Westfield Plans Rent Increase at London Mall to Lift U.K. Income

Westfield Group, the world’s biggest shopping mall operator by assets, said it will raise rents at its west London mall for tenants that include Apple Inc. and luxury fashion label Miu Miu, to boost U.K. earnings this year.

“Sales have been very strong,” Peter Lowy, co-Chief Executive Officer of the Sydney-based company, said in a telephone interview today. “The retailers at Westfield London have had five years of trading now, they’ve been doing very well, and now it’s time for the rents to catch up to the sales revenue.”

Westfield expects comparable net operating income in the U.K. to jump as much as 5 percent for the year ending Dec. 31, after recording a 0.2 percent increase in the six months ended June 30, it said in a regulatory filing today.

Retail sales at Westfield London rose 1.9 percent to 970 million pounds ($1.5 billion) in the first half from the previous six months, and were up 7.3 percent to 965 million pounds at its Stratford City mall for the same period, it said. The rent increases will be implemented following five-year reviews with tenants at the mall, which was completed in 2008, Lowy said.

“If I was a retailer, I’d be pretty nervous,” Stuart Cartledge, Melbourne-based managing director of Phoenix Portfolios, said by telephone today. “They’ll be asked for a pretty big rent rise to deliver the 4 percent to 5 percent growth that Westfield’s forecasting.”

London Expansion

U.K. retail sales rose 1.8 percent in the three months through July from the previous quarter, the most since March 2004, the Office for National Statistics said. Recent surveys of services, manufacturing and construction all showed improvements in July.

Westfield shares slipped 1.2 percent to A$11.00 as of 1:06 p.m. in Sydney, shrinking gains this year to 4.2 percent.

Westfield is proceeding with an expansion of Westfield London, at White City, after receiving approval for more than 500,000 square feet (46,452 square meters) of space, including a department store and about 200,000 square feet of smaller stores, Lowy said. Westfield also has approval for 1,500 apartments on the site, where it expects to begin work near the end of 2015, he said.

“We’ve been conceptually planning this from long before the mall even opened,” Lowy said. “We’ll work over a number of years to create value from the apartments. You can sell it as a development that’s ready to go, an apartment developer builds the flats, puts the money in it and sells it, or we might joint venture it.”

Geographic Breakdown

The U.K. accounted for 14 percent of assets under management, the U.S. 30 percent, Australia 52 percent and New Zealand 4 percent as of June 30, Westfield said today.

With as much as half of earnings coming from outside Australia when borrowings are accounted for, the home currency’s decline against its U.S. and U.K. counterparts helps Westfield, Lowy said. The Australian dollar fell to a low of 88.48 U.S. cents this month from a high of $1.0582 in April. It weakened to 57.2 pence from a 2013 peak of 69.6 pence in March.

“You need the currency to have fallen for a sustained period of time for it to be seen in earnings,” he said.

Funds from operations at Westfield slipped 3 percent to A$729 million ($654 million) in the six months to June 30, as A$4.9 billion of asset sales in 2012 and 2013 cut property income. Net property income, adjusted for the divestments, rose 6 percent, and management income rose 7 percent, as assets under management soared 10 percent.

More Projects

Westfield now has A$2.8 billion of development projects in progress, including the retail part of the World Trade Center in New York to be completed in 2015. It has a further A$12 billion planned, including a mall in Milan that it is developing in partnership with Italian firm Gruppo Stilo, the expansion of Westfield London and Century City mall in Los Angeles, it said today.

“Starting in 2015, we’ll start rolling out those starts,” Lowy said.

The company expects to sell about A$1 billion of malls in the U.S. in the next 18 months, and continues to consider investments in Brazil after announcing a decision to dissolve its joint venture with the Almeida Junior Family in April, he said.

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