Mall Valuation Post Unibail-Rodamco/Westfield

Earlier this week France based Unibail-Rodamco announced the acquisition of Australian based Westfield, a major owner of A+ malls in the U.S. and Europe for a total valuation of $24 billion. There was a significant difference of opinion on the transaction between The Wall Street Journal and The New York Times today. The Times headline read "Acquisition Signals Hope For the Future of U.S. Malls," while The Journal headline read "Big Name in Malls Heads for the Exits." We side with The Journal.

This is our fourth blog on mall valuation this year and readers familiar with our view know that the Class A mall business is in transition from being a great business to a good business which implies higher cap rates going forward. According to sources we believe to be reliable,  the U.S. assets were valued at a cap rate in the high 4% range, say approximately 4.7%-4.9%. In our view the seller received more than a full price and we might just get a hint of that tomorrow when November retail sales are reported. It is our guess that although traditional retail did well, online retail had a blowout month.

We believe that Westfield's founding Lowy family came to the realization that their huge investments in redevelopment (e.g. Century City) and technology might not payoff and that future investments in redevelopment would be of a defensive nature. Hence it was hard to turn down an offer that approximated Street net asset value.

Nevertheless the stock market responding by boosting the share prices of Simon Property Group, Macerich and GGP. We would view rally as a selling opportunity if only because one of the potential bidders (Unibail) will likely be out of the market for the next two years.