Westfield Retail Trust, the Australia and New Zealand mall owner being carved out of Westfield Group, raised A$2 billion ($1.98 billion) in a share offer, 43 percent below the total it had sought.
Investors paid a fixed A$2.75 a share, the company said in a statement to the stock exchange, with demand exceeding the underwritten portion of the sale by A$250 million. The company had sought to raise as much as A$3.5 billion from selling shares in the new trust, which will own 50 percent stakes in Westfield Group’s 54 Australian and New Zealand shopping centers.
“There doesn’t seem to be much excitement in the Westfield Retail Trust deal,” said John White, who helps oversee $3 billion as Melbourne-based managing director for Asia-Pacific public real estate securities at property management firm Heitman. “The valuation is not that compelling.”
The new trust, announced on Nov. 3, partially reverses a merger of Westfield’s three businesses six years ago that created the world’s biggest shopping mall operator. The Sydney-based company is seeking to boost returns for shareholders in a stock that remains at about half its February 2007 peak.
Standard and Poor’s affirmed its A- rating for Westfield Group and removed it from negative creditwatch, which it instituted after the company’s announcement about the creation of the new trust.
“The proposed demerger moderately weakens Westfield’s strong business risk profile,” Paul Draffin, an S&P analyst, said in a statement today. “Nonetheless, we consider that Westfield will remain one of the largest, highest-quality, and most geographically diversified global retail property groups.”
Westfield Group shares climbed 0.4 percent to close at A$12.33 in Sydney.
Westfield Retail Trust (WRT), which will have A$12.2 billion of assets, including stakes in the Bondi Junction mall in Sydney and the Doncaster center in Melbourne, is expected to start trading on the Australian stock exchange on Dec. 13, following a shareholder vote on Dec. 9, the company said. The money raised for the trust will go to Westfield Group to pay for the assets.
Existing Westfield Group holders will receive one Westfield Retail Trust share for each Westfield Group share they own, equating to A$7.3 billion, to compensate for the dilution to their investment, the company said last month. They also had the chance to invest in the new trust through the capital raising.
The share sale price is at an 11 percent discount to the trust’s net tangible assets, the company said on Nov. 3.
The new trust is most attractive to investors who are focused on a steady income stream without currency or other risks, said Peter Borkovec, Sydney-based investment analyst at White Funds Management, which manages A$350 million. For those seeking higher returns, Westfield Group (WDC) would be a better buy, he said.
“They split because they can get better return on equity for Westfield Group, with a lighter balance sheet,” Borkovec said in a telephone interview. “They’ve made it clear they’ll keep recycling assets and take on more development.”
Still, the return on equity for Westfield Group after the split will likely be closer to 10.5 percent, less than the 12.5 percent the company forecast, Simon Wheatley, an analyst at Goldman Sachs & Partners Australia Pty, who has a “sell” rating on the stock, wrote in a report today.
‘Better Growth Potential’
“We will most likely retain our Westfield Group shares and may look to sell our Westfield Retail Trust holding,” said Peter Reed, who helps oversee about A$500 million at Sydney-based PPM Private Portfolio Managers. “Westfield Group looks to have better growth potential, with the development side and also the overseas assets. That’s where the growth lies.”
Westfield merged its three entities -- Westfield Trust, which operated its Australian and New Zealand properties, Westfield America Trust, which held the group’s U.S. centers, and Westfield Holdings, which focused on development -- into the world’s biggest shopping mall group in 2004. The move was designed to make it easier to finance the group’s planned shopping mall projects and acquisitions, it said at the time.
Since then, the company has invested more than A$22 billion to expand its global business, about a third in acquisitions and the rest in developments, it said last month.
Westfield’s Australian and New Zealand shopping centers, which made up 47 percent of its portfolio, accounted for 56 percent of the company’s profit in the six months ended June 30. Its U.S. malls, which account for a similar proportion, contributed 39 percent to earnings.
The new trust’s creation “responds directly to significant market demand for a domestic trust,” Chairman Frank Lowy said on Nov. 3. “Rather than sell interests in our portfolio to outside parties, this proposal provides the opportunity for our security holders to participate in our joint venture partner and benefit directly from the ownership of our portfolio in Australia and New Zealand.”
Moody’s Investors Service put the company’s ratings on review following the announcement of the new trust on Nov. 3, citing an increase in Westfield Group’s risk profile as a result of the removal of half of its more stable Australian and New Zealand assets.
Westfield Retail Trust will have a separate management team, with Westfield Group acting as joint venture property and development manager, and as the entity responsible for the trust for no fee, the company said. While the trust and group plan to make most future investments together, they may pursue developments or acquisitions independently, managing director Peter Lowy said in a webcast investor presentation last month.
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