Westfield sales in the US hint at more to come

Westfield could raise up to $9 billion in the medium term through the selldown of its direct interests in assets.

By InvestSMART · 27 Mar 2013

By InvestSMART ·
27 Mar 2013

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Westfield could raise up to $9 billion in the medium term through the selldown of its direct interests in assets.

Analysts said the group's move to reduce its stake in six assets in Florida this week to the O'Connor Capital group was the trigger to do the same in Australia, New Zealand, the US and Britain.

This would release funds for its $12 billion property development pipeline (its direct interest is about $4 billion), a share buyback program and expansion of new online technology.

David Lloyd, a real estate analyst at the Commonwealth Bank, said he believed Westfield ultimately wanted to own a direct exposure in each asset to entrench itself as the manager.

"We view this transaction as another positive step in Westfield's evolution to a more capital-light, higher return on equity real estate investment trust," he said. "Furthermore, we expect similar-style transactions to materialise throughout calendar 2013.

"Based on this principle, we estimate Westfield has the potential to sell down a further $8.6 billion in assets across its established geographies. Following the O'Connor joint venture, Westfield's US exposure is heavily skewed to California (51 per cent, or $US6.3 billion).

"Importantly, Westfield has yet to divest interests in the majority of its Californian portfolio, which in our view holds some of its best assets in the US and would be greatly attractive to pension and sovereign wealth funds."

The suggested selldown of its direct interests has also triggered another round of speculation that Westfield may look to sell the office assets at 85 Castlereagh Street.

Co-chief executive Peter Lowy has said in the past the office assets were an integral part of the portfolio, but analysts said with high demand for quality office assets in Sydney, the temptation to sell at a high price may be increasing.

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Frequently Asked Questions about this Article…

What is Westfield planning to sell and how much cash could the selldown raise?

Westfield is planning to sell down direct interests in some of its shopping centre assets. The article says the group could raise up to US$9 billion (reported as $9 billion) in the medium term through these selldowns, and analysts also estimate a potential to sell down a further $8.6 billion in assets across its established geographies.

What triggered Westfield's decision to reduce stakes in certain assets?

The move was triggered by Westfield reducing its stake in six Florida assets in a joint venture with the O'Connor Capital group. Analysts say that transaction prompted the group to consider similar selldowns in Australia, New Zealand, the US and Britain.

How will Westfield use the proceeds from these asset selldowns?

Proceeds are expected to be used to fund a reported $12 billion property development pipeline (Westfield's direct interest is about $4 billion), to support a share buyback program, and to expand new online technology.

What does a shift to a 'capital-light, higher return on equity REIT' mean for investors?

Analysts describe Westfield's strategy as moving to a more capital-light model, meaning it would reduce direct ownership of some assets and focus more on management and fee-based returns. For everyday investors, that can mean a higher return on equity and potentially steadier cash generation, although it also means the company changes the asset/earnings mix investors are exposed to.

Which regions of Westfield's portfolio are most likely to be affected by further sales?

Analysts expect selldowns across Westfield's established geographies: Australia, New Zealand, the US and Britain. After the O'Connor joint venture, Westfield's US exposure is heavily skewed to California (about 51%, or US$6.3 billion), and many commentators see Californian assets as likely targets for future transactions.

Are Westfield's Californian assets likely to be sold, and who might buy them?

The article notes Westfield has yet to divest interests in the majority of its Californian portfolio and that analysts view those assets as some of its best in the US. These high-quality California assets would likely be attractive to pension funds and sovereign wealth funds, making them potential buyers if those assets were put up for sale.

Is Westfield expected to sell office assets such as 85 Castlereagh Street in Sydney?

There is speculation that Westfield may look to sell office assets like 85 Castlereagh Street. Co-CEO Peter Lowy has previously said office assets were an integral part of the portfolio, but analysts point out strong demand for quality Sydney office stock could make selling at a high price tempting.

What should everyday investors watch for next if they're tracking Westfield's selldown strategy?

Investors should watch for announcements of further joint ventures or selldowns (similar to the O'Connor deal), updates on the $12 billion development pipeline and any share buyback plans. Analysts in the article also expected similar-style transactions to materialise through calendar 2013, so monitoring transactional activity and commentary about Californian and Sydney assets will be useful for assessing potential impacts on Westfield's balance sheet and returns.