12/05/2013 | By Sarah Borchersen-Keto
Australian shopping mall giant Westfield Group (ASX: WDC) said it will become the sole owner of the World Trade Center retail premises by investing $800 million to acquire the 50 percent stake it doesn’t already own. WDC also announced that it would split off its international operations from its Australian and New Zealand assets by creating two separate entities.
WDC acquired the 50 percent stake in the World Trade Center retail premises from the Port Authority of New York and New Jersey. WDC’s total investment in the World Trade Center site will exceed $1.4 billion following the transaction, which is expected to close within the next 30-45 days. The initial phase of the retail complex, comprising 365,000 square feet of retail space, is scheduled to open in 2015.
Meanwhile, WDC also said it plans to merge its Australian and New Zealand operations with Westfield Retail Trust into a new business, to be known as Scentre Group. WDC’s U.S. and primarily U.K.-based European operations will form a new entity, Westfield Corporation.
Scentre Group and Westfield Corporation will both be listed on the Australian Stock Exchange, and will have separate boards and management teams.
“Westfield’s international business and its Australian/New Zealand business have both grown in scale and quality to the stage where they can now stand on their own,” Frank Lowy, WDC chairman, said. Lowy will become the chairman of both new entities.
Current co-CEOs of WDC, Steven Lowy and Peter Lowy, will be co-CEOs of Westfield Corporation. Peter Lowy will step down as CEO after the transition period, expected to be about 18 months, but will remain on the board as a non-executive director. Michael Gutman, currently managing director for U.K./Europe and New Markets for WDC, will become President and COO of Westfield Corporation. Peter Allen, currently WDC CFO, will become CEO of Scentre.
Once the restructuring is complete, Scentre Group will be the leading internally-managed Australian/New Zealand-focused shopping center REIT, with a portfolio including 15 of the top shopping centers in Australia, according to the company.
Westfield Corporation, meanwhile, will have total assets of $17.6 billion, with interests in 44 shopping centers in the U.S. and Europe, and annual retail sales of $18 billion. In addition to the World Trade Center retail site, the group has a future development pipeline totaling $9 billion, including projects in London, Milan and Los Angeles.
According to Green Street Advisors, the restructuring makes sense at first glance. A Green Street report by Cedrik Lachance, Daniel Busch, and Spenser Allaway, notes that by separating the assets by region, Westfield will create less complex companies once the deal closes in mid-2014. The fact that the two companies will be independent and internally-managed will alleviate concerns regarding potential conflicts of interest and fee exchanges, the Green Street authors said.
“Westfield Corporation will be a high-productivity portfolio. Operating metrics stack up well with those of the high quality U.S. REITs, although the ownership of spectacular London properties lifts the results,” Green Street wrote.