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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?

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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