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Westfield Plans $4.8 Billion Canada Pension Venture, Buyback

Westfield Plans $4.8 Billion Canada Pension Venture
Westfield Group has turned its focus to mall developments and new markets after the spinoff of Westfield Retail Trust in December 2010 freed the parent company to pursue higher-return projects at home and overseas. Photographer: Ian Waldie/Bloomberg

Westfield Group said it had formed a $4.8 billion joint venture with the Canada Pension Plan Investment Board and plans to buy back as much as 10 percent of its stock, sending its shares up the most in 2 1/2 years.

Westfield, which today posted second-half profit that jumped fivefold, said Canada Pension will become a 45 percent joint-venture partner in a portfolio of 12 U.S. properties.

“This is a good outcome,” said John White, who helps oversee $3 billion as Melbourne-based managing director for Asia-Public real estate securities at Heitman, an investment firm. “Westfield retains control and gets excess capital that they can reinvest into their pipeline and into a buyback.”

Westfield Group has turned its focus to mall developments and new markets after the spinoff of Westfield Retail Trust in December 2010 freed the parent company to pursue higher-return projects at home and overseas. The group expanded into Brazil and Italy last year, and took on the development of the retail part the World Trade Center site in New York City.

Westfield Group’s net income climbed to A$881.8 million ($943 million) in the six months to Dec. 31, from A$153.1 million a year ago. The result was obtained by subtracting first-half earnings from the full-year profit of A$1.53 billion the Sydney-based company reported today.

Westfield Group shares climbed 5.3 percent to A$8.81 at the close of trading in Sydney, the most since August 2009. They’ve risen 13 percent so far this year, compared with a 4.9 percent gain the benchmark S&P/ASX 200 index.

New Ventures

“We have expanded our operating platform globally and reduced our capital invested by entering into strategic joint ventures and disposals of non-core assets,” Peter Lowy and Steven Lowy, the group’s co-chief executive officers, said in a statement. “These initiatives provide the group with approximately A$9 billion of capital for redeployment into our higher return opportunities.”

Credit-default swaps on Westfield dropped 5 basis points to 190 as of 9:59 a.m. in Sydney, Deutsche Bank AG prices show. That’s heading for the lowest daily closing level since Aug. 16, according to CMA.

Westfield Retail Trust, which owns a 50 percent stake in the company’s Australian and New Zealand malls, today reported a profit of A$851.7 million in its first full year of operations. It will pay out all its distributable earnings from 2012 onwards, it said today.

Joint Venture

For Toronto-based Canada Pension, the partnership with Westfield will be its biggest real estate investment so far, and make the fund one of the biggest institutional owners of regional shopping centers in the U.S., Graeme Eadie, senior vice-president for real estate investments at the pension fund, said in a separate statement. Westfield will continue to manage the malls, it said.

Canada Pension, the country’s second-biggest retirement fund, has C$14.4 billion of real estate investments including shopping malls in Australia, Brazil, Germany, the U.K. and U.S. among its C$152.8 billion of assets as of Dec. 31, according to Feb. 10 quarterly financial statements.

Moody’s Review

Moody’s Investors Service said today it placed Westfield Group’s senior unsecured rating and short-term rating on review for possible downgrade because of the share buyback.

“Although Westfield has a number of strategic transactions in train which provide it with capital to initiate a share buyback, the application of such capital raising to shareholder-friendly measures rather than direct debt reduction or recycling into other income producing assets represents a weakening of debt holders interests,” Maurice O’Connell, a Sydney-based Moody’s senior analyst said in a report.

Westfield Group will also sell its interests in three shopping centers in the U.K for 159 million pounds ($250 million), it said today. The sale is part of the group’s plan to focus on its bigger malls including Westfield London and Stratford City, the company said.

Full-year revenue from Westfield Group’s development and management business surged to A$1.9 billion, from A$216 million a year ago. Total revenue rose 10.5 percent to A$4 billion.

The group will pay a dividend of 48.4 Australian cents for the full year, Westfield said. Funds from operations for 2012 are expected to be 68 cents a share, and it plans to pay out 49.5 cents a share in the year, it said.

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