Yesterday giant Australian shopping center company the Westfield Group (WDC) announced its financial results the full fiscal year to December 31st, 2013. Total annual revenues grew by seven per cent to US$ 2.16 billion (A$2.39 billion) in 20113.
However group net profit was US$ 1.44 billion (A$1.6 billion) in 2013, which slipped slightly from the US$ 1.59 billion (A$1.76 billion) the company achieved in 2012. Westfield attributed the drop primarily to its sale of several US malls, and also even to the buyback of some of its own shares.
The company said the Australian domestic part of the business had performed reasonably well, in tough but now improving trading conditions. Westfield’s two Co-CEOs Peter Lowy and Steven Lowy, Frank Lowy‘s sons, said simply they were “pleased with the results for the year.” The overall results were also in line with financial analysts’ expectations.
Nevertheless the initial Australian stock market reaction was to mark shares in Westfield Group down, and today they sit at US$9.23 per share (A$10.25 per share), as of the time of writing, down about 3%. Moreover, Shares of Westfield Group go ex dividend for their US 23 cents per share (A 25.5 cents per share) final dividend on Friday, after which there should be a further slight adjustment. Even at this price, however the market capitalization of the group is still close to US$20 billion (A$22 billion).
While many Australian mall tenants have lately been in the driving seat, cutting hard bargains in new leasing deals, in the US, where increasingly the company’s management is focusing its development attention, rents have been rising sharply with the recovery in the US economy. This relates structurally to Westfield’s growth strategy as well, as in the US and in Europe, Westfield Group are focusing intently now on developing major world leading retail destinations. These include the new World Trade Center in New York, where they recently also bought out their 50% partner, for US$800 million, to give them full control of the massive new retail development going in there underneath all the new office towers of the new Center which are getting closer to occupancy by the month.
That fundamentally is also the reason for the pending proposed split of the company, which Westfield Group announced three months ago, whereby all their domestic Australian and New Zealand shopping centre assets are now proposed to be spun out to the existing, and separately listed, Westfield Retail Trust (WRT), which already has 50% interests in many of them. The new entity, to be called Scentre Properties will become a separately managed giant company in its own right, but be operating in the more mature domestic part of Westfield’s business.
As part of the spin out Westfield have proposed the Retail Trust takes over its own management functions from Westfield Group, and that it pay Westfield Group about US$1.7 billion (A$1.9 billion) for the privilege, with of course the longer term pay back of no longer paying annual management fees to them.
While the Australian Securities authorities are still studying the merits of the proposed transaction, a number of Australian institutional shareholders, especially those invested in the Retail Trust, have been complaining vociferously.
One such investor Stuart Cartledge, Managing Director of Melbourne-based Phoenix Portfolios, which owns about US$45 million (A$50 million) of Westfield Retail Trust shares, spoke to Bloomberg in Australia saying, “My starting point would be half that value, ” he said by telephone, “I can understand why Westfield Group’s directors have agreed to this, because it’s a transaction that’s very favorable to them. But for Westfield Retail Trust, it’s a different story.”
For their part Westfield Group are presently playing hardball over this issue, “Our focus is on creating and owning world leading retail destinations, ” Co-Chief Executive Officers Peter and Steven Lowy said simply when announcing their earnings yesterday. “We believe that the restructure positions the new entities for better growth and thereby provides security-holders of both Westfield Group and Westfield Retail Trust with better long-term returns.”
It may be the Australian Securities authorities step in ultimately, and some compromise is made before the deal finally moves forward, and is then put to shareholder votes for approval – by both entities.
In the meantime however Westfield Group itself, as it is still presently constituted, is looking forward with it guidance to a reasonable year ahead, forecasting net operating income growth of 2% in Australia, which is pretty anaemic but steady, of up to 5% in the US which is a little better and as much as 11% in the UK which is much more respectable.