Westfield (WDC) brought itself a bit more market favour yesterday with a $US1.6 billion restructuring of its international shopping centre portfolio, the third such move this year.
It’s not hard to find out why the market pushed the shares up 1.1%, or 12c, to $10.96.
Before yesterday Westfield securities had badly under-performed the market, rising just 2.7% this year compared with the 12.3% rise in the wider market.
Yesterday’s rise took the gain this year to 3.8%, but the wider market added around 0.5%, to take its gain so far in 2013 to nearly 13%, so Westfield has narrowed the gap slightly, but will have to do more to get re-rated by investors.
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These deals and earlier ones are designed to boost sales per square foot and thereby rental income for Westfield’s property portfolio in the US. They should also be seen as part of the capital management operation the company currently is undertaking with its buyback.
The effect will be to lift management fee income and improve earnings per security, even though the sale of the malls will cut up to 4.5c from earnings this year.
Westfield securities hit a high of nearly $12.30 in May, but they have fallen sharply since the US Federal Reserve started talking about reducing its current stimulatory spending. That decision is likely to be revealed on Thursday morning, our time.
Westfield revealed yesterday that it will sell seven malls in the US for $US1.6 billion to an affiliate of Starwood Capital Group. Westfield said it was selling the malls because they are non-core, to redeploy capital to other, potentially higher margin projects.
Westfield will retain a 10% stake in the shopping centres, which will be managed by Starwood.
Westfield has been restructuring its US portfolio this year. In April it did its first deal with Starwood, selling seven malls $US1 billion. That was after it sold half stakes in six malls in Florida to O’Connor Capital Partners for about $US700 million in March.
And earlier it had quit a high profile venture in Brazil because of weaker than forecast returns.
"Today’s announcement continues the implementation of our strategic plan which positions Westfield to generate greater shareholder value," Westfield’s co-chief executive officer, Peter Lowy, said in yesterday’s statement.
"We are focused on redeploying our capital into superior retail destinations in major cities through divesting non-core assets and introducing joint venture partners."
The announcement saw positive reactions from two brokers. Analysts at Moelis said yesterday’s deal will increase the percentage of earnings from the management business, thereby improving return on equity and earnings per security.
And CLSA saw Westfield redeploying the cash raised into the London market, where higher returns are possible, including from residential property developments associated with its shopping centres.
Westfield said the $1.64 billion value of the deal was "$US120 million below the book value of the assets at 31 December 2012 and in line with the book values at 30 June 2013".
Post the transactions, WDC will own and operate a portfolio of 40 centres in the US with average annual specialty sales of $US513 per square foot at June 30, 2013 compared to $US494 per sq ft reported in WDC’s 2013 half year results announcement.
Westfield said the deal "will not impact the Group’s Funds from Operation (FFO) forecast for 2013 of 66.5 cents per security and distribution of 51.0 cents per security".
But the sale "is expected to have an annualised dilutionary impact to the Group’s FFO of approximately 4.5 cents per security, which is expected to be mitigated by the redeployment of capital and the buy-back of WDC securities".
If for some reason there’s a shortfall, Westfield will have to borrow to maintain the distribution.
