The economic slump and global financial crisis are no respecters of reputation, or even balance sheet strength.
Not even the wealthy Lowy family and its Westfield shopping mall group, the world’s biggest, have been able to resist the slump’s impact, especially the plunge in retail sales in the US and UK.
Westfield, facing pressures from slumping sales, property values and rising vacancies in the US, UK and now Australia and New Zealand, has issued its second distribution downgrade in a week and is looking to boost its capital via a $2.9 billion issue to big shareholders.
It revealed last week a $3 billion cut in values of its centres because of rising capitalisation rates. And though it said it had "available liquidity of $5.5 billion", has come back to the market for billions of dollars more in new capital.
It will be the second issue of this size in 19 months: the company raised $3 billion in mid 2007 at a price 46% higher than the $10.50 in the new issue.
That’s a 13% discount to the price Monday at the close of $12.10.
The company also revealed its second downgrade of 2009 distributions in seven days. On January 27 it cut it to a range of 97c to 100c per security (compared with 106.50c to be distributed in 2008) and then to a new range today of 94c to 97c.
All in all the cut could now total 11.7%, a substantial fall for a blue chip like Westfield, though not as bad as the downgrades reported by the likes of Mirvac and Stockland.
Westfield said it was seeking to raise money through a placement of shares to institutional and sophisticated investors to help pay down debt and position itself for potential acquisitions.
The new shares are being offered at $10.50 each, 13.2% discount to its last traded price. The mid 2007 issue was done at $19.50,
The shopping centre giant’s $3 billion raising in June 2007 was snapped up by the market, with the $2.1 billion institutional component of the offering closing oversubscribed.
The Lowy family took up $300 million of stock in the 2007 raising, with an offer to retail investors of about $600 million. No mention of their involvement in today’s announcement.
The 2007 $3 billion pro rata raising offered two shares per 23 held at a price of $19.50 per security.
Westfield said that it had previously announced the reactivation of a distribution reinvestment program and underwriting of an amount equivalent to 50% of each of the distributions for the period between February 2009 and August 2010 inclusive.
"In view of the placement, the group has terminated these underwriting agreements," the company said today. The DRP will remain in operation for the upcoming distribution payable on February 27.
Westfield’s forecast operational segment earnings and distribution per security this calendar year have been revised to a range of 94c to 97c, assuming the proceeds from the raising is used solely to pay debt, from the 106.50c to be distributed for the 2008 year.
Westfield revealed that sales in the latest three months in the UK and Australia had worsened noticeably in its centres, while in New Zealand there had been a slight rise, though they were still negative. Australian sales were still up 1.6% in the latest quarter, down from more than 3% earlier in 2008.
US sales fell at a rate of 4.2% in the latest three months to be down 6.8% from the December quarter of 2007. And occupancy at its 55 US malls fell to 92.6% at the end of 2008, from 94.1% as of December 2007
Sales in the UK fell by 2.7% nationally and 1.2% in London (where Westfield has a big new centre and is building a second) in the three months to December.
The company’s planned malls for the centre of Bradford, in northern England, and Guilford in the South, will remain a black hole for a while to come. Westfield said the "time frames" looked likely to be extended.
The statement hit the other property stocks hard with struggling Mirvac losing more than 17% to $1.05 and Stockland, off nearly 10% to $3.28.
