The securities of Westfield have fallen by around 10%, or more than $1 since the group revealed its 2008 results, with accompanying asset write-downs and cuts to distributions.
The company has said that it won’t be doing anything this year because of the grim financial conditions: the six major projects, mostly in Australia and the UK, will continue (such as the Sydney CBD project with a cost of well over $A600 million).
But acquisitions are seemingly on the backburner, although the group raised $A2.9 billion last month, partly to replenish its already high liquidity levels and supposedly to have some ammunition ready if needed.
But the outlook in Australia, the US and UK economies has worsened in the past week since the report, so perhaps that could be behind the drop from over $10.60 per security to around $9.67 yesterday.
But perhaps smart investors know there are a couple of juicy morsels available now for the company, if it wants to swoop.
If it did move on either struggling General Growth properties in the US, or the floundering Liberty International in London, there’s likely be a mini revolt among holders of the company’s securities.
The last thing they’d want to see right now is an offshore adventure in problematic economies like the UK or the US.
General Growth would probably be the least likely target, simply because its in the US and it’s in a sector where the phrase ‘Zombie Shops’ is being heard to describe shops and chains open, but not doing much business.
How soon before we hear the phrase, ‘Zombie Malls’? That’s a good description for Centro’s US malls though.
But Westfield may be interested in two malls General Growth has put on the market.
General Growth has received offers reported to be around $US400 million for properties including Boston’s Faneuil Hall and New York’s South Street Seaport.
The company (it’s the No. 2 US shopping-mall owner) put the two properties and the Harborplace & the Gallery in Baltimore up for sale in December.
All three maybe sold for around $US400 million, or around $A620 million.
General Growth is looking to sell the centres to raise enough cash to meet loan demands from banks. It’s breached some of its loan covenants and could go into bankruptcy protection if the sales fail.
For that reason it might be cheaper to wait and buy after the company has collapsed.
Bloomberg reported last week that General Growth said it has $US1.18 billion in past-due debt, and warned again it may be forced into bankruptcy.
General Growth is the owner or manager of more than 200 malls in 44 US states, making it the largest mall owner after Simon Property group and well in front of Westfield.
General Growth shares are down 99% over the past year.
That’s why Liberty International in London is looking a better bet. Westfield owns around 3%, picked up last year.
Liberty’s prize properties include Covent Garden and Earl’s Court in London, the sort of trophy shopping centre Westfield loves. (It has White City already and is building Stratford, near the Games site.)
Liberty saw the value of its assets fall by more than 2.7 billion pounds, or close to $A6 billion in 2008, forcing it to sell assets, cut costs and ask shareholders for new money (like Westfield did last month).
That combination of falling property prices and plunging occupancy rates resulted in a big fall in profits.
Over the course of last year the value of Liberty’s centres fell by 22.5%.
Liberty’s occupancy rates were 93.6% at the end of December, compared to 97.9% at end of September. Westfield’s occupancy rate in the US was just over 92%, but closer to 100% in Australia, which is booming by comparison.
For the full-year ending in December, Liberty’s pre-tax losses jumped to 2.7 billion pounds (compared with the 124.8 million pound loss in 2007).
The revaluation of the group’s investment properties was substantial: down by 2.1 billion pounds.
The losses were compounded by a further 665 million pounds decline in the value of derivative instruments held by Liberty (hedging, which Westfield has in place as well, but which make profits).
Liberty is now looking to raise over 350 million pounds through asset sales and the a rights issue to shareholders.
Other UK property groups have raised over 2 billion pounds in the past month (excluding Westfield’s raising).
The easiest way would be for Westfield to put up some cash and joint venture a shopping centre or two.
