Institutional investors in Westfield Retail Trust calculate that they are overpaying by $1 billion to $1.5 billion under a current restructure proposal and want the Lowy family to adjust the ratio on the split of their shopping centre empire.
One fund manager with a significant holding in WRT says the current ratio of 0.918 Westfield Group shares per WRT unit would see investors pay about $3.5 billion for the empire’s property management business on an unusually high EBIT multiple.
“The deal is a negative for WRT shareholders. They need to adjust the merger ratio to move the deal into at least neutral territory,” one institutional shareholder said. The Lowy’s move to split Westfield’s international and domestic operations transfers 5 to 10 cents a share from WRT to Westfield Group, he said.
Westfield Group, which contains the international portfolio of centres, will be renamed Westfield Corporation. It will have total assets of $US17.6 billion in the US, UK and Europe and a $US9 billion development pipeline.
The separation will see Westfield Group’s Australasian business demerged and then packaged with Westfield Retail Trust, with Westfield Retail securityholders receiving $850 million in through a capital return and an aggregate 51.4 per cent of the new entity, to be called Scentre Group. The $850 million capital return is equivalent to a pro rata buyback of Westfield Retail Trust securities at $3.47 per security.
The $3.5 billion price tag on Westfield’s property management business implies a multiple of about 19.5 times EBIT – a far cry from splits seen as comparable, like the 10 times earnings multiple for the Commonwealth Bank of Australia's planned spin-off of the CFS Retail Property Trust.
“On the current merger ratio it appears they (WRT investors) are paying $1 billion to $1.5 billion too much, an EBIT multiple of even 12 times would value the property management business at $2.1 to $2.2 billion,” an institutional WRT shareholder said.
Westfield Group securityholders will get securities in the new Westfield Corp on a 1:1 basis as well as 1.246 Scentre securities for every Westfield Group security held.
Institutional WRT security holders are calling for the ratio to be put at or near parity for the deal, saying the Lowy family will be fighting a rear-guard action as they attempt to muster up the 75 per cent shareholder approval needed ahead of a vote in May.
Westfield Retail Trust will be the largest Australian REIT listed on the ASX, accounting for roughly 15 per cent of the sector. It will have $28.5 billion in assets. Frank Lowy will remain chairman of both operations.
Last year the Lowys sold their own stake in Westfield Retail for about $660 million.