The combination of Australian billionaire Frank Lowy’s Westfield and France’s Unibail-Rodamco will give the retail property businesses increased scale to buffer against disruption from digital players.
The $32.7 billion sale of Westfield, the biggest in Australian corporate history, will create the second-largest retail real estate owner in the world.
The biggest is US-based Simon Property Group Inc which operates 234 retail assets that generated $US4.9 billion of earnings in 2016.
Retailers globally have seen their margins squeezed by big online players such as Amazon. In the US, this march against traditional players has been called the retail apocalypse.
Shopping centres, the bread and butter of Westfield, have been hard hit in the US. Thousands of mall-based stores are shutting as shoppers increasingly order online and infrequently visit their local mall.
However, S&P Global Ratings believes the combined Australian and Europe-based businesses will be large enough, and be of sufficient quality, to protect, at least in the short term, against this online disruption.
“The combined Unibail-Rodamco-Westfield portfolio, composed of high-quality and dominant shopping centres in 13 countries, will likely continue attracting footfall and cope with the global threat of growing e-commerce penetration, at least for the next two years,” says S&P Global Ratings.
“We think Unibail-Rodamco will successfully integrate Westfield and generate robust cash flows over the next 24 months.”
S&P Global Ratings says Westfield will enable Unibail-Rodamco to penetrate two new markets: the US and the UK, with properties primarily in the greater London area.
“Westfield’s assets are located in urban areas with good retail fundamentals, namely wealthy and densely populated cities like New York, Los Angeles, Washington DC, San Diego, and London,” says the ratings agency.
“We also expect the enlarged group would strengthen its relationship with international retailers and develop synergies in leasing, digital, marketing, and costs.”
S&P Global Ratings has placed its BBB+ long-term ratings on Westfield and its debt on CreditWatch with positive implications.
“If the proposed transaction is successful in its current form, we would raise the long-term rating on Westfield to A, equalising the rating to that on Unibail-Rodamco,” the agency says.
The combined Unibail-Rodamco-Westfield would have 104 high-quality and dominant shopping centres in 13 countries.