The plan to split Westfield’s global property empire has prompted calls from international investors for the proposed $US17.6 billion ($18.83bn) Westfield Corporation to be listed in the US.
The move would be opposed by local property securities managers keen to keep as many real estate investment trusts as possible listed on the Australian Securities Exchange as a wave of takeovers ripples through the sector, leaving less choice for investors.
Westfield Group chairman Frank Lowy told an investor meeting earlier this month that the group was yet to make a decision about any potential offshore listing, but it is understood that international fund managers have raised the issue with the group.
They are attracted to Westfield Corp, which would own the retail portion of the $US1.4bn World Trade Centre development in New York and British retail property gems Westfield London and Westfield Stratford, as well as having a $US9bn pipeline including London’s Croydon in joint venture with Hammerson and a Milan venture with Gruppo Stilo.
Independent analyst Green Street — which has reservations about the pricing of Westfield’s Australasian management platform — has endorsed the concept of the split, which would create a higher growth international vehicle more appealing to global investors. “It makes a whole lot of sense for the two entities to exist and operate independently from one another,” DJ Busch, an analyst at Green Street, said.
He predicted that if the vote to create the Australasian-focused Scentre was successful tomorrow, there would be high demand from US investors for Westfield Corp.
He welcomed the split as it would allow the global investment houses that dominate the real estate investment trust sector to choose the exposure they took to Australasia and the rest of the world, rather than holding a blended exposure.
“When we explained Westfield Group to our clients, that was one of the negatives,” he said. Westfield’s skills as a retail operator and in mixed use projects had won plaudits. “It would make a tremendous amount of sense to be listed in the US,” Mr Busch said, adding that Westfield Corp’s size meant it would be welcomed into major REIT indexes.
US REITs trade at higher multiples than A-REITs and he said a US listing would provide access to deep pools of capital, “probably more so than in Australia”.
However, one international manager cautioned that the bruising fight to split the $70bn global property empire may mean the new group, if approved by a narrow vote, was viewed cautiously.
Westfield has experience in the US listed markets and it has been suggested it could fund its signature developments by offloading smaller centres. JPMorgan analysts have tipped a further seven non-core US assets will be sold this year.
The brokerage has suggested selling off about $US1.2bn of non-core US properties would materially lift the asset quality and leave Westfield’s best 13 centres, including World Trade Centre, comprising about 70 per cent of its US portfolio.
Westfield will pour $US1.425bn into the New York project and JPMorgan said it expected the completed asset would comfortably sell on a sub-5 per cent capitalisation rate.
By the time the project opens next year, Westfield expects the roster of retailers to be filled.
“We only have 365,000 square feet of space,” Peter Lowy, co-chief executive of Westfield Group, told The Wall Street Journal this month. “We could have leased it three or four times over.”
One Sydney-based fund manager, who supports the Westfield split, told The Australian that the sale of a half stake in the completed New York development could bring in profits of up to $400m.
Brokerage CLSA had argued that Westfield Corp may trade more in line with its US peers should it choose to list there.
Analyst John Kim wrote last week: “We believe Westfield Corporation will ultimately be compared more with Simon Property Group once it relists on the NYSE (in our view).”
He said that Simon had a clear advantage in the US over Westfield Corp but that gap closed when Westfield London and Stratford were included.