Westfield: buy-back a missed opportunity

(Westfield, the Australian listed entity listed by Steve Lowy, built Westfield (White City) in London and also opened the new Westfield Stratford in the East End of London in October last year.)

February 15, 2012

Faster, higher, stronger is the Olympic slogan. Add bigger into the mix and you get Westfield, developer of the expansive shopping centre that hugs London's Olympic site in Stratford. But now the Australian property group, the world's biggest shopping mall developer by market capitalisation, is busy trimming its portfolio. On Wednesday, the controlling Lowy family said it would spin off a 45 per cent stake in some of its US malls to Canada Pension Plan Investment Board for nearly $2bn, and shed three malls in the UK to asset manager Hermes. In a tough retail market, the sensible move sent Westfield's share price up 5 per cent.

It is all part of the company's post-crisis slimline strategy. Westfield has already spun off a stake in its Australian and New Zealand malls and this latest move reduces its exposure in its next biggest market. It also frees up cash to invest as well as to fund a share buy-back for up to 10 per cent of shares (or about A$2bn at current prices). All told, Westfield has freed up A$9bn of capital since 2010, much of which it has spent on properties in Milan, New York's World Trade Center site, and chasing higher return opportunities in Brazil.

Having kept its head down during the financial crisis, which was particularly severe on Australian property groups, Westfield's re-emergence has relieved investors - its shares are up 13 per cent so far this year having fallen by half since 2007. The share buy-back, however, is a sideshow and, all else equal, boosts leverage. Net debt is currently a manageable 36 per cent of assets, and the new joint venture will offset some exposure. But if the Lowy family is so confident of the opportunities in emerging markets and other global centres, then rather than pointlessly handing cash back to shareholders, perhaps it should spend even more of its money to pursue them