Lowy leads Westfield change
Almost three years after stepping down as executive chairman of the world's biggest shopping centre empire, Westfield founder Frank Lowy has agreed to become non-executive chairman of the two remodelled and renamed listed property trusts unveiled to shareholders on Wednesday.
Speaking from his office in Sydney, Mr Lowy said he was asked to become chairman of the new Australian and New Zealand entity, Scentre Group, and the new international property group, Westfield Corp, to "make the transition smooth" and ensure that the Westfield culture endured.
What he meant was investors - and staff - needed to know that spinning out the Australian assets to create a pure international shopping centre trust would not damage the inimitable Westfield culture, which was established in Australia and has been a cornerstone of the group's success. "There will be board meetings and it will take more time, but I'm happy to do it," he said.
It also clears up succession issues with one of Lowy's three sons, Peter - who signalled he will step down as joint managing director in the next 18 months - leaving his brother Steven to steer the burgeoning international empire, Westfield Corp.
Succession came to the fore in 2011 when Frank Lowy stepped down as executive chairman of the company that he co-founded with John Saunders in 1958.
Lowy's decision in 2011 to loosen the reins and become non-executive chairman of one of the two trusts wasn't an easy one, but it was designed to allow his two younger sons, Steven and Peter, to move up the line and become joint chief executives.
In 2015 Steven will become the solo chief executive of Westfield Corp.
Mr Lowy said there wasn't a need for two chief executives to run the international group. He said Peter would remain on the board as a non-executive director. "It was overkill," he said. "It is undetermined what else he will do."
The rejigging and rebranding of the Westfield shopping centre empire along geographical lines is designed to simplify and refocus the trusts and attract a re-rating by investors. "The big advantage is people who want to make investments in Australia will be able to do so without the complications of currency overseas," he said.
The transaction is complex and will include offering Westfield Retail unitholders a capital return and shares in the Scentre Group. The remaining Westfield portfolio, which includes shopping centres in the US, Britain and Italy, will be called Westfield Corp, and shareholders will be offered shares in Scentre. This will be a high-growth business with big property developments in the pipeline.
Scentre will have an asset base of $28.5 billion and a development pipeline of $3 billion. The transaction will increase gearing to 38 per cent and according to S&P "an equity-friendly $850 million capital return which, in our view, meaningfully elevates the financial risk".
This is not the first time the Lowy family has restructured the property empire, but it is likely to be one of the last. A decade ago it decided to create a mega property trust, Westfield Group, by merging its three listed property trusts: the operating company Westfield Holdings, Westfield Trust, which operated in Australasia, and Westfield America Trust, which operated in the US.
In keeping with the times, in 2010 it spun out half of the Australian and New Zealand properties into a traditional, income-focused, low-geared listed property trust, Westfield Retail, leaving the other trust, Westfield Group, with an exposure to international properties as well as the other half of the Australian and New Zealand shopping centre portfolio.
But in the past year Westfield Retail has traded below its net tangible assets and Westfield Group has traded at a discount to its global peers including Simon, Taubman, General Growth and Macerich.
Its global diversity has been its making, but now it is time for the international side of the business to prosper on its own, leaving the Australian business to find new partners, most likely super funds.