Westfield Group's huge capital raising from shareholders is a big, big sign to investors that the smartest players in retailing property think the years of easy and cheap money are coming to an end.
Why else would the Lowy family and its advisers approach shareholders via a 2 for 23 issue at $19.50 a share, to raise $3 billion to help finance the company's expansion.
It is an old fashioned rights issue, unlike the combination of placement/issue to shareholders which companies have been using recently: Macquarie Bank being a recent example.
The Lowy family will subscribe for its share of $282 million, which is another sign of the importance of the move and the method.
If you listen to all the pundits, capital has a cost: dilution of earnings per share, the cost of issuing the shares. Raising cash via bank loans, or a syndicated approach to financiers, or even borrowing from the likes of Goldman Sachs or CSFB directly, is always a cheaper option, according to the pundits.
There's the discipline of repaying the interest and some of the principal but if you are a highly-rated company like Westfield group, then there's any number of lenders waiting to fall over themselves to lend you what you want.
Well, not now, when the cost of money in US financial markets has skyrocketed by around 16 per cent in three months. The past month alone has seen the yield on 10 year US Treasury Bonds rise more than half a per cent to around 5.21 per cent.
The cost of money has risen by more in Europe and it's become pretty expensive here with even the highest rated borrowers' costs up by more than 10 per cent over the past quarter. And, even if they have hedged, switched and covered themselves every which way, and locked in interest rates, the cost of new money will be more.
"The Westfield Group currently has 19 projects under construction globally, with an estimated total cost (as at 31 March 2007) of some $7.6 billion (the Westfield Group's share being $5.4 billion), "chairman frank Lowy said in a letter accompanying the prospectus for the issue.
"In addition to these current projects, the Group expects to commence in excess of $10 billion (the Westfield Group's share being $9 billion) of new projects in Australia, New Zealand, the United States and the United Kingdom over the next three years.
"The Westfield Group's development strategy involves the creation of major landmark retail destinations on an international scale such as the recently completed projects at Bondi Junction (Sydney) in Australia, Century City and Topanga (Los Angeles), and San Francisco in the United States, all of which have set a new standard for ‘world class' regional malls," Mr Lowy said.
Those Westfield plans for more than $10 billion of new projects in Australia, New Zealand, the US and Britain in the next three years, are a significant increase on the previous forecasts of between $4.5 billion and $6 billion of new projects in the same period.
WSC also said it would launch a £500 million ($1.17 billion) wholesale property fund in Britain. It is not yet known which assets would be sold into the new fund.
Westfield pulled an earlier proposal for a $2 billion wholesale fund in Australia last October because of opposition from some shareholders and analysts.
Westfield's capital raising is only second in size to the ANZ's 2003 $3.6 billion issue.
There is also speculation that Westfield is eying the Dutch property giant, Rodamco, which owns 73 shopping malls across mainly Europe. French property group, Unibail is negotiating to buy Rodamco for $17.7 billion.
Westfield shares closed at $20.90, down 22c, ahead of the announcement on Tuesday evening. They remained in a trading halt yesterday.
