Westfield shops for premium with $28 bln carve-up

December 4, 2013

By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Westfield is shopping for a premium with its A$30.3 billion ($28 billion) carve-up. Just three years after its last big reshuffle, the shopping mall giant is separating assets in Australia and New Zealand from outlets in the United States and Europe. The cleaner structure may allow Westfield to command a higher valuation.

The move creates two new ASX-listed companies. Local assets, currently split between Westfield Group and separately-quoted Westfield Retail Trust, will be spun off into a new company called Scentre Group. Trust shareholders get 48.6 percent of the new company and a total of A$850 million in cash. The remaining international assets, which include 39 malls in the United States and six in Europe, including two giant outlets on either side of London, will be hived off into a new company called Westfield Corporation. The new pair will share the brand and a chairman but not much else.

For Westfield Retail Trust, which had a market value of A$8.9 billion before the deal was announced, the benefits rest mainly on financial engineering. It will be transformed from a passive rent collector into an independent company with full control of its assets. Scentre’s debt to total assets will be 38.2 percent – almost double the trust’s current ratio – though that could be reduced by bringing in more third-party funding.

The carve-up looks more attractive for Westfield Group, which was worth A$21.5 billion before the deal. After shedding the local operations, two thirds of its assets under management will be in the United States. Westfield Corporation will report its earnings in U.S. rather than Australian dollars, and pay dividends in the U.S. currency, shielding investors from exposure to the depreciating Aussie dollar.

The likely hope is that the new company will command a multiple more in line with its overseas rivals. For example, U.S.-listed Simon Property Group trades on 17 times forecast earnings for the next twelve months after excluding the effects of depreciation. Westfield Group trades on 15 times, and the discount is even bigger on a historical basis. Though Westfield may need to list its shares in London or New York to further increase its appeal, the company clearly expects investors to shop until they drop.

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