NZ assets in new Westfield retail trust

Westfield is still facing opposition from the St Lukes Community Action Group to its plans to double the size of St Lukes mall. Photo / Herald on Sunday

Westfield Group is restructuring its retail property empire here and in Australia as it tries to boost returns to security holders by spinning off a separately-listed trust with half its Australian and New Zealand assets.

Westfield Group is to create Westfield Retail Trust, as part of a A$3.5 billion capital raising, which would become a joint venture partner in 54 of the group's shopping centres in Australia and New Zealand.

"We are very confident and looking forward to this transaction and there is a lot of expectation that this is going to be successful," Westfield Group chairman Frank Lowy told media in Sydney.

Westfield owns 12 New Zealand malls: Albany, Hamilton's Chartwell, Auckland CBD's Downtown, Glenfield, Manukau, 277 Newmarket, Pakuranga, Queensgate in Lower Hutt, Christchurch's Riccarton, Takapuna's Shore City, St Lukes and Henderson's WestCity.

Westfield wants to double in size its St Lukes mall, expanding it to become New Zealand's largest mall with more than 9ha of indoor shopping space.

The new Auckland Council was due this week to discuss this proposal, given the green light by independent planning commissioners but strongly opposed by the St Lukes Community Action Group which objected to the item even being on the agenda in the council's first week.

Lowy said security holders would benefit from the restructure from the creation of one of the largest listed Australian real estate investments trusts.

"This structure will enable us to make more money for our shareholders than before," he said.

In the restructure, the retail trust would own 50 per cent of Westfield Group's share of the applicable shopping centres.

Westfield said the new retail trust would offer A$3.5 billion of new units to eligible investors, of which A$1.75 billion had been underwritten.

The offer includes an initial public offer (IPO) seeking up to A$2 billion, and a Westfield security holder offer of up to A$1.5 billion. New units in the retail trust would be offered at A$2.75 each, which represented an 11 per cent discount to net tangible assets, an earnings yield of around 6.7 per cent and a distribution yield of 6 per cent.

The new entity would invest in New Zealand and Australian retail property, Westfield said.

It would have gross assets of A$12.2 billion and is expected to be lowly leveraged with a gearing ratio between 9.4 per cent and 24 per cent.

"This is an IPO - so you are actually taking an initial public offering of a new vehicle and they are typically done at a higher discount than when you do rights offerings of stocks to companies that already trade," Lowy said.

With Westfield Group and the new retail trust trading separately, the value of the two securities when joined would create value for the security holders.

"From the Westfield group point of view, as we said in the [analyst] presentation, our future capital needs have been decreased, going forward. And it will have retained earnings that will meet our future capital needs which will allow the Westfield group greater growth after the transaction than previously," Lowy said.

Existing security holders will be entitled to one retail trust unit for every 4.23 Westfield Group securities held.

Lowy said Westfield was yet to examine the possibility of pursuing beleaguered retail property investor Centro Properties.

"We have not looked at Centro in detail to be able to give you any kind of indication whether we are, or we are not, interested," he said.

International ratings agency Standard & Poor's Rating Services has placed an A- long-term credit rating on Westfield Group and its related debt issues on credit watch with negative implications following the proposed restructure.

"In our view, the Australian and New Zealand shopping centre portfolio is the highest credit quality asset portfolio within WDC," said S&P credit analyst Paul Draffin.