Westfield has rescheduled the meeting of its retail trust on the group’s proposed $A70 billion restructure for Friday 20 June, in Sydney.
Meanwhile, the super fund which has pitted its 8.5% of Westfield Retail Trust against the desires of Westfield’s royals, the Lowy family, explained itself last Thursday in a backgrounder on its website.
The restructure has been opposed by UniSuper, a superannuation fund for people working in higher education & research, and by Commonwealth Bank of Australia property arm Colonial First State Global Asset Management.
UniSuper chief investment officer John Pearce laid out very clearly why the fund thinks the restructure is a very poor deal for investors in the trust, but why investors in both the trust & Westfield Group (historically the developer & asset manager) would think it was a good deal.
Mr Pearce wrote: “The difference between the proportion of assets Westfield Retail Trust is contributing to (new Australia-NZ entity) Scentre (69%) and the ultimate ownership (51.4%) is effectively payment for management rights that Westfield Group will relinquish to Scentre.
“The independent expert has deemed this to be a fair price, but we strongly disagree. The valuation ascribed by the independent expert implies a level of property development management fees, in perpetuity, which we simply cannot reconcile. The property experts we speak to agree. Suffice to say that we are far apart in terms of fair valuation.”
On the supposedly revised proposal, Mr Pearce added: “The new information appears to have been Westfield’s ‘plan B’, in the event that the proposal was not approved by securityholders. Plan B involves the establishment of a new company (for this update let’s call this ‘Scentre B’) housing the Australasian assets spun off by Westfield Group. Furthermore, it was made clear to members that Scentre B would be a very attractive company competing with Westfield Retail Trust (the “ugly sister” according to one journalist) in the marketplace for capital & assets. In other words, it could be viewed as a thinly veiled warning to potential ‘against’ voters.
“We hope that Westfield Retail Trust securityholders see through this. In our view, Scentre B will not be the attractive sister to Westfield Retail Trust —indeed we think quite the contrary. Scentre B, after incurring the costs of a restructure, will be highly geared and be forced to sell assets as investors demand lower debt levels. This would in itself be a great outcome for Westfield Retail Trust, given that it has pre-emptive rights (ie, first right of refusal) to purchase the properties.”
Mr Pearce said that, without the high level of common ownership of the 2 existing entities, “the proposal would have struggled to even get a simple majority in favour”.
For UniSuper, which started accumulating retail trust securities in early 2012 and has done very well out of the investment in the mall landlord – buying in at $A2.70, a 17% discount to asset value, price now $A3.20, total return 11.2%/year compared to 8.1% for the broader Australian equities market – Mr Pearce said what it was offered by the Lowy family was this: “In simple terms one could say we bought an apple, and now we are being asked to accept an orange.”
The vote will come at an adjourned meeting, not a new one – the original meeting on 29 May was adjourned after proxies fell short of securing approval. That followed a meeting of Westfield Group the same day, where the restructure won 98% approval.
The adjournment was to consider “the impact of material new information announced by Westfield Group” at the first of the 2 29 May meetings.
The trust board said: “Westfield Group has now indicated that if the revised proposal does not proceed, Westfield Group would pursue the separation of its Australian & New Zealand business without any involvement by Westfield Retail Trust.”
There isn’t in fact a revised proposal. Rather, it’s the original proposal of realigning Westfield Group & Westfield Retail Trust businesses & assets “or else”, and the “or else” is that Westfield Group would go it alone, most likely to the detriment of the trust.
Trust chairman Dick Warburton said the independent board committee believed “there is no prospect of an amended or enhanced deal being negotiated with Westfield Group. Westfield Group has indicated that if the revised proposal is unsuccessful, it will pursue the separation of its Australian & New Zealand business without any involvement by Westfield Retail Trust.
“This further strengthens our view that the revised proposal is in the best interests of (trust) securityholders.”
Assuming approval by the required 75% majority on 20 June, securities in the 2 existing entities would cease trading on Tuesday 24 June, and trading would open on 25 June in the new securities of Scentre Group (the Australia-NZ business) & Westfield Corp (the rest of the world), on a deferred settlement basis.
At this stage, getting over the 75% threshold can’t be assumed. Westfield Retail Trust securities closed at $A3.16 on Friday after hitting $A3.25 on 16 May, but there is bound to be buying by both sides to shore up positions before the meeting.
Link: UniSuper commentary
Attribution: Westfield releases, UniSuper.