Tough times for the already struggling property sector.
Westfield shares fell after raising $2.9 billion in new capital, almost a billion dollars was exposed in Raptis Group’s second failure in 20 years and Singapore-controlled Australand has been forced to scale back its business plans after an 85% slump in earnings in the latest period.
Westfield shares fell around 12.4% to $10.60, 10c above the discounted placement price, from last Friday’s close of $12.10.
The group got the money, but from broker talks, there was a bit of a struggle and yesterday one of the underwriters, ABN Amro, placed the stock on a sell rating, which will raise eyebrows.
In a morning note to clients, the firm said despite the $2.9 billion raising, it leaves Westfield ”with insufficient balance sheet firepower to pursue value added mergers and acquisitions”.
That was despite the impression in Westfield’s statement that it was raising money with one of the aims to have enough firepower to do deals. That was certainly the way some of the Wednesday media reports read.
ABN Amro said as the founding shareholders, the Lowy family, are ”prepared to be diluted under the deal, we believe this transaction is a negative signal to the market. We move to a sell,"
The Lowy’s didn’t participate in this issue and their stake has fallen from around 9% to 8%. They were not allowed under market laws, but participated in the June 2007 issue because there was a retail component. They put $300 million into that issue.
A total of 279,190,500 securities were placed with institutional investors yesterday at $10.50 per security, compared with the more than $19 price in the 2007 issue. The latest issue was close to the 15% limit of Westfield’s issued securities.
Westfield’s directors said in a statement to the ASX that the issue was oversubscribed, with 230 institutions taking part and more than 80% being allocated to existing security holders.
Analysts expect the drain on the rest of the property trust sector to continue as fund managers sell down to raise cash for the Westfield placement.
As a result of the expanded capital base, Westfield has warned its 2009 distribution will be closer to 94c per security, compared with the 106.5c investors will receive for the year ending December 31.
That was the second earnings downgrade issued by the retail giant in a week.
Tuesday of last week there was a 9% cut to 97c per security for the 2009 year. So far the company hasn’t explained why they didn’t announce the issue last week, when it also cut $3 billion from market valuations.
The company is expected to reveal more revaluations (downwards) in its December 31 annual results in three weeks.
There are market expectations there will be more reductions in asset valuations in addition to the $3 billion announced last week, with some analysts forecasting a 30% cut in asset valuations on current book values, mainly from the US, Britain and New Zealand.
That could be worth up to $6 billion when the centres are marked back to market prices.
Westfield said last week’s $3 billion cut was offset by valuation changes upwards at December 31 because of the slump in the value of the Australian dollar had lifted asset values in Aussie dollar terms.
But for Australand, a trumpeted 7% rise in operating profit before write-offs and one-offs was a piece of blatant spin.
The fact is the company, like every one of its peers in the sector, is in the grip of a savaging as unrealistically high values in balance sheets are wound back.
And, because many of them headlined the gains on the way up, and are trying to play down the losses on the way down, the sector’s credibility is being hammered unnecessarily.
Westfield, for one was always pretty straight up and down in its reporting, stripping out the revaluations after mentioning them in headlines or opening paragraphs.
With Australand, the real story is the 85% slump in annual profit for 2008 because of the plunging value of its assets.
Australand on Wednesday reported net profit for the 2008 calendar year fell to $40.16 million, from $269.23 million in 2007.
It reported an unrealised loss from revaluations of $96.98 million and write-downs to residential development and inventories of $34.65 million.
That was after Australand’s net operating profit (excluding all those one-off items) rose 7% to $174.8 million, in line with guidance.
As always it pays to look at a company’s operating performance, but where the falls in value are in previously up valued assets, the operating performance has to be set aside.
Certainly, there was no sign of a forecast for a rise in earnings this year.
Managing director Bob Johnston told a briefing yesterday the outlook for the property sector in 2009 remained challenging, and would result in a 25% to 30% fall in annual operating earnings.
"But clearly, providing guidance in this environment is extremely challenging, and this guidance is subject to no further material deterioration in conditions,” Mr Johnston said.
"Despite the economic stimulus packages that have been put in place by the federal government, it is expected that 2009 will be even more challenging than 2008 for the property sector with further softening in demand and asset values continuing to have downward pressure," the company said in its profit statement.
"Reflecting the lower contribution from the development activities, 2009 group operating profit after tax, excluding unrealised gains/losses from property reval
