Westfield tested with mall revamp

Waiting pays off for Glenfield in signing up big-name tenants, writes BOB DEY.

Australian shopping centre developer and manager Westfield sets in motion its programme to change New Zealand retailing this week, with a start on the $100 million redevelopment of the Glenfield Mall.

The Glenfield job has been a long time coming. The mall got a $580,000 makeover in 1991 and a major expansion has been threatened ever since. It was projected in St Lukes Group's prospectus at the end of 1993 and a $90 million expansion project was announced in 1995.

But at that time the mall would not have got a Farmers store and since then K-mart had cut back on New Zealand expansion plans.

Two more fundamental changes have occurred. Westfield Holdings, the Australian listed parent company of the Westfield group, controlled by the Lowy family, took charge of the St Lukes portfolio in 1997, putting it in control of shopping centre management and also of development.

Secondly, the controlling shareholding in St Lukes was sold late last year by BT Australia to Westfield Trust.

St Lukes' new chief executive, Victor Hoog Antink, came to Auckland after setting up Westfield America Trust and immediately reviewed all plans for the St Lukes portfolio, including the idea of adding multiplex cinemas to many of its shopping centres.

The cinema plans remain on foot, but do not include Glenfield, where the redevelopment will take the mall to the limit of the approval without cinemas.

The North Shore mall will get a fourth anchor tenant, the same as the St Lukes centre, and the redevelopment plans will take it from about 50 shops in 17,800 sq m to 118 shops in a total 30,000 sq m. Earlier plans would have taken the number of shops to 100, but in more space - 32,000 sq m.

The green light for expansion at Glenfield follows a capital notes issue for $150 million, closed last week with $25 million of oversubscriptions, and signing of contracts with upper-level anchors Farmers and The Warehouse.

Westfield, which has the contract for the development, immediately closed the adjoining service station to erect contractors' huts, and has an 18-month staged construction programme designed to allow trading to continue.

"It's a brand-new centre - everything changes - but we'll keep it trading through," says Westfield NZ director Grant Hirst.

Westfield has run some small building contracts in New Zealand but this is its first large one. The new Glenfield will have two levels of covered parking on the existing open parking slope, the lower level lining up with the existing parking under Big Fresh and the other taking shoppers straight into the level of Big Fresh, Foodtown and mostly service specialty stores.

On the upper shopping level, the L-shaped mall will have Farmers, a fashion area leading to it, and The Warehouse with lifestyle retail leading to it, plus a 650-seat foodcourt with 11 outlets.

Westfield NZ director Grant Hirst talks of the best in finishes and design for the new-look mall, while Hoog Antink says the more sophisticated level of ambience is hard for New Zealanders to relate to because of the lack of new mall development to benchmark against.

Completion of the notes issue allows St Lukes to repay the 100 per cent debt-funded purchase of the Queensgate mall in Lower Hutt, where expansion is also possible.

Hoog Antink says the re-evaluation of the portfolio "is not the sort of thing where you roll them out," but a programme with about five years from the start of design to completion.

Planning for Glenfield and other St Lukes centres had gone through that first design stage in the two years since Westfield took over portfolio management and it then came down to priorities. Generally, another two years would be allowed for delivery of either a new centre or an upgraded one, with the last year for stabilisation.

"The signal this is sending is: We're here, we're here to make a statement and this is where retail is heading,"says Hoog Antink.

St Lukes estimated four years ago that the failure to upgrade Glenfield was allowing $165 million a year of consumer spending to "leak" across the harbour bridge to Auckland City. Two smaller malls have been built at Milford and Birkenhead since then and returns from the Glenfield mall have stayed low -$3.3 million net income off $94.8 million turnover last year, capitalised at a weak 10.75 per cent for a shopping centre value of $30 million.

By comparison, WestCity was capitalised at the same figure as Glenfield when St Lukes issued its prospectus in 1993 - 11 per cent on core income - and after a major expansion was valued in the 1998 annual report at $20 million above the $57 million cost, on a 9.25 per cent capitalisation rate.

The planning for that was done by the old inhouse St Lukes team. Glenfield will be the first test of where the Westfield-dominated management can take the group.