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Westfield: Divesting majority of 8 US shopping centres

Westfield Group (ASX: WDC) today announced that it was selling a 90% interest in 8 non-core shopping centres in the US, and will receive US$1.15 billion. The company plans to use the proceeds to pay down debt initially, and to invest in higher return development opportunities in the US, such as the World Trade Centre.

The company will still own over 45 shopping centres in the US after the sale and 110 globally, including 43 in Australia, 12 in New Zealand and 5 in the UK.

Starwood Capital Group will own the majority interest of seven of the centres, with Westfield retaining a 10% interest in the seven.

The eighth centre, Eastland, California is being sold in a separate transaction for US$147m, expected to be finalised within 45 days.

Growing ROE and Earnings

Westfield Group Co-CEO Peter Lowy said “Today’s announcement represents a further step in our strategic plan to increase return on equity and long term earnings growth”.

With return on equity hovering around 9 per cent and return on assets around 4 per cent, the company definitely needs to do something to improve its returns. Earnings per share fell in 2011 to 61 cents, from 76 cents in 2010, and consensus forecast expect earnings in 2012 to be around 63 cents, which is what the company earned in 2009.

More of the same

This transaction continues Westfield’s recent strategy to introduce joint venture partners into the company’s assets. Westfield announced in February 2012, that it was selling interests in 3 non-core UK centres for £159m.

As part of the same announcement, the company also announced that it was joining forces with Canadian Pension Plan Investment Board (CPPIB), entering into a US$4.8 billion joint venture over 12 assets Westfield owns in the US. CPPIB will become a 45 per cent joint venture partner in the assets, and will generate approximately US$1.85 billion of net cash to Westfield.

The Foolish bottom line

Despite the company’s many attractive features such as world class assets, global reach and a very experienced and capable management team; with a return on equity of less than 10 per cent, return on assets around 4 per cent, and very little earnings growth, Westfield is not my cup of tea.

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More reading

Motley Fool contributor Mike King doesn’t own shares in Westfield. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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