Westfield Retail Trust price falls, 'and so will rents'

INVESTORS in Westfield Retail Trust have marked down the stock after the Lowy Family Group's surprise exit, with some saying it was an indication that growth prospects for the vehicle lay outside of Australia.

Co-chief executive Peter Lowy held a briefing at the UBS offices in Melbourne on Friday, where he suggested that if sales growth in Australia did not pick up, rents may have to fall.

One fund manager present said the feeling was that the group now appeared to be indicating that its overseas businesses were offering better growth in the future, given the flat retail environment in Australia.

At the Westfield full-year result on Wednesday, the other co-CEO, Steven Lowy, forecast that the Australia and New Zealand malls' net operating income growth would be between 1.5 and 2 per cent, which was lower than the 2.9 per cent reported in 2012.

As a result, the group said rents for new leases were being signed at 4 per cent to 5 per cent lower than previous expiries across about 15 per cent of the tenants in Australia.

Close to 60 per cent of Westfield's revenue is now generated from its development and management of malls across North America, London and the new joint venture investments in Milan and Brazil.

The retail behemoth has a development pipeline forecast of $1.25 billion to $1.5 billion for this year, with its share being about $500 million.

Financing will come from assets sales, cost cutting and "redeployment of capital". The group is also using capital for its ongoing share buyback.

Paul Checchin of Macquarie Equities said while signs were emerging that retail was improving, the Lowys' sell-down at this point again raised the question as to the extent of deterioration still to occur.

"Again, we have for some time been expecting a downward structural re-set in the retail sector to occur through higher vacancy rates, negative rental reversions and lower development volumes," he said.

Managing director of Maxim Asset Management Winston Sammut said Peter Lowy had reiterated the company's commitment to continue with the share buyback.

"The exit of the LFG was a surprise. However, it is an investment decision made independently by the manager of the LFG, David Lowy," Mr Sammut said.

After the close of trade on Thursday, the Lowy Family Group, the family's private investment fund, sold 218 million securities in Westfield Retail Trust at $3.09.

A majority of the securities were placed with a range of institutions.

UBS put through a line of about 177 million securities at $3.09 early on Friday, with the balance said to have gone to UBS affiliates.

The sale was completed at the same time as most of the real estate investment trust sector paid out about $2.3 billion for distributions made during the recent profit results season. That gave investors the firepower to buy the shares.