Klépierre's Bid For Hammerson Shows Malls Are Hot -- In Europe, Anyway

By Esther Fung and Matthew Dalton

European malls are trading at steep discounts -- at least in the eyes of some prominent investors.

France's Klépierre, which is 21% owned by U.S. mall giant Simon Property Group, said Monday it made an unsolicited GBP4.88 billion ($6.8 billion) bid in early March for U.K. retail property firm Hammerson PLC.

Hammerson, which is in the process of buying British rival Intu Properties PLC for GBP3.4 billion, said it turned down Klépierre the following day, on March 9, because the offer wasn't rich enough.

The bid follows on the heels of a December deal in which another French real-estate investment trust, Unibail-Rodamco SE, agreed to pay $15.7 billion for Westfield Corp., which operates 35 marquee shopping centers in the U.S. and U.K., including one at the World Trade Center in New York City.

Europe's sudden fervor for retail real estate stands in contrast to the U.S., where shares of retail REITs have been falling for almost two years as big retail chains struggle with overexpansion, changing consumer tastes and increasing online competition. Many are becoming more selective in their store locations, focusing on the busiest malls and getting out of sleepy ones.

Macy's Inc., Sears Holdings Corp. and other traditional mall anchors have announced hundreds of closings in recent years. Last week, Toys 'R' Us Inc. said it filed a motion to wind down all of its 735 U.S. stores after an attempt at a reorganization following a bankruptcy protection filing in September was unsuccessful.

Now the clouds from the U.S. retail storm are settling over Europe. As of March 1, retail REITs in continental Europe traded at an average 15% discount to the value of their underlying property assets, according to data from Green Street Advisors, a real estate research firm.

But analysts said the discount might be too steep. Economic growth is starting to pick up in Europe and the retail real estate environment is more resilient, they said, in part because stringent rules on construction have prevented overbuilding of the scale seen in the U.S.

Hammerson Chairman David Tyler called Klépierre's bid, which represents a 40.7% premium to the company's closing share price Friday, "wholly inadequate and entirely opportunistic." The company said the proposed price represents a 21% discount to its net asset value as of the end of last year.

Shares of Hammerson have been sliding since mid-2017. They jumped 24% on Monday after the bid was revealed, while shares of Klépierre were down 4.2%.

Klépierre, whose last major merger was with Dutch retail landlord Corio NV in 2015, has been eyeing expansion in prime centers with access to large populations, including in the U.K. and Ireland, where it doesn't have a presence.

While Hammerson's U.K. and Irish assets would be complementary to Klépierre's portfolio, the French company isn't interested in Intu Properties, whose portfolio includes weaker malls, according to a person familiar with the matter.

Write to Esther Fung at esther.fung@wsj.com and Matthew Dalton at Matthew.Dalton@wsj.com

(END) Dow Jones Newswires

March 19, 2018 17:44 ET (21:44 GMT)

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