Westfield US asset sales viewed as positive move
According to analysts, the group's move to sell half-shares in six malls 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), share-buy program and expansion of new online technology.
David Lloyd, a real estate analyst at 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. Furthermore, we expect similar-style transactions to materialise throughout calendar 2013," he said.
"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 US$6.3 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 sell-down of its interests also triggered another round of speculation that Westfield may look to sell the office tower at 85 Castlereagh Street, Sydney.
The group's co-chief executive, Peter Lowy, has said the office assets were integral to the portfolio, but analysts say that with high demand for quality office assets in Sydney, the temptation to sell at a high price may be increasing.
Frequently Asked Questions about this Article…
The Westfield sell-down refers to the group reducing its direct ownership in some assets by selling stakes to partners. The article says Westfield could raise up to $9 billion in the medium term from selling down direct interests, and analysts have also estimated the potential to sell a further $8.6 billion of assets across its established geographies.
Analysts say the sale of half-shares in six Florida malls to the O'Connor Capital group was a trigger for similar transactions elsewhere. The joint venture approach frees up capital while allowing Westfield to remain manager and retain exposure to the assets.
According to the article, proceeds from sell-downs would release funds for Westfield’s $12 billion property development pipeline (Westfield’s direct interest in that pipeline is about $4 billion), support a share-buy program, and fund expansion of new online technology.
As described by analysts in the article, a capital-light strategy means Westfield would reduce the amount of capital it holds directly in properties (by selling stakes) while keeping management roles. That can boost return on equity (ROE) because the business generates similar fees/returns with less equity tied up—something analysts viewed as a positive step for investors.
Following the O'Connor joint venture, Westfield’s US portfolio is heavily skewed toward California—about 51% of its US exposure, which the article says equates to roughly US$6.3 billion. Analysts note Westfield has yet to divest the majority of its Californian portfolio.
The article identifies O'Connor Capital as a buyer in the recent Florida deal and suggests that pension funds and sovereign wealth funds would likely find Westfield’s high-quality Californian assets attractive, according to analysts.
The sell-down talk has triggered speculation that Westfield might sell the Sydney office tower at 85 Castlereagh Street. Westfield co-CEO Peter Lowy has said office assets are integral to the portfolio, but analysts note strong demand for quality Sydney office assets could tempt a sale at a high price.
Analysts quoted in the article view the transactions as a positive evolution toward a more capital-light, higher-ROE REIT. For everyday shareholders that could mean Westfield frees cash for development and share-buybacks while remaining the manager of assets—but investors should note this view is based on analyst commentary in the article rather than a guarantee of outcomes.
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