RPT-Fitch: Westfield's USD1.64bn Asset Disposal Is Credit Positive
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Sept 18 (Reuters) - (The following statement was released by the rating agency)
Westfield Group's (Westfield; A-/Stable) sale of 90% interest in seven shopping centres in the US for USD1.64bn is credit positive for the company.
The divestment to Starwood Capital Group (Starwood) and expected debt repayment with part of the sale proceeds is consistent with Westfield's strategy of simultaneously de-risking its financial risk profile as it transitions to a property manager/developer from property owner/manager.
This is Westfield's second transaction with Starwood and it bears a strong resemblance to the USD1.15bn asset sale announced in April last year. Both transactions involved Westfield exiting from the assets but retaining a nominal 10% interest in direct property income. Unlike the joint-venture deals done with Canada Pension Plan Investment Board (CPPIB) in February 2012, Westfield did not retain management and development rights to these shopping centre interests.
Fitch expects the disposal to raise the average specialty rent of its US portfolio to USD67.20 per square foot in FY14 from USD63.56 in FY12. This is because the shopping centres, as in the previous assets sold to Starwood, yielded low revenue with speciality cash sales below USD380 per square foot, less than the pre-sale average of USD494 per square foot. Fitch estimates the sales per square foot of the current disposal to be no more than USD364 per square foot with the April 2012 assets having aggregate sales per square foot of USD 373 per square foot.
Fitch expects Westfield to repay USD1.24bn in debt to maintain the gearing of its USD- denominated assets at 71% (based on H113 data and adjusting for a book value loss on sale of USD120m). The combination of the expected increase in USD rental and debt repayment will see Westfield's net debt to EBITDA fall to below 6x by FY16 (expectation for FY16 prior to sale was 6.6x). The reduction in leverage adds more headroom under the negative rating guideline for net debt to EBITDA of 7.5x. However, net debt to EBITDA is unlikely to fall below the positive rating guideline of 5.5x given Westfield's extensive development commitments and the current rate at which shareholder capital is being returned.