Westfield New Zealand

Westfield Group has reassured investors it won't be burnt by the sub-prime mortgage meltdown, saying global demand for retail space is strong and sales still are up.

The world's largest shopping mall owner reported, in an investor briefing yesterday on its third quarter update, that its strategy of targeting affluent shoppers through its A$10 billion ($11.9 billion) future development programme, equipping malls for a higher quality shopping experience, should offer protection.

"Of course, we are probably not immune to fluctuation, but the reality is you have got to come back to what our business is - we are really focused on having the best shopping centres in the best markets," Westfield's joint managing director Steven Lowy said yesterday.  "These centres penetrate much more powerfully. You can see, out of the Australian and New Zealand business and with many US assets, where we have done that, we have been able to build centres that are a lot more immune to fluctuations.

"In slower times, they [retailers] keep the shops in the best centres and get rid of the more marginal shops. That is really what we have seen in the 47-year history of the company."

Westfield released figures yesterday showing occupancy levels at its malls across the globe remained above a tight 93 per cent in the third quarter and that leisure shops were doing the best in the weeks the credit crunch has taken hold, with retail growth levels of more than 14 per cent in both Australia and the United States.  Lowy said investors would have seen Westfield shift "not so suddenly" to developing and owning the best centres in the best markets.  "We have shifted our business in the United States to better quality assets," he said.

In Australia, Westfield's quarterly retail sales were up 5.6 per cent, in the UK, up 2.1 per cent, up 1.9 per cent in the US, and up 2.2 per cent in New Zealand.  Specialty store sales in the US had grown at 1.9 per cent in the three months, while in Australia, specialty store sales had grown at 7 per cent.  They were flat for the quarter in New Zealand, reflecting growing competition in Auckland.

"For the broader economic data coming out of the US, obviously, there are mixed signals regarding the strength of the economy," Lowy said. "[But] retail sales in the US and retail demand for space remains solid. Overall, on a sales per square foot basis, sales increased 4.4 per cent, from the same period last year."  Lowy said that, for the company's own portfolio, on a comparable basis, sales for the third quarter from the West Coast of the US were up 3.6 per cent, while the Mid-West and East Coast portfolios were flat.

"[In Australia], our shopping centre in Bondi Junction continues to power ahead from development completions, achieving current annual sales in excess of A$870 million at the end of September, with specialty store growth of 11.7 per cent for the nine months and 12.2 per cent for the quarter.  "The development of the mall in Chirnside, Brisbane, sees the centre now rank as the second highest grossing Westfield centre in the Australian portfolio for the September quarter.

Lowy said the retail sales slowdown was often not seen in retail rentals until nearly two years later.  "You need a long slowdown for it to affect rents," he said.  "We don't see any downward pressure on rents and would need a sustained slowdown to see one.

The world's largest shopping centre owner, Westfield, wants to expand here by developing more shops and adding to its $3 billion asset base. 

So says Stephen Lowy, 44, joint managing director of Westfield Group, here from Sydney yesterday for the opening of the $210 million Albany centre after a partial opening two months ago.  That new mall has 5.2ha of indoor floor space and although Prime Minister Helen Clark opened it yesterday, the 1800-seat cinemas will not open until next year.

Lowy said that in the last seven years, Westfield had spent an annual average $175 million and it planned to continue.  "We've got 12 centres here with a value in excess of $3 billion so on that alone, we'd be in the top 10 New Zealand companies if we were listed [here]."

Lowy is one of Australia's richest men, with his family's fortune estimated to be at least A$5 billion ($6 billion), second only to Australian publisher James Packer with A$7 billion.  Lowy, a son of Westfield founder and holocaust survivor Frank Lowy, is also a member of Prime Minister John Howard's Business-Government Advisory Group which consults on anti-terrorism strategies and national security issues.

The former US investment banker is president of Art Gallery of New South Wales, a director of the Victor Chang Cardiac Research Institute and a director of the Lowy Institute for International Policy. Westfield's annual report showed he earned A$8.4 million last year, up from A$4.9 million in 2005.

Lowy yesterday emphasised his company's expansion plans here, particularly at Albany where surplus land will allow far more shops to be built soon.  "It's endless. What limits us is only demand of the population," Lowy said.

Westfield is expanding its Newmarket centre, adding a multiplex cinema and further shops, he said. At Riccarton in Christchurch, it is developing a second level and the expansion of Manukau is being completed. 

But the growth here is being far outstripped by a global drive, with Westfield opening five new malls in the last month.  Four weeks ago, it opened the £340 million ($917 million) centre in Britain's Derby, followed by two new centres in Australia at Newcastle and Brisbane. Yesterday was New Zealand's turn with Albany and tomorrow Westfield will open a new centre in Annapolis, Maryland in the US.  "So that's about A$1.5 billion of shopping centres opened in four weeks."

To cater for that rapid expansion, Westfield was drawing many executives from New Zealand, Lowy said.  For example, John Widdup, director of Westfield New Zealand since 2001, has just been appointed to run Westfield America, in charge of 9000 shops in 59 centres worth US$18.7 billion ($24.2 billion). Widdup left Parnell for Sydney about two years ago but has now shifted to the US.  And Justin Lynch, an Australian at Westfield in Auckland for the last seven years, has stepped into Widdup's role. Lynch was this week appointed director of Westfield New Zealand.  Lowy said Jason James, a former leasing manager at Glenfield, had shifted to Britain to run the new Derby centre.

But Lowy baulked at the suggestion that Westfield developed formula-style malls which were much the same throughout New Zealand.  "I would strongly disagree with that. I don't think Albany's the same as any other centre. Every product we do, we challenge ourselves to make it better than the last one," he said.

Mall giant

• Westfield is the world's largest listed retail property group.
• Manages assets worth $73.1 billion.
• Malls in Europe, United States and Australasia.
• Owns 12 malls in NZ worth $3 billion.

Australian-based shopping centre operator Westfield Group reported a 7.4 percent rise in first-half operating profit on Wednesday, and said it was ready to start $A10 ($NZ11.83) billion worth of new projects.

Westfield, which has interests in over 121 shopping centres in Australia, New Zealand, Britain and the United States, said profit from operations, excluding property revaluations, rose to $A844 ($NZ998.69) million for the six months to June on constant currency basis.  "The key features of this result were a solid operational performance across the global portfolio," Managing Directors Peter Lowy and Steven Lowy said in a statement. 

Westfield, which has total assets worth $A49.76 ($NZ58.88) billion, said it expected to complete about $A1.9 ($NZ2.24) billion of major development projects during 2007.  The developer was currently involved in 16 major projects with a forecast investment of $A7.2 billion, and was due to start another $A10 billion of projects over the next three years.  The world's largest retail property group by market capitalisation, Westfield maintained its full-year distribution forecast at A106.5 cents per share.  About half of Westfield's shopping centres are in the United States, where about 40 percent of retail outlets are also based.

Last month the company completed a $A3 billion capital raising, which it has earmarked for new and existing shopping centre developments around the world.

Westfield shares closed at $A20.99 on Tuesday. The stock hit record highs in February but have since eased, and is up 0.3 percent in 2007 so far, compared with a 0.5 percent drop in the S&P/ASX 200 property index .  Analysts say through recent asset sales and equity raisings Westfield has accrued around $A8 billion, reducing its gearing and giving it an armoury to pursue acquisitions.  Its biggest development projects include a £1.6 billion ($NZ4.65 billion) shopping mall in west London and a mall in Stratford City near London's 2012 Olympic site.

Westfield is selling two large Auckland malls for more than $300 million as it concentrates on newer development opportunities nearby.

Justin Lynch, Westfield's deputy director, said the Pakuranga and Glenfield shopping centres were for sale.  "It's our normal business practice to review our properties for opportunities to generate higher returns for shareholders," Lynch said.

But Westfield has rarely sold in New Zealand. After taking over St Lukes Group last decade, it embarked on a plan to spend $1 billion in 10 years, vastly increasing its power and presence here.

Westfield has spent about $200 million expanding the two malls in the past decade.  Competitors said yesterday Westfield was selling to quit small malls with no further development potential.

The new Albany mall it was building would threaten Glenfield's primary and secondary retail catchments, one said.

Westfield also said this week it would spend $70 million expanding Manukau, adding a new SkyCity cinema complex, 35 new shops and more parking and the competitor said it was now even more obvious why Pakuranga was on the block.

"Westfield would be shooting themselves in the foot if they kept Pakuranga, because Manukau will eat into its catchment."

Westfield is the world's largest mall owner, with 121 centres worth $67.8 billion in Britain, the United States, Australia and New Zealand.

Lynch said yesterday that the firm had already spent $700 million here and would spend a further $600 million in the next five years.

Westfield had conducted a secretive marketing campaign for the two malls, forcing prospective bidders to sign gagging agreements.  One prospective bidder said he was able to look closely at the malls only after signing a confidentiality agreement drawn up by Westfield's lawyers Russell McVeagh.

Colliers International's top agent John Goddard is handling the deals and large Australian and European institutional or superannuation investors may bid. Wholesale AMP funds, Australia's Centro Properties or German investment funds are also said to be interested.

Even as builders begin work on a new mega-mall on Auckland's North Shore, shops are already vying to lease premises there, in a sign of ongoing demand for retail space despite predictions of a slowdown in consumer spending.

Six major tenants have been announced as the anchors behind the $200 million Albany mall, which Westfield is aiming to open by next Christmas.

Justin Lynch, deputy director of Westfield New Zealand, said New World, Kmart, Farmers and SkyCity Cinemas had leased large-format areas, and Borders Books and Cafe and No 1 Shoe Warehouse would also take space.

Although Sylvia Park has just opened Warehouse Extra and Foodtown stores and new fashion shops, and Newmarket has expanded along Nuffield St, retailers see unsatisfied demand for more malls.

In January, earthworks started on the Albany site. Lynch said builders started work late last month and the mall would be opened in two stages in September and November next year.

Shamubeel Eaqub, economist at Goldman Sachs JBWere, said he was not surprised at Westfield's leasing moves because the business took a longer-term view of the economy than the next year to 16 months, when conditions were forecast to weaken.

``Their outlook will be underpinned by population growth and the fact that New Zealand is still a reasonably wealthy country,'' he said.

But Robin Clements of UBS wondered whether Auckland faced becoming over-shopped, saying this was a risk mall developers took, particularly with a less robust economic outlook.

Joe Moodabe, chief executive of SkyCity Cinemas, said the new 10-screen Albany complex would include Gold Class auditoriums and lounges.