Westfield Group, the Australia-based property giant has reportedly entered into an agreement to sell stakes in seven of its malls in the U.S. to Starwood Capital Group for about $1.6 billion. Westfield is selling in order to consolidate its American portfolio and raise capital to focus on planned development projects.
Starwood will be buying 90 percent stake in all the malls that are spread across California, Indiana, Washington and Ohio. However, Westfield will retain 10 percent stake in every mall, according to the official press statement.
The company has been shedding its non-core assets to focus on prioritized ones. This is the perfect time for Westfield to sell as the retail market of the United States is looking up. Retail sales rose 0.2 percent in August on a month on month basis.
However, this is not the company's first efforts at selling away prime U.S. retail property. In 2012, it had sold eight malls in a deal worth $1.5 billion, seven of which were taken over by Starwood. Also, in March 2013, it sold six malls in Florida to O'Connor Capital Partners for about $1.3 billion, reports Sourceable.net.
"We are focused on redeploying our capital into superior retail destinations in major cities through divesting non-core assets and introducing joint venture partners into our high quality portfolio of assets," Peter Lowy, co-chief executive of Westfield said in the statement.
"They're remixing the remaining portfolio based on their views about where the best value is going forward. This is part and parcel of their strategy, not a change in strategy or outcome," Winston Sammut, managing director of Maxim Asset Management said to Bloomberg.
Several experts have lauded Westfield's decision to cut down on non-core assets. Apparently, the sale will help increase the company's earnings per security and return on investment. They recommend investors to buy shares of the company too.
"We believe Westfield can again trade on a 4.5 per cent yield. If we take our 2014 distribution per security estimate of 54¢, this implies a share price of $12, which is fairly consistent with our 12-month target price of $12.49. This would be augmented by long-term EPS growth of at least 5-6 per cent, albeit this may be less consistent in the short term as the timing of divestments may not always be matched exactly with the execution of the buyback and the returns from development investment," Analysts at Moelis said to The Business Day.
After the deal is sealed, Westfield will still own about 40 malls in the country. It will now be focussing on higher development projects in major cities across the world like London and Sydney.
