Asset sales likely to help offset construction slowdown
It is widely anticipated that Westfield could sell down its interests in malls across Australia and New Zealand to 25 per cent, to the minimum required to maintain management rights. There is also talk the retail landlord could revisit a proposal to sell its 85 Castlereagh Street office tower in Sydney and use the cash for its global $8 billion development pipeline.
Demand for high-quality CBD office towers is rising as real estate investment trusts focus all their portfolios on the local property sector. Another possible sale, to unlock cash, would be Lend Lease's 30 per cent holding in the Bluewater shopping centre in Kent, Britain.
The $2.7 billion shopping centre has long been earmarked for a possible sale. At last year's full-year result, Lend Lease's chief executive, Steve McCann, confirmed asset sales were being investigated.
Analysts at Commonwealth Bank's global markets research said they believed Lend Lease might need to sell Bluewater in the 2014 financial year in order to avoid putting pressure on ratings agency triggers and to help meet or beat consensus estimates.
They said the Bluewater stake was held as inventory, and therefore measured at cost in the financial statements. The market value of 100 per cent of Bluewater was $2.7 billion, with the group's 30 per cent direct interest valued at about $770.9 million.
"We continue to view the stock as a key underweight," they said.
"In our view, there are a number of headwinds the stock is likely to face over the next 12 months, which are in contrast to the significant tailwinds that the company and its share price enjoyed through 2012."
Frequently Asked Questions about this Article…
The article says a malaise in the construction sector could force developers into another round of asset sales. Selling properties can unlock cash to shore up balance sheets and cover rising project costs, helping developers manage financial pressure while construction activity remains weak.
According to the article, it is widely anticipated Westfield could sell down its interests in malls across Australia and New Zealand to about 25% — the minimum stake needed to keep management rights. The retail landlord is also said to be considering selling its 85 Castlereagh Street office tower in Sydney to fund its global $8 billion development pipeline.
The article explains that a 25% holding is the minimum required for Westfield to retain management rights. Selling down to that level would free up cash while still allowing the company to manage the shopping centres.
The article notes the Bluewater stake has long been earmarked for possible sale and that Lend Lease has been investigating asset sales. Analysts quoted in the article say selling the 30% holding could unlock cash and might be needed in the 2014 financial year to avoid pressuring ratings-agency triggers and to help meet or beat consensus earnings estimates.
Based on the article, the market value of 100% of Bluewater is about $2.7 billion, which puts Lend Lease's 30% direct interest at roughly $770.9 million. The article also notes that the stake is held as inventory and measured at cost in the group’s financial statements.
Commonwealth Bank global markets analysts told the article they view Lend Lease as a key underweight. They warned of a number of headwinds over the next 12 months — in contrast to the strong tailwinds the company enjoyed through 2012 — and suggested asset sales like Bluewater might be required to manage ratings and earnings expectations.
The article reports rising demand for high-quality CBD office towers as real estate investment trusts increasingly concentrate their portfolios on local property. For investors, that trend could support values for premium city office assets, while developers and landlords may look to unlock cash from other holdings to reposition their portfolios.
The article highlights that some large property stakes — like Lend Lease’s Bluewater holding — can be treated as inventory and therefore measured at cost in financial statements. That means the book value reported by the company may differ from current market value, a detail investors should note when assessing a property company's balance sheet and potential for asset sales.
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