Westfield Group’s (WDC) plans to split the empire for a second time in four years continues to worry investors and credit raters.
Rumours continue that big investors in the Lowy Family controlled shopping centre empire remain unhappy at the plans, especially the cost and the way the local arm will lose value, as well as the gearing of the local arm.
And ratings agency Moody’s Investors Service yesterday maintained its review of the group for a possible downgrade that was announced on December 4 last year, when the split up was first revealed.
In an update, Moody’s analysts says after the proposed restructure, Westfield would be left with the international business, ”that is excluding the Australian and New Zealand assets”, which would weaken the group
The likely downgrade of the issuer rating to A3 would reflect Westfield’s weaker credit profile as a result of the lower asset quality, narrower asset base, and diversity, Moody’s said.
"The resulting asset base will be around half of the existing book value, and Westfield Group (to be renamed Westfield Corporation under the proposed restructure) will lose high quality Australian assets that have maintained occupancy rate of 99% over the past decade".
"These features have provided material support for Westfield’s ratings.
"If the proposed transaction is completed as announced, Westfield’s issuer rating will likely be downgraded by 1 notch to A3," Moody’s said in yesterday’s update.
WDC 1Y – Westfield split: Credit ratings remain under pressure
Moody’s Maurice O’Connell said the new Westfield Corporation has a significant pipeline of large development projects which has the potential to increase financial leverage, ”although we expect that capital recycling, retained earnings and staged commencements will allow developments to be undertaken in a prudent manner without placing undue pressure on financial metrics”.
”We expect Westfield Corporation’s business profile to remain strong reflecting the improving quality of portfolio assets in the US and the high quality of the two London assets following the impending sale of three regional UK assets,” Mr O’Connell said.
In the UK, Westfield London was given approval for a $1.8 billion expansion, to make it one of the world’s biggest malls.
The extension will include another 61,840 square metres of retail space, 8,170 square metres of restaurants and cafes, up to 1,522 new homes as well as 3,500 square metres of ”leisure facilities” (including cinemas) in one of the shopping centre giant’s largest redevelopments to date.
Construction is expected to start in early 2015 and be completed in 2017.
Westfield is seeking shareholder approval to split the empire into a newly-formed Westfield Corp, which would focus on the international business in the Northern hemisphere and a new group, Scentre – which would replace WRT – would own and manage the Australian and New Zealand shopping centres.
Documents for the proposal are being dispatched to shareholders about April 20, with a meeting to approve the scheme slated for May 29.
Investors in Westfield Retail Trust (WRT) have complained about the deal, saying they want a ”sweetener” to get it over the line.
Recent media reports said a survey conducted by broking group, CLSA, shows that more than half of surveyed WRT (the new Scentre) investors will vote the scheme down in its current form.
The respondents say they want to see a lower price for the management of Scentre that is being paid to Westfield Group; for the plans the Lowy family have to maintain some ownership, and lower gearing in Scentre.
Westfield Group units rose 4 cents to $10.46 yesterday and those of the Retail Trust fell 3 cents to $3.01 yesterday.
