The enigma of Westfield ownership; Next time you pop into a Westfield, think who owns it. The Lowys? Maybe not

The enigma of Westfield ownership

June 11, 2014

David Potts

Next time you pop into a Westfield, think who owns it.

The Lowys? That’s what I would have said, too. Not that there’s any doubt they pull the strings, but they have a surprisingly small shareholding.
The malls are owned by two Westfields – the company and a passive property trust – which spreads the shareholders around and is why a small shareholding can have such clout. Especially when held by a Lowy.

Despite going halves, the two were never equal because only the company had the fee-earning rights to manage the malls. It seemed the trust’s unit holders would always be consigned to the basement of the Westfield emporium.
So there’s nothing wrong with the Lowys’ plan to sell Westfield’s Australasian shopping malls to its trusty twin, Westfield Retail Trust, which would become Scentre Group.
While Scentre would owe more it would also own more, and best of all, gain Westfield’s Australian management rights and staff, giving it control over its own destiny. But as befits its status, at a price.
While there’s universal agreement that it’s a great deal for Westfield shareholders, who finish up with shares in international malls such as New York’s World Trade Centre plus almost half of Scentre Group, the flipside is that the trust’s unit holders must be paying too much.
What do they expect? Just as water flows downhill, debt naturally gravitates as far from the controlling shareholder as is possible when there’s more than one company. The wonder is it’s taken so long.
Besides, property trusts have their problems. In their pure form, embraced by Westfield, they were landlords collecting commercial property rents that were regularly distributed to unit holders.
But there are conflicting interests, and some couldn’t help themselves.
Debt was loaded in to buy properties, naturally from the developer, who, after morphing into a manager, then collected a juicy fee. Worse, they went on an overseas buying binge just before property prices collapsed in the global financial crisis.
So who was supposed to be protecting the unit holders from this value destruction?
They might be trusts, but don’t bother looking for a trustee, let alone somebody at arm’s length from the manager, because you won’t find one.
Instead there’s a ‘‘responsible entity’’, which could be the subsidiary of a developer based in Bermuda, for all you know.
That’s nothing. The responsible entity is usually outsourced to the management company, which is hardly going to ask tough questions of itself.
Even Westfield Retail Trust’s responsible entity is owned by, you guessed it, Westfield. It’s in a takeover or share restructure that all the hidden conflicted interests are laid bare.
At least there is an independent expert’s report, commissioned at some expense, to guide you.
Are you kidding? I’m yet to see one opposing what the directors are recommending.
Not that your vote counts much. The big end of town always has the numbers.
In Westfield’s case, 75 per cent of unit holders had to approve the merger. The vote fell short by less than one per cent, suggesting for once small shareholders actually had some power.
But no, the meeting was adjourned because only that very morning Westfield said if it didn’t get its way it would move its malls into, yes, another debt destination.
This seemed to come as a shock to the trust’s board, which shares some directors, including a Lowy, with Westfield. Makes you wonder whether they talk to each other.
Anyway, if the merger is still defeated at the meeting on June 20, there will be two Westfield property companies with almost exactly the same assets. But the new one – called Newco, naturally – would manage both.
Does that sound familiar?


About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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