Westfield pulls out of Brazilian venture
Westfield Group has exited the "historic" joint venture it formed 18 months ago in Brazil, amid suggestions the partnership could not reach agreement for the long-term composition of developments.
Westfield made clear on Tuesday it remained committed to the region, but "may or may not" work with any other joint-venture partners in future Brazilian developments.
The deal with the Almeida Junior family was launched in August 2011 amid much fanfare with the co-chief executive Steven Lowy calling it an historic day for the group.
Westfield initially invested $R740 million ($440 million) into the joint venture for a 50 per cent interest in five assets.
Under the original plan, the centres were to be rebranded Westfield Almeida Junior and were to be run by the chief executive and founder, Jaimes Almeida Junior.
It was only the fifth new market the retail behemoth had entered since its founding in Blacktown, west Sydney, 53 years ago.
Property analysts attributed the collapse of the deal to a difference of opinion by the partners as to the long-term outlook of the business, with Westfield seeing it as a stepping stone to a bigger asset base but Almeida Junior happy to redevelop the existing portfolio.
There was also said to be unfavourable foreign exchange movements at the funding level of the deal.
In a short statement, Mr Lowy said the group had sold its half-share in the Westfield Almeida Junior back to the original partner.
"We have decided to dispose of our interest in this joint venture as the partnership was not conducive to the achievement of the group's long-term objectives in Brazil," Mr Lowy said.
"We will continue to independently review opportunities in the region in line with our global operating strategy."
Westfield plans to keep two of the three senior management in the region. The sale, which was completed at book value, was not expected to have an impact on Westfield's annual earnings or distribution.
Simon Wheatley from Goldman Sachs said since Westfield first entered Brazil there had been no new properties acquired or developed and management had not divulged updates on occupancy or performance.
"Financially, we believe that Westfield funded its investment into Brazil via US dollar debt or cash. Due to movement in the Brazilian currency versus the $US since that time, we estimate $US95 million of the investment [about 20 per cent] was lost in unfavourable foreign exchange movements."
According to NAB's fixed income credit research, from an investment perspective, if the joint venture was having difficulty in the early stages, then Westfield has probably made the right call to cut and run and keep the financial damage to a minimum.