Comparative review

Westfield Group and Westfield Retail Trust have announced that they’re weakening ties with AMP Capital (a division of AMP Limited), which Westfield has partnered with for over 50 years. Diverging priorities between the companies about when and how to develop its jointly owned assets has resulted in a complex asset sale transaction involving eight properties (see Table 1).

Westfield Group has sold stakes in the Booragoon, Macquarie and Pacific Fair shopping centres for $547m, just below book values. It will increase its stake in centres in Knox, Mt Gravatt and Warringah, costing $344m. Westfield Group will bank $203m from the transaction, which will be used to fund future developments elsewhere. The centres at Warringah, Knox and Casey will also be rebranded ‘Westfields’ after the group paid $15m for the management rights. Earnings won’t be impacted from the transaction and the group remains on track to pay 49.5 cents per security in distributions this year. The security price has risen 10% since Westfield Group: Interim result 2012 from 15 Aug 12 (Hold – $9.63) as investors seek income-focused investments. HOLD.

Westfield Retail similarly sold stakes in Booragoon, Macquarie and Pacific Fair shopping centres for $547m, and increased its stake in Knox, Mt Gravatt and Warringah shopping centres for $344m. Additionally it also bought 50% of the Casey shopping centre for $24m. The net cash received by Westfield Retail is thus reduced to $179m. Westfield Retail also announced a $200m on-market buy back, which we support given the security price is trading at a decent discount to its net tangible assets of $3.37. Neither the AMP transactions nor the buyback will have a major impact on earnings. Westfield Retail’s security price has risen 13% since 6 Jun 12 (Hold – $2.78) and remains a HOLD.

Note: The model Income and Growth portfolios own Westfield Group securities.