Westfield Group's focus on its global development pipeline and forecast lower rental growth has led Commonwealth Bank to issue a downgrade to the retail landlord's rating outlook.
In a rare move to downgrade Westfield, which is the world's biggest retail landlord by value, the bank's property analyst, David Lloyd, said Westfield's Australian operations were likely to remain the lowest-growth region.
In a note to investors, Mr Lloyd said his rating change was due to slow sales growth and historically high occupancy costs. "However, we do acknowledge Westfield's weighting towards Australia will decline as the development pipeline is skewed towards the northern hemisphere," he says.
His rating has changed from overweight to neutral. Mr Lloyd also lowered his expectations that Westfield would sell down all its interests in Australia that had been forecast two months after the group's 2012 full-year profit.
Property analysts had been united in their forecasts after the results that Westfield could unlock up to $8 billion of capital by selling down its interests in its Australian malls to 25 per cent, the minimum required to retain management rights.
Mr Lloyd said that could now just be limited to the US portfolio, which could still unlock about $3.5 billion for Westfield to use for developments in Italy and Brazil.
"Rental income remains the overwhelming revenue and earnings before interest and tax driver," he says, "implying a lower funds-from-operations growth rate." Higher growth revenue was not enough to influence the group's funds-from-operations growth.
The change in rating came as Westfield Group said its two longest-serving directors, Stephen Johns and Fred Hilmer, were retiring at the May 29 annual meeting.
They were on the board for 27 years and 21 years respectively. A new director - Mark Johnson, the former PricewaterhouseCoopers chief - will join the board.