As the man steering Australia's largest takeover – the $33 billion acquisition of global retail landlord Westfield – Unibail Rodamco chief executive Christophe Cuvillier has had to be even tougher on tenants than Westfield founder Frank Lowy.
That's a big ask, but of the €42.5 billion ($66 billion) portfolio of shopping centres Mr Cuvillier's company owns and operates across Europe, it chops 10 per cent of its worst performing retailers every year after a merciless assessment of their viability.
"For retailers that are not performing or that are not at the right level of quality and service or interest for our customers – these are the candidates for eviction," Mr Cuvillier said. "It's like a store – if you don't change your collections regularly customers get bored – and it's the same in a shopping centre. We need to change our collections and the collections are the retailers."
In a world of increasing pressure on retailers and their ability to pay higher rents, it would seem a surprisingly aggressive move by a landlord, but it is one that has helped the shopping centre owner achieve highly favourable metrics compared with the rest of its peers, which has helped make its takeover attempt all the more appealing to Westfield investors.
"I don't think anyone in the industry operates in this way and this is what the Westfield shareholders will be buying," he said.
Mr Cuvillier is in Australia this week speaking with 23 investors, mostly in Westfield and some in Unibail Rodamco, to convince them of a cash and scrip offer made late last year and already supported by the founders of Westfield – the Lowy family.
'Price has to be right'
Ahead of Westfield's full year results on Thursday, major shareholders such as Perpetual, which owns 3 per cent of Westfield, will be meeting with both Mr Cuvillier and chief financial officer Jaap Tonckens. Both men have said the recent share price dip in Unibail Rodamco stock should not hurt the likelihood of a deal proceeding even though the final price for Westfield decreases as the Unibail Rodamaco share price slips – due to the value of scrip. Goldman Sachs and Deustche are advising Unibail while Rothschild are advising Westfield.
"The price has to be right for both shareholders and I don't know what the price will be on the day of the vote because the market is volatile. But I don't think the offer has been devalued – the whole real estate trust market has dipped due to its correlation to bonds," Mr Cuvillier said.
In 2007, a month after the announcement of Unibail taking over Rodamco, Unibail shares were down 15 per cent.
"I don't think the Rodamco shareholders were unhappy with what happened to their stock after that though."
Now, more than two months after the Westfield takeover announcement Unibail Rodamco shares are down 15.7 per cent, which has some investors again questioning whether the deal is good enough.
But Mr Cuvillier, a former retailer for L'Oreal in Sydney, is not giving an inch.
He will extol the significant difference in the operating quality of Unibail Rodamco compared with many of its peers.
Leasing spreads
One such metric is the leasing spread – the difference between what tenants pay on a new lease compared with what they paid on an old lease.
Scentre Group, which owns and manages Westfield shopping centres in Australia and reports its full year results on Wednesday, reports negative leasing spreads.
Of the 188,000 square metres of leasing deals Scentre did in the 2017 financial year the difference between new leases and old leases was negative 2.6 per cent.
At Unibail Rodamco the leasing spread is between 15 and 20 per cent. Westfield – the company the Unibail Rodamco is taking over, does not report its leasing spreads.
Other metrics include occupancy costs – how much the landlord has to pay to keep the tenant operating. At Scentre occupancy cost is 17.6 per cent. At Unibail Rodamco it's 15.1 per cent.
Mr Cuvillier said the performance, which also includes a much lower vacancy rate than its industry, comes down to the tough approach taken with retailers.
In the company's Paris shopping centre Les Quatre Temps about 74 per cent of tenants have been rotated out in the last five years.
"One of our fortes and one which we do differently from the others is that every April we do a full expected rental value analysis," he said, "We look at every single unit in the centre – we look at every tenant, their rate of sales per square metres. We look at their occupancy cost ratio. We look at all this and think about reversion potential."
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