to Linate Airport in Milan that is expected to be completed in 2020.
Still, no matter how trophy the mall, they still face the same pressures.
The Westfield World Trade Center has been open for more than a year and in that short time it has dealt with delays, lawsuits and staunch competition from its next door neighbor, Brookfield Place, which is offering more luxe shopping options like Burberry, Gucci and Hermès.
Located near a PATH train hub and within the soaring Oculus structure designed by the Spanish architect Santiago Calatrava, the Westfield World Trade Center mall was largely bereft of shoppers on Tuesday afternoon.
While the two-floor Apple store buzzed with shoppers, the same could not be said of Dior, Hugo Boss and Breitling, where employees stood around looking at their phones or chatting with one another.
In the middle, near a set of pop-up stores, a woman read traditional holiday stories to children seated around her. One of her titles: “How the Grinch Stole Christmas.”