Monday 20 November 2017

Westfield to sell seven malls in US to Starwood for $1.6bn

Westfield is divesting malls to redeploy capital into planned development projects, the Sydney-based company said. It will retain a 10pc interest in the shopping centres, which will be managed by Starwood, it said.

Westfield, founded by billionaire Frank Lowy, is exiting properties in the US with lower productivity and fewer redevelopment opportunities, mostly in the Midwest and north-west, to reinvest in higher-return assets and projects both in the country and overseas. It divested seven US malls in April 2012 to Starwood for $1bn and sold half stakes in six Florida malls to O'Connor Capital Partners for about $700m in March, while maintaining management rights.

Transaction

"Westfield have well flagged their intention to concentrate their US portfolio," said Louise Mylott, executive director for specialist sales, and Morgan Stanley REIT analyst Lou Pirenc.

With this transaction, Westfield "has exited all of its Midwest assets outside the Chicago area and all non-core West-Coast assets."

Westfield will own and operate 40 malls in the US following the sale, and average annual specialty sales at its malls there will increase by 3.8pc to $513 per square foot following the disposal, it said.

The company has started work on the retail part of the World Trade Centre in New York, in which it invested $612.5m in a joint venture with the Port Authority of New York and New Jersey in July 2011.

It is also undertaking $240m of redevelopments at Garden State Plaza in New Jersey and Montgomery in Maryland, it said in August.

The malls Westfield is selling include three properties in Ohio, two in California and one each in Indiana and Washington state. The deal is in line with the assets' book value as of June 30, and $120m below their December 31 value, the company said.

"They're remixing the remaining portfolio based on their views about where the best value is going forward," said Winston Sammut, Sydney-based managing director of Maxim Asset Management.

"This is part and parcel of their strategy, not a change in strategy or outcome."

Retail sales in the US rose 0.2pc in August from the previous month, less than forecast and the smallest gain in four months, the Commerce Department said on September 13.

Higher payroll taxes, limited job opportunities and re-strained income growth are moderating consumers' interest in shopping.

Westfield reported comparable net operating income growth of 4.3pc in the US in the six months to June 30, compared with 1.8pc in Australia and New Zealand, and 0.2pc in the UK.

The company had debt of A$13.1bn(€9.2bn) as of June 30.

Perceptions of Westfield's credit risk have improved, with the cost of protecting the company's debt against non-payment dropping relative to other Australian companies. Credit-default swaps (CDS) on the mall owner have fallen 51 basis points over the past year.

The CDS were nine points below the benchmark Markit iTraxx Australia index at the end of last week, having traded at a 22 basis point spread above the average a year earlier.

Westfield is the fifth best performer in the 25-member gauge over the past 12 months.

Australia's biggest publicly traded property trust has focused on boosting developments and fund management income since it spun off the domestically focused, more conservative Westfield Retail Trust in 2010.

The change in strategy followed Frank Lowy's decision to hand day-to-day control of the company he founded in 1959 to his sons Peter and Steven Lowy.

Frank Lowy emigrated to Australia in 1952 after fleeing the Nazis in Hungary and fighting as a commando in Palestine.

He built up Westfield into the world's biggest shopping-centre operator by assets with properties in Australia, New Zealand, the US and UK. The company has since expanded into Italy and Brazil.

Westfield is moving forward on A$2.8bn worth of higher-return development projects in cities including London, New York and Los Angeles, the company said at its first-half results announcement last month.

It also has a further A$12bn of projects planned, including a mall in Milan that it is developing in partnership with Italian firm Gruppo Stilo.

"Today's announcement continues the implementation of our strategic plan which positions Westfield to generate greater shareholder value," said Westfield's Co-Chief Executive Officer Peter Lowy.

Divesting

"We are focused on redeploying our capital into superior retail destinations in major cities through divesting non-core assets and introducing joint venture partners."

At Westfield London, Westfield is proceeding with an expansion after receiving approval for more than 500,000 square feet (46,452 square metres) of additional space and 1,500 apartments, it said in August.

While the sale to Starwood, the investment firm led by Barry Sternlicht, will dilute annualised funds from operations by 4.5 cents a share, this will be mitigated when it reinvests the funds and by its share buyback programme, it said.

The deal is expected to close by the end of the year.

"For this to be the source of capital as they expand into mega-centres is a whole lot more refreshing than coming to investors asking for more money," said Stuart Cartledge, managing director of Melbourne-based Phoenix Portfolios.

"It would be interesting to see for how long they have to maintain their 10pc stake, because clearly they are not a long-term holder of passive stakes , especially in assets, they don't even manage." (Bloomberg)

Irish Independent

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