Newly formed shopping mall heavyweight Scentre Group has moved quickly to capitalise on favourable debt markets by hiring investment banks BNP Paribas and Deutsche Bank to arrange meetings with European investors.
The move comes ahead of a NSW Supreme Court hearing today to approve Scentre’s creation, through the merger of Westfield Group’s Australian and New Zealand assets and operating platform with Westfield Retail Trust.
Westfield ushered in the post-Lowy era for the local malls after a shareholder vote in Sydney on Friday narrowly approved the reshaping of the $70 billion global shopping mall empire.
The split into an independent local arm called Scentre will leave Westfield Corporation to pursue international ambitions in the US, Britain, Europe and Brazil.
Both start trading on Wednesday. Frank Lowy will chair both groups and the family will have significant stakes in them.
Scentre is expected to be rated A1 by rating agencies Moody’s and A by Standard & Poor’s and it could tap eurobond markets shortly.
Scentre’s creation came after weeks of intense lobbying for the proposal by investment bank UBS on behalf of the Dick Warburton-led WRT board that saw the 76 per cent of investors who voted back the deal.
However, Macquarie Securities downgraded WRT, warning that Scentre would have a subdued earnings growth profile that may also be hit by dilutive asset sales.
Investors have cautioned that Scentre will face headwinds, including weakness in consumer spending and the shift to online shopping that is hitting smaller malls, despite its cleaner structure.
Designated Scentre chief executive Peter Allen declined to be drawn about the detail of asset sales after Friday’s vote to create the group, but the trust is likely to sell off some of its more vulnerable malls as it looks to trim gearing from about 37 per cent.
The Macquarie analysts said that Scentre was “susceptible to further downside risk on the back of dilutive asset sales and the distribution growth profile will be restrained due to an excess over cashflow and a relatively highly geared balance sheet”.
CLSA analysts noted one potential upside from sales of stakes in Scentre’s more desirable malls, which are more likely to appeal to global pension funds, where the group would also seek to keep lucrative management contracts.
“We believe the most significant upside will come from cap rate compression as Scentre sells down interests in several of its assets at premiums to book value at sub 6 per cent cap rates,” analyst John Kim said.
Macquarie Securities suggested that Westfield Corp’s focus on overseas markets with more higher returning development activity would deliver higher earnings growth and return on equity for that group.
It will benefit from projects such as the recently unveiled $US700 million overhaul of Westfield Century City in Los Angeles, which is set to be unveiled in 2017 and will have a greater impact on the separate international group.
Mr Kim has argued that Westfield will ultimately list in the US, where it would be compared with the highly regarded Simon Property Group. “Typically, US REITs trade at higher multiples than A-REITs … and we believe Westfield Corporation may trade more in line with its US peers should it choose to list there,” he wrote.
But any such move could be contested by small shareholders, who may not want to hold an offshore stock due to governance concerns.
The Australian Shareholders Association said it would campaign against any further governance transgressions as the rebadged Westfield explored an offshore listing and what may finish as a change of domicile.
“ASA will strongly oppose any move to Delaware where it really is a case of ‘anything goes’ with common entrenchment tactics such as dual-class voting, poison pills and constitutional amendments without reference to shareholders,” ASA policy and engagement co-ordinator Stephen Mayne said.
Westfield shares rose 1c to $10.81 on Friday, while WRT was unchanged at $3.21.