Westfield Retail Investors May Not Support Split, CLSA Says

Westfield Group’s plans to split its domestic and international businesses may not succeed, according to a CLSA Asia-Pacific Markets survey of investors in the company’s managed property trust.

About 58 percent of Westfield Retail Trust shareholders who responded to the survey would vote against the proposal in its current form, even though a majority believe the restructure would create companies superior to the existing ones, said CLSA. The independent brokerage elicited 42 responses from 265 surveys it sent out, representing 26 percent of Westfield Retail shareholders, it said.

“Investors appear generally supportive of the long-term strategy,” John Kim and Sholto Maconochie, analysts at CLSA, wrote in the survey report. “But it needs to be at a more favorable price for Westfield Retail shareholders.”

Westfield, Australia’s biggest mall operator, in December proposed combining the stakes it holds in shopping centers in Australia and New Zealand with those owned by Westfield Retail to create the self-governing Scentre Group. While Westfield didn’t say how much shareholders would pay for its management rights, the difference between the valuations of Westfield Retail and Scentre puts that cost at about A$1.9 billion ($1.8 billion), Stuart Cartledge, managing director at Melbourne-based Phoenix Portfolios, said in February.

Westfield spokeswoman Anita Sulentic didn’t immediately respond to an e-mail seeking comment.

Too high a price for management rights of Scentre, a considerable increase in debt as a proportion of assets and dilution to the value of the trust’s assets were cited as the three biggest reasons for a possible vote against the plan.

Westfield Group shares rose 0.8 percent to A$10.36 as of 12 p.m. in Sydney, extending gains this year to 2.7 percent. Westfield Retail shares climbed 0.7 percent, equaling this year’s increase. The benchmark S&P/ASX 200 Index has advanced 1.2 percent in 2014.

New Companies

About 55 percent of Westfield Retail investors said Scentre would be an improvement on the current trust, and 57 percent of Westfield Group shareholders said Westfield Corp., the overseas-focused version of the company co-founded by billionaire Frank Lowy, would be better, according to the survey. About 63 percent of the respondents are currently investors in Westfield Retail.

Westfield needs the support of 75 percent of shareholders for the restructure to proceed. The Sydney-based company will hold an investor day on April 2, an explanatory memorandum is expected to be released around April 29, and the retail trust’s shareholders will vote on May 29, according to CLSA.

Split Proposal

Under the plan proposed in December, Westfield Retail shareholders will receive A$285 and 918 shares in the new Scentre for every 1,000 of their shares. The cash component equates to an A$850 million capital return, according to the statement. Westfield Group shareholders will get 1,000 shares in Westfield Corp. and 1,246 shares in Scentre for every 1,000 securities held.

The restructure would allow Westfield Corp. to concentrate on higher-return activities including development and funds management. Lowy, Australia’s fifth-richest individual with a net worth of A$5.3 billion, according to the Bloomberg Billionaires Index, will be chairman of both new entities under the proposal.

A lower price for the management business, a lock-up of the Lowy family’s 8.6 percent stake in the parent company and the reduction of Scentre’s proposed 38.2 percent gearing ratio -- up from Westfield Retail’s 22.4 percent as of Dec. 31 -- would make the proposal more palatable to the trust’s shareholders, according to the survey.

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