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Unibail-Rodamco CEO: 'Westfield is not a proxy for the US' retail market

Unibail-Rodamco SE's $15.68 billion takeover of mall giant Westfield Corp., which has three-quarters of its portfolio in the U.S., will not see the European landlord fall foul of the country's shaky retail property market, Chairman and CEO Christophe Cuvillier said.

Speaking during a conference call announcing the deal, Cuvillier said the acquisition of Westfield was a "perfect fit" for Unibail-Rodamco, Europe's largest listed retail landlord, continuing its focus on high-quality shopping centers and "creating the world's premier developer and operator of flagship shopping destinations."

Unibail-Rodamco's entry into the U.S. market comes at a time when retail landlords in the country are facing declining property values and failing rents, as once-expansive department stores and veteran retail brands shrink, or completely vacate, their brick-and-mortar footprints, and online retailers take a greater share of sales. Falling foot traffic forced legendary department stores Macy's and Sears to shutter a swath of locations this year in a more poignant sign of the times.

Cushman & Wakefield Research, meanwhile, estimated that 30 major retailers will have gone bankrupt by year-end 2017, and 25 more will do so in 2018.

"Just like Unibail-Rodamco is not a proxy for Europe, Westfield is not a proxy for the U.S.," Cuvillier said. "Westfield is not a global player in the U.S., but it's concentrated in the best cities with the best assets. San Francisco and the Bay area: the world's capital for high-tech. London and New York City: the world's capitals for finance. Los Angeles: the world's capital for entertainment."

Westfield's U.S. assets make up 75% of its portfolio, with the remaining 25% comprising two properties in London, according to Unibail-Rodamco's investor presentation. The company's U.S. properties include Westfield World Trade Center in New York City, where it also has another two properties, while 16 of its U.S. properties are in California.

Unibail-Rodamco does not plan to sell any of Westfield's U.S. malls as part of its plan to dispose of €3 billion of assets, due to the shrinking investment market for retail property in the country, said Cuvillier. "It would be fair to say that the markets in the U.S. at this point for secondary assets would not be the most buoyant. There's no interest in basically tossing value overboard just for the sake of it. We'll run them, and we think we'll be able to run them to create more value than there would be if we were to try to get rid of them quickly."

Cuvillier downplayed the significance of the regional U.S. malls in Westfield's portfolio, noting that they made up a negligible portion of the new group's business. "It's an important subject for the U.S. market and for the U.S. footprint of Westfield, [but] it will be dilutive in a much bigger group and only 5% of the future [gross merchandise volume]."

Unibail-Rodamco's takeover of Westfield "makes sense," according to Steve Sakwa and Samir Khanal, real estate equity analysts at Evercore ISI. "Unibail has openly talked about expanding to the US and Westfield has continued to narrow its focus to primarily flagship mall assets in the US and London so this platform provides Unibail-Rodamco with a solid entry into the US market while providing it with 2 major assets in London," the analysts said in a note responding to the deal.

Neil Green, a real estate equity analyst at JP Morgan Cazenove, said in a note that the deal bolstered Unibail-Rodamco's position in a challenging retail environment. "In a physical retailing world where differentiation and creating unique experiences is becoming increasingly important, the ability to be at the cutting edge of retailer offering (global footprint could expedite brands from US in to EU and vice versa) could help Unibail/Westfield malls retain their edge over the competition," he said.

Asked if the Westfield takeover would be a stepping stone for more acquisitions in the U.S. for Unibail-Rodamco, Cuvillier said that it was unlikely. "On whether or not we are interested in further deals in the U.S., what my grandma used to tell me: one thing at a time."