(Updates with S&P response in ninth, 10th paragraphs.)
Dec. 4 (Bloomberg) -- Westfield Group, Australia’s biggest mall operator, plans to split its domestic and international businesses, advancing a separation of assets that began three years ago. Its shares jumped by the most in almost 22 months.
Westfield Group, which jointly owns malls in Australia and New Zealand with Westfield Retail Trust, proposes combining their stakes to create a new company called Scentre Group, it said in a regulatory filing. Westfield Group will be renamed Westfield Corp. and hold malls overseas. Both REITs will be listed on the Australian stock exchange, and Westfield Corp. may also be listed elsewhere, it said.
Westfield Group, which is increasing its focus on higher- return activities including development, is distancing itself from Australia and New Zealand, where it expects to see the slowest growth this year. The Sydney-based company spun off half of its Australian and New Zealand malls into Westfield Retail Trust in 2010, and billionaire co-founder Frank Lowy and his family sold their 7.1 percent stake in the trust in February.
“The company is always looking to cater to the changing desires of their shareholders,” Ben Le Brun, a Sydney-based market analyst at broker OptionsXpress, a unit of San Francisco- based financial services firm Charles Schwab Corp., said in an e-mail. The restructure “makes the investment decision more clear cut for holders and potential holders.”
Westfield Group shares rose 4.1 percent to A$10.78 at the close of trading in Sydney, the most since February 2012. Westfield Retail Trust shares fell 0.3 percent to A$2.99, after earlier gaining as much as 4.7 percent. The benchmark S&P/ASX 200 index added 0.3 percent.
Under the plan, Westfield Retail Trust shareholders will receive A$285 and 918 shares in the new Scentre Group for every 1,000 of their shares. The cash component equates to an A$850 million ($770 million) capital return, according to the statement. Westfield Group shareholders will get 1,000 shares in Westfield Corp. and 1,246 shares in Scentre Group for every 1,000 securities held.
Lowy will be chairman of both new entities under the proposal, which security holders are expected to vote on in May 2014. Sons Peter Lowy and Steven Lowy, co-chief executive officers of Westfield Group, will remain in that position at Westfield Corp. until the transition is complete at which time Peter Lowy will leave his executive role, according to the statement. Peter Allen, chief financial officer of Westfield Group, will lead Scentre Group, which will have an internal management team separate from Westfield Corp.
Frank Lowy is Australia’s fourth-richest individual with a net worth of $5.2 billion, according to the Bloomberg Billionaires Index.
Standard & Poor’s placed both Westfield Group’s A- rating and Westfield Retail Trust’s A+ on creditwatch with negative implications following the announcement.
Westfield Group’s areas of concern include a weaker quality of assets and more exposure to redevelopment risk, S&P said. The retail trust’s redevelopment risk also rises with its internalized management, and it will have “more aggressive” debt levels than the ratings company’s existing expectations, it said.
Scentre Group’s debt will equal 38.2 percent of assets as of June 30, 2013, compared with the trust’s 22.1 percent ratio as of June 30, 2012, according to regulatory filings.
Westfield Group proposed that its board retain its position at Westfield Corp., which will own $17.6 billion of assets in the U.S., U.K. and Europe. It plans that Scentre Group, which will hold A$28.5 billion of malls, will have a board that includes some Westfield Retail Trust directors. All the malls will keep their Westfield branding, it said.
Scentre Group will become Australia’s biggest listed property trust by assets, the company said.
Australia and New Zealand accounted for 56 percent of Westfield Group’s total assets as of June 30, the company said in August. The U.S. made up 30 percent, and the U.K. 14 percent, it said then.
Scentre Group will have comparable operating income growth of a maximum 2 percent in 2014, while Westfield Corp. will expand as much as 6 percent, Westfield Group said today.
That’s driven by a rise of as much as 11 percent in the U.K., driven by rental increases at its London mall, Peter Lowy told reporters today. Tenants at Westfield London are facing their first five-year review, with rents expected to climb, he said in August.
In the U.S., where Westfield forecasts growth of as much as 5 percent in 2014, retail sales in October recorded their biggest gain in three months, while a private gauge on consumer confidence rose in November from a month earlier, beating a preliminary reading.
The spinoff in November 2010 of Westfield Retail Trust, which Westfield manages, was a response to demand from shareholders for a domestic trust, Frank Lowy said then.
That was a partial reversal of a 2004 merger of its three entities -- Westfield Trust, which operated its Australian and New Zealand properties, Westfield America Trust, which held the group’s U.S. centers, and Westfield Holdings -- into the world’s biggest shopping mall group at that time. The move was designed to make it easier to finance the group’s planned shopping center developments and acquisitions, it said then.
With that restructure, and changes to the company in 1979, 1982 and 1996, Westfield transformed itself “according to the needs of the time,” Frank Lowy told reporters today. “We’re not afraid to make bold moves from time to time to suit the structure of the times.”
Westfield Group shares have risen 2.1 percent this year, while Westfield Retail Trust securities have fallen 1 percent. That compares with a 13 percent gain in the benchmark index.
--Editors: Iain McDonald, Tomoko Yamazaki