Westfield secrecy over shake-up backfires

Frank Lowy’s Westfield fronted disgruntled investors yesterday to talk up the prospects of its Australasian spin-off Scentre, but the company barred investors and analysts from asking any ­questions on the restructure of its $70 billion empire.

Investors and analysts were yesterday bussed to the meeting at Westfield Miranda in southern Sydney. There incoming Scentre chief Peter Allen espoused the merits of Westfield’s Australian business, telling investors that sales across Westfield’s 47 centres in Australia and New Zealand had improved over the past 10 months.

“Some stores are producing double-digit sales growth,” Mr Allen said.

However, the ban on questions about the restructure appeared to backfire on the company trying to sell the deal to investors.

Under the proposal, the group’s Australasian business will be merged into Westfield Retail Trust to form Scentre, which will buy the Australasian management platform from Westfield Group for an estimated $1.8bn.

Westfield Corporation, in which the Lowy family will hold an 8 per cent stake, will retain its higher-growth US, British and European businesses.

The transaction needs 75 per cent approval from WRT investors to pass. A document outlining the proposal will be released late this month ahead of the vote in May.

A recent poll by broker CLSA showed 58 per cent of WRT investors surveyed planned to vote against the proposal, leading to speculation that Westfield might sweeten the proposal.

“It was a bit of a strange exercise. It was the right forum to go into the restructure,” said a fund manager who declined to be named.

The fund manager said the chief concern was the level of gearing of Scentre, which would sit at 38.5 per cent against the gearing of WRT, which currently stands at 21.5 per cent.

“The pricing is not that concerning for us, it’s the higher gearing. We also don’t like the capital distribution model. We would prefer a normal buyback.”

Legg Mason Australia fund manager Ashton Reid raised concerns about the price of the management platform.

“I think they were trying to showcase the Australian business and all the market wants to talk about is the price,” Mr Reid said.

“The overall strategic idea is good. But we do struggle with the price.” He said the benefit to WRT from the increase in gearing was “questionable”.

Another fund manager said the meeting demonstrated the marketing machine of the greater Westfield Group. “They were really just selling the merits of the active business platform in an ­attempt to justify the price,” the fund manager said.

Mr Allen also pointed to the high development earnings that Westfield Group received from its developments compared with WRT under the current structure. Mr Allen said the Australian arm of Westfield had $1.5bn-$2bn in development opportunities on the table.

He also batted away questions on the group’s sales growth prospects over the next three years.

Over the past few years, Westfield’s local sales growth has been lacklustre, with turnover growing 2 per cent in the December quarter, while both Westfield Retail Trust and Westfield Group’s profits fell due to the weak performance of its Australian arm.

WRT’s shares closed up 3c yesterday at $3.05. Westfield closed down 9c at $10.18.