# WRT - Westfield Retail Trust



## System (14 November 2010)

> WESTFIELD GROUP TO RESTRUCTURE ESTABLISHING NEW WESTFIELD RETAIL TRUST DISTRIBUTING $7.3 BILLION OF CAPITAL TO SECURITYHOLDERS
> 3 November 2010
> 
> NOT FOR RELEASE OR DISTRIBUTION IN THE UNITED STATES
> ...




http://westfield.com/corporate/news-announcements/media-releases/2010/20101103_26995.html

Westfield Retail Trust (WRT) Offer: http://www.westfieldretailoffer.com


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## matty77 (25 November 2010)

Im suprised this hasnt generated some sort of interest. 

Anyone had a look at this? I am looking at purchasing retail at the moment, either WOW or JBH, but maybe this one could do instead?


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## skc (25 November 2010)

matty77 said:


> Im suprised this hasnt generated some sort of interest.
> 
> Anyone had a look at this? I am looking at purchasing retail at the moment, either WOW or JBH, but maybe this one could do instead?




Matty, WRT is a completely animal to WOW or JBH.

WOW - Consumer stable. We do usually need food on a weekly basis.
JBH - Consumer discretionary. We don't usually need a new TV to stay alive.
WRT - A trust that owns properties and collect rent from all sorts of retailers.

Do a bit of research and decide what you are really after.


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## matty77 (25 November 2010)

skc said:


> Matty, WRT is a completely animal to WOW or JBH.
> 
> WOW - Consumer stable. We do usually need food on a weekly basis.
> JBH - Consumer discretionary. We don't usually need a new TV to stay alive.
> ...




yup I knew WRT was not retail, but I related it to retail as a lot of its commercial property is in retail sector. But yeah I understand your point.


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## Tysonboss1 (25 November 2010)

I wouldn't expect big capital gains from WRT.

Think of it like a bond paying about 7%, where your initial priciple and return will rise with inflation over time.

WRT is going to basically act as WDC's bioch. WDC will develop shopping centres which it then sells to WRT and then charges WRT an ongoing management fee for managing the asset.

WRT is going to be a passive investor in the assets collecting rent, while WDC also owns 50% of the assets, but earns extra $$$ by developing and managing the assets.


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## drsmith (26 November 2010)

Tysonboss1 said:


> I wouldn't expect big capital gains from WRT.
> 
> Think of it like a bond paying about 7%, where your initial priciple and return will rise with inflation over time.
> 
> ...



Spot on there.

This won't list at much of a premium, if any. If like Westfield America Trust from the 90's, expect slight a discount at some point, but slow growth over time (all other things being equal). Westfield don't give much away.

I tried to compare this against Stockland and GPT, but these are more diversified. Also, GPT is still trying to dispose stuff from its "more wreckless days" and Stockland has been left with a bitter after taste from its GPT play.

Also of curiosity is that the cost of equity at the float price is less than the cost of debt as Westfield group is charging 7% in whatever debt WRT has post float. This is more than the income return from the shopping centres after expenses.


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## Tysonboss1 (3 December 2010)

drsmith said:


> Also of curiosity is that the cost of equity at the float price is less than the cost of debt as Westfield group is charging 7% in whatever debt WRT has post float. This is more than the income return from the shopping centres after expenses.




There should be less than 30% debt at the wrt level once this deal is done, and i think the interest rate is less than 7%.

But anyway even if they were paying 10% interest on the 30% debt a 7% cashflow would easily cover it. plus they will increase rents over time.

As I said I don't expect WRT to show massive growth (it is simply not a growth stock). but when you factor in the ability of it's assets to act as a natural hedge against inflation and the stable dividend stream over time I think this will be a decent investment. 

I plan on keeping my allotment,


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## burglar (3 December 2010)

Tysonboss1 said:


> ... plus they will increase rents over time.




And they promise escalators, but never ever in writing.
In the short term we get stairs.


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## Tysonboss1 (3 December 2010)

burglar said:


> And they promise escalators, but never ever in writing.
> In the short term we get stairs.




It is in writing, there is minimum rent increases on an annual basis as part of all their lease aggreements.


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## burglar (3 December 2010)

Tysonboss1 said:


> It is in writing, there is minimum rent increases on an annual basis as part of all their lease aggreements.




My apologyTysonboss1
I must of writ badly cos you have completely misunderstood.

I was no longer talking about the rent escalating.
I was talking about Westfield at Westlakes a suburb in Adelaide.
Retailers on first floor were promised an escalator to bring customers up to their shops. They got stairs!! 

Sorry bout that,
burglar


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## drsmith (3 December 2010)

Tysonboss1 said:


> There should be less than 30% debt at the wrt level once this deal is done, and i think the interest rate is less than 7%.
> 
> But anyway even if they were paying 10% interest on the 30% debt a 7% cashflow would easily cover it. plus they will increase rents over time.
> 
> ...



Doing a quick calculation from the debt/finance costs, it's about 6.7% at $1.75bn subscribed.

Out of curiosity, are you be topping up through the 1 for 4.23 WDC shareholder offer ?


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## Tysonboss1 (3 December 2010)

drsmith said:


> Out of curiosity, are you be topping up through the 1 for 4.23 WDC shareholder offer ?




No, I will just keep the ones I get in the capital distribution.  if they dropped to bargin levels and i had some capital spare i would look at taking some. but for now i am pretty much fully invested.


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## Tysonboss1 (3 December 2010)

burglar said:


> My apologyTysonboss1
> I must of writ badly cos you have completely misunderstood.
> 
> I was no longer talking about the rent escalating.
> ...




HA HA , thats funny

no worries i thought it was a metaphor. are you a retailer.


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## burglar (3 December 2010)

Tysonboss1 said:


> HA HA , thats funny
> 
> no worries i thought it was a metaphor. are you a retailer.




A friend of a friend was bitten.
I am a customer who climbs the stairs.

Thanks for understanding.
burglar


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## Gnomes of Aussie (15 December 2010)

Anyone know that who are the substantial shareholders of Westfield Retail Trust or not? And how much Westfield Corp own WRT?


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## drsmith (15 December 2010)

An unsuprising unit price response given the outcome of the capital raising.


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## Tysonboss1 (15 December 2010)

Gnomes of Aussie said:


> Anyone know that who are the substantial shareholders of Westfield Retail Trust or not? And how much Westfield Corp own WRT?




the lowy family would be the largest holder, they took up their full entitlement.


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## Tysonboss1 (15 December 2010)

drsmith said:


> An unsuprising unit price response given the outcome of the capital raising.




It will take a little while to stabilize, but i expect once those who wish to sell have sold and those who are suited to this investment have got all the details then it should be quite a stable income issue.


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## enigmatic (16 December 2010)

Could someone correct me if I'm wrong..
If i owned 3000 WDC shares prior to the WRT demerger.
should i not own 3000 WDC shares after and 3000 WRT shares assuming i didnt take up an offer to increase my holding in WRT.

and if so when can i sell my WRT shares or WDC shares as currently it indicates i have 3000 WDC shares but they value is $0 and i do not own any WRT shares


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## drsmith (16 December 2010)

enigmatic said:


> 3000 WDC shares and 3000 WRT shares.



That's what you should own, however note that WDC is currently trading on the ASX as WDCDA.


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## enigmatic (16 December 2010)

Much appreciated drsmith it doesn't seem like i have WRT as part of my holdings


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## Tysonboss1 (16 December 2010)

enigmatic said:


> Much appreciated drsmith it doesn't seem like i have WRT as part of my holdings




tomorrow is the record date, I believe you will be alocated your WRT after the record date


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## enigmatic (11 February 2011)

I have read few reporting indicating growth for WRT in the upcoming year as it being at a discount.

I have not seen any real movement to indicated direction and I was initially invested in WDC for dividends with modest growth and was surprised at the dividend for WRT.
at .44cents per ordinary stapled unit this would indicate a .1% dividend surely there was no point paying a dividend at all.


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## Tysonboss1 (11 February 2011)

enigmatic said:


> I have read few reporting indicating growth for WRT in the upcoming year as it being at a discount.
> 
> I have not seen any real movement to indicated direction and I was initially invested in WDC for dividends with modest growth and was surprised at the dividend for WRT.
> at .44cents per ordinary stapled unit this would indicate a .1% dividend surely there was no point paying a dividend at all.




The dividend is in relation to the 2010 half year. Ask your self how many full months of rent WRT would have been able to collect before the end of the year. That is why the dividend is so low.


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## amitsdave (16 March 2011)

hi Guys,
WRT prices have just been going south.Today they have reached $2.54. What do you guys suggest, sell and cut the losses or hold and wait?

Cheers,
Dave


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## jaystar86 (20 July 2012)

Hi guys,

Anyone got any ideas on why the run recently?

J


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## notting (1 March 2013)

Interesting that the lowys' are getting out whilst saying conditions are returning to normal.
4% down today.


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## notting (1 March 2013)

notting said:


> Interesting that the lowys' are getting out whilst saying conditions are returning to normal.
> 4% down today.




And they dropped it at $3.09 That's actually not too bad I reckon, well for them maybe.
I always suspected the split was to offer them a passage out of retail.
Jerry* over here:jump:

*(Jerry Harvey)


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## skc (1 March 2013)

notting said:


> And they dropped it at $3.09 That's actually not too bad I reckon, well for them maybe.
> I always suspected the split was to offer them a passage out of retail.




In much of 2012, all the retailers (except the main stables) were making new lows while the retail landlords were making new highs.

Now there seem to be signs of life in discretionary retail (certainly in the share price anyway), it would be funny to start seeing weaknesses in the landlords instead.

With WRT done 4% I am surprised that WDC isn't down more.


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## notting (1 March 2013)

I heard, I haven't seen anything to verify it, that the landlords were slashing rents around 15% in many places.?

Also when Jerry made that comment yesterday about the rent kicking butt over money in the bank, I felt, no wonder your poor Franchasies are doing it tuff.  Your ripping them off!  Like you used to do to your customers with *no interest nothing to pay* for an ugly couch that will cost you 3 times it's sale price over time!

Yeah but, retail does seem to be turning with these lower interest rates.  I think Reject Shop is the best forward indicator as it has less competition with what it sells from online boom bust companies.


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## drsmith (1 March 2013)

notting said:


> Interesting that the lowys' are getting out whilst saying conditions are returning to normal.
> 4% down today.



The Lowys typically back themselves for growth and prefer to hold the management and development part of the business (WDC).

WRT with its lower risk profile was principally floated off as a means of raising capital and reducing group debt.


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## notting (1 March 2013)

drsmith said:


> WRT with its lower risk profile was principally floated off as a means of raising capital and reducing group debt.




 Actions speak louder than words?


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## nulla nulla (2 March 2013)

drsmith said:


> The Lowys typically back themselves for growth and prefer to hold the management and development part of the business (WDC).
> 
> WRT with its lower risk profile was principally floated off as a means of raising capital and reducing group debt.




You wonder how far ahead they saw/anticipated what was comming? The struggling economies, unemployment, reduced spending, the constriction of the retail sector, etc. 

Recognising the impact this would have on the retail sector of A-REIT's did they then decided to hive off WRT, then sell their shares as soon as the WRT share price rallied getting out before the next fall?  After all WDC did trade at $20.00 before the GFC and the forecast for WRT is extremely low growth. Better to pull their dosh out and put it where it will generqate better returns.


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## nulla nulla (2 June 2013)

After a brief burst into the sunshine with higher share prices fueled by investors seeking good yields where the returns are better than bank rates and bonds, WRT has dropped in the last couple of weeks along with the rest of the A-REIT's. The share price is now back to where the Lowy's bailed out. Can it bounce from here?





On the plus side the yield is good at these price levels and WRT will go ex-div this month paying in August. On the negative side, the Aud$ is under presure, off-shore investors are pulling out of Australia and Retail is still in the doldrums (just look at David Jones).

As always, do your own research and good luck.


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## skc (2 June 2013)

nulla nulla said:


> On the plus side the yield is good at these price levels and WRT will go ex-div this month paying in August. On the negative side, the Aud$ is under presure, off-shore investors are pulling out of Australia and Retail is still in the doldrums (just look at David Jones).




WRT ex-div is in August as well. They are off the usual REIT cycle but are in line with most other industrials.


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## nulla nulla (3 June 2013)

skc said:


> WRT ex-div is in August as well. They are off the usual REIT cycle but are in line with most other industrials.




Thanks SKC. They must be following the same time lines as GPT which have also changed to two (2) divs per annum from their previous Four (4).


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## nulla nulla (16 June 2013)

This is getting really tempting. I just wish we had some idea as to where the Aud$ will find support and the exodus of foreign investment funds will stop and/or reverse (I don't ask for much do I).




As always, do your own research and good luck .


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## tommurphy1995 (4 September 2013)

*WRT - ASX*

I am looking to invest my first $5,000 in a relatively high dividend yielding and stable stock. WRT looks alright - 6.8% dividend yield with a solid outlook and is currently trading at $2.93 (52 week low at 2.62 and high at 3.26).

I was thinking of buying when it fell below $2.90. Suggestions?

Thanks


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## Ferret (4 September 2013)

Not investment advice, but one thing to be aware of is that WRT is a trust and pays distributions rather than dividends.  This means no franking credits.

Also, I find trusts to be a bit of a headache when doing my taxes.


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## Valued (4 September 2013)

*Re: WRT - ASX*



tommurphy1995 said:


> I am looking to invest my first $5,000 in a relatively high dividend yielding and stable stock. WRT looks alright - 6.8% dividend yield with a solid outlook and is currently trading at $2.93 (52 week low at 2.62 and high at 3.26).
> 
> I was thinking of buying when it fell below $2.90. Suggestions?
> 
> Thanks




If the stock is a buy at 2.93 it's a buy at 2.90 or 2.89. There is no huge difference between this except for 1 - 2 bucks a year in dividends (well distributions as someone pointed out). If it came down to a wire like this, it wouldn't be much of an investment.

Overall, I think WRT is worth considerably less than the current price. The price is likely to stay flat due to basically no opportunities for growth. It's whole business model is about not expanding overseas but rather sticking with its interests in Australia. There are limited amounts of shopping centres you can open per city before you become saturated, and the pressure to lease causes margins to be squeezed. Big anchor tenants like Woolworths or Coles can negotiate dirt cheap leases. Stores like The Reject Shop will actually close a profitable store if their demands are not met. They choose to send a strong message to lessors that this is the case rather than be flexible. Retailers can demand more and more. It is not just less rent they demand, but more rights ofer the premises, options, and terms of lease. A big anchor tenant can sign a flat rate 20 year lease as in their rent will not go up for 20 entire years. WRT is not going to grow any time soon so I can't achieve capital growth from it.

I am not looking for 5 - 7% returns. I want much larger returns on my money. I might as well stick my money in a term deposit and not take on the capital risk.


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## Valued (5 September 2013)

I should point out though, just so people arn't mislead, the rent for long term leases is reviewed and indexed periodically. You don't actually pay the same price in the 20th year as you did in the first year due to indexing in line with the CPI. You get the idea though.


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## nulla nulla (15 September 2013)

Although WRT dipped down to $2.87 recenly it seems to be finding support arround the $2.90 level. The close at $2.88 on Friday 6 September 2013 would have tempted a few traders/investors and the 3% gain this week to close at $2.98 was a quick return.





Only problem with the A-REIT shares (particularly the ones in Retail) is trying to determine whether the share prices are being propped up by the share buy backs occuring or whether the prices are being held down by the buyl/sell strategies of the brokers doing the buy back? Meanwhile the volitility can be worth following for the attentive. Volumes have been good in the last 4-5 weeks as well. As always do your own research and good luck.


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## Garpal Gumnut (16 September 2013)

Thanks nulla.

I'd be watching volume on WRT.

http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings=1&symb=au%3awrt&uf=16&type=2&size=2&sid=5693136&style=320&freq=2&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=1845246426&compidx=aaaaa%3a0&ma=0&maval=9&lf=1&lf2=2&lf3=0&height=444&width=579&mocktick=1

gg


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## skc (16 September 2013)

The performance of the REITs have really diverged. All the retail REITs (CFX, CQR, GPT, SCP) are close to the lows, with the exception of WRT which sold some assets above book value in a recent transaction. the office REITs are kind of hanging in there, while the ones with residential exposure (SGP, MGR, ALZ) are enjoying better support.

AFR is reporting that retail rents have been decreasing on lease renewals, whil the weak report by Myers last week probably didn't help either. 

The same thing happened a couple of years ago when it felt like the end of physical retail was about to happen... but then the market went on a yield surge that brought all REITs up to <5% yield. But it appears now there'd be some divergence between different sub-sections in the REIT space... and a blanket buy-on-dip approach may not work as well as before.


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## nulla nulla (20 November 2013)

WRT dropped 1.95% today, well above the A-REIT sector drop of 1.16%. The sell down may have been influenced by the storm damage to Hornsby Westfield Shopping Centre. It probably wouldn't hurt for Westfield Retail Trust to put out a release informing the market of the extent of the damage and the likely impact on earnings etc.


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## Gringotts Bank (20 November 2013)

skc said:


> The performance of the REITs have really diverged. All the retail REITs (CFX, CQR, GPT, SCP) are close to the lows, with the exception of WRT which sold some assets above book value in a recent transaction. the office REITs are kind of hanging in there, while the ones with residential exposure (SGP, MGR, ALZ) are enjoying better support.
> 
> AFR is reporting that retail rents have been decreasing on lease renewals, whil the weak report by Myers last week probably didn't help either.
> 
> The same thing happened a couple of years ago when it felt like the end of physical retail was about to happen... but then the market went on a yield surge that brought all REITs up to <5% yield. But it appears now there'd be some divergence between different sub-sections in the REIT space... and a blanket buy-on-dip approach may not work as well as before.




You think there might be some surprises, further takeovers, profit shocks going forwards (for REITs in general)?  How do you see it playing out?  Thanks.


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## coolcup (20 November 2013)

nulla nulla said:


> WRT dropped 1.95% today, well above the A-REIT sector drop of 1.16%. The sell down may have been influenced by the storm damage to Hornsby Westfield Shopping Centre. It probably wouldn't hurt for Westfield Retail Trust to put out a release informing the market of the extent of the damage and the likely impact on earnings etc.




Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.


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## skc (20 November 2013)

Gringotts Bank said:


> You think there might be some surprises, further takeovers, profit shocks going forwards (for REITs in general)?  How do you see it playing out?  Thanks.




Probably come over the next 2-3 reporting cycles when market start to realise fully that dividend growth will not be there anymore. If there's no dividend growth, no one wants 6.5% yield return with equity-like risks. They'd want 8-8.5% (and that can only happen by the share price coming down). And if interest rate was to rise, then the sector will give back much of the gains from the past 18 months. That's a potential downside scenario but I don't think it will be a shock and awe event.



coolcup said:


> Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.




Yes quite possible. I couldn't think of a good reason for the REIT's underperformance today.


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## nulla nulla (21 November 2013)

coolcup said:


> Perhaps. Another explanation is that a number of REITs are being sold off as domestic PSFs are being asked to fund a number of capital raisings at present. There are a number of IPOs that are being bookbuilded soon and CapitaLand has just asked investors to stump up ~$0.4bn for part of its stake in ALZ. Other REITs are being sold off to fund this and the retail REITs are being hit the hardest as there is limited prospect for M&A in that subsector.




Good point re the portfolio reweighting to free up cash for the likes of the Australand shares being sold through the Capitaland book build. No doubt it could impact on the likes of Dexus & GPT more so as fund managers elect to avoid the uncertainty of future value in these two as they slug it out for CPA. ALZ would appear more stable with better future prospects as the residential sector picks up.

Today will be interesting to see whether any sell down (sell out) continues or there is a rebound to some extent.


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## nulla nulla (24 November 2013)

skc said:


> The performance of the REITs have really diverged... and a blanket buy-on-dip approach may not work as well as before.




True, I bought a couple of dips in May/June and ended up with a captial loss tax offset for some off the profits for the fiscal year. Some of the shares are still in the red. Mind you I wish I had the extra dollars to top up on WRT and a few others in the Thursday sell down. A nice bounce on Friday. Major fly in the ointment at the moment is the Aud$, in my humble opinion.


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## skc (24 November 2013)

nulla nulla said:


> True, I bought a couple of dips in May/June and ended up with a captial loss tax offset for some off the profits for the fiscal year. Some of the shares are still in the red. Mind you I wish I had the extra dollars to top up on WRT and a few others in the Thursday sell down. A nice bounce on Friday. Major fly in the ointment at the moment is the Aud$, in my humble opinion.




Are you not concerned with WRT signing new leases at 6% lower than expired leases?


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## nulla nulla (25 November 2013)

skc said:


> Are you not concerned with WRT signing new leases at 6% lower than expired leases?




Aware of more than concerned about. I work/worked in a field that regularly deals/dealt with smaller tennants of Westfield. The concensus among the clients was that the rents were too high and that Westfield didn't care as there were potential tennants lining up to replace anyone that fell by the wayside. This was seen as very cavalier by the tennants as it failed to recognise that rent releif often enabled more to be spent by the tennant on promotions of their store/product etc and Westfields was a winner from this on the levy they apply to turnover. Store closures meant down time for Westfields as the replacement came in, also defaulting tennants were often of the midnight runner departure, leaving Westfields trying to recoup arrears and fees etc after the event.

Westfield these days uses the sales data obtained from tennants to identify the type of store that does well from the type that struggles. From this the weighting of store type is changing enhancing the returns for Westfield. Additionaly Westfield is encouraging new specialty foreign stores with better incentives than allowed for the locals to encourage foot traffic which benefits all stores in the Shopping Centre, Hopefully more spending, hopefully more turnover levies etc. The rent reductions are a  bit like giving with one hand so they can take with the other. Spending is picking up. Shoppers are expected to spend $30 Billion in the lead up to xmas/new year. Westfield and the other A-REIT Retails stores will benifit from this.

I still see opportunities in A-REIT Retail Shares, more from trading the swings as they find their "market value" range than from long term investment. Mind you, some of them like WRT are still paying an attractive dividend/yield.


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## skc (25 November 2013)

nulla nulla said:


> Additionaly Westfield is encouraging new specialty foreign stores with better incentives than allowed for the locals to encourage foot traffic which benefits all stores in the Shopping Centre, Hopefully more spending, hopefully more turnover levies etc. The rent reductions are a  bit like giving with one hand so they can take with the other.




Thanks for the insight. I didn't think of the trade-off between headline lease rates vs turnover levy.


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## nulla nulla (1 December 2013)

I like the way the market drove the Friday close up to $3.05 after the share price was pretty much held down arround the $3.03 area throughout the day. The WRT share price is a bit incongruous when you consider the rally in CFX and some of the other Retail shares. Maybe the Market thinks the consumers aren't going to shop at Westfields in the lead up to xmas?




As always, do your own research and good luck.


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## nulla nulla (4 December 2013)

It would appear that the only thing certain with Westfield shares is "Nothing is certain". After jumping in the close on Friday to $3.05, WRT opened higher on Monday, tapped $3.07 then promptly got pushed down to yesterdays close of $3.00.

Exasperating to say the least. The whole A-REIT sector seemed to be pushed down on Monday, even more than the rest of the All Ords. Most of the A-REIT's appeared to stabilise or only drop a small amount on Tuesday and WRT looked like it was going to test $2.97 again this week.

Todays' announcement of the proposed restructure of WDC & WRT is a big surprise (to me anyway). WRT share holders look like getting:
1. The 2H 2013 dividend of around $0.10 per share in February 2014;
2. The 1H 2014 dividend of around $0.10 per share in June 2014;
3. A further "Return of Capital" of $0.285 in May/June as part of the restructure(Is this right?); and
4. Their share holdings with the restructure will drop to 918 Scentre shares for every 1000 WRT shares held in May/June. 

Promoted as being equivalent to a "pro-rata buy back of WRT securities at $3.47 (equal to the WRT nta) and a 14% premium to the present share price. Presently in a trading halt until 11.00am. 

The only two negatives I can see initially in the proposal are that gearing in WRT will increase to 38.2% and with the increase distribution of Scentre shares to WDC share holders, the nta of Scentre will be reduced to $2.81. For WRT holders that looks like a drop in the number of shares held, and a drop in the value of those shares by $0.66 for which they receive dividends of roughly $0.20 and a capital return of $0.285. Seems that they are worse off? What am I missing?


I wonder where the price will end up at 4:10pm?


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## skc (4 December 2013)

nulla nulla said:


> Promoted as being equivalent to a "pro-rata buy back of WRT securities at $3.47 (equal to the WRT nta) and a 14% premium to the present share price. Presently in a trading halt until 11.00am.
> 
> The only two negatives I can see initially in the proposal are that gearing in WRT will increase to 38.2% and with the increase distribution of Scentre shares to WDC share holders, the nta of Scentre will be reduced to $2.81. For WRT holders that looks like a drop in the number of shares held, and a drop in the value of those shares by $0.66 for which they receive dividends of roughly $0.20 and a capital return of $0.285. Seems that they are worse off? What am I missing?
> 
> ...




A complicated deal but judging by the fact that WDC is up 6% while WRT is up 4%, the spoils are shared quited evenly. A bit of asset reshoval and over $2B in market cap is "created". I can't be certain this is a great deal for WRT... the Lowy's sold out at $3.10 not long ago so that's probably as good a price peg as anything else. 

The post-merger NTA is only $2.81. You get $3.47 for 92 shares (per 1000) cancelled so you end up with 918 shares of the new Scentre group. WRT has been trading at 10-15% discount to NTA, while WDC trades at 40% premium, so the new entity would trade at?? Propbably something like 1.05-1.1 would be my guess. This means a price of $2.95-3.1 per Scentre group. 

I had a big short on WRT and was very happy to get out on the open at $3.05. I didn't know how the market would react so was just happy to exit without any real damage. 

The closing price could be anywhere...


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## McLovin (4 December 2013)

So, am I understanding this correctly that WRT will now have exposure to the development/management side of the business rather than just being a straight up REIT?


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## skc (4 December 2013)

McLovin said:


> So, am I understanding this correctly that WRT will now have exposure to the development/management side of the business rather than just being a straight up REIT?




Yes that's what it appears. It's all a bit of a joke, all these asset shuffling under the Westfield banner.

Back in the days there were 3 Westfield entities along the geography and landlord/developer lines. They were merged into a single entity some time ago (about 10 years from member). Then WRT spun out in 2010, and now they split the head company again back along geography lines, and putting the development business back in WRT entity. Whatever rationale they applied to spinning out WRT in the first place, just got thrown out of the window.

What have they achieved after all that and were there any real value created aside from fees to advisors/bankers etc?


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## McLovin (4 December 2013)

skc said:


> Yes that's what it appears. It's all a bit of a joke, all these asset shuffling under the Westfield banner.




Yeah it's too confusing for me. It's basically just a family company and you get dragged along for the ride.


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## nulla nulla (4 December 2013)

Looks like the market has looked through the smoke and mirrors and assessed that the deal favours the WDC share holders at the expense of the WRT share holders. Apart from the 82 shares (1000 WRT to 918 Scentre) that WRT holders will receive $285 for (which is the only shares that they receive the equivalent nta value of $3.47 for) by my calculations the WRT share holders will be much worse off.

For their 1000 shares with an nta of $3.47 ($3,470.00) they are going to receive 918 shares with an nta of $2.81 ($2,810.00) and a kick along of $285.00.

 $3,470.00
($2,810.00)
($  285.00)
$   375.00 Shortfall ?

Even if you were to allow for the two (2) distributions 2H 2013 & 1H 2014 of roughly $0.20 ($200.00 per 1,000 shares) which you shouldn't have too, WRT share holders are still $175.00 worse off under this deal? As I type WRT has fallen back to $3.01-$3.02 after bouncing off $3.00 an increase of half of one percent on yesterdays close, WDC is up $0.395 or 3.81 percent on yesterdays close. 

How can the "independent" directors support this?


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## McLovin (4 December 2013)

nulla nulla said:


> Looks like the market has looked through the smoke and mirrors and assessed that the deal favours the WDC share holders at the expense of the WRT share holders. Apart from the 82 shares (1000 WRT to 918 Scentre) that WRT holders will receive $285 for (which is the only shares that they receive the equivalent nta value of $3.47 for) by my calculations the WRT share holders will be much worse off.
> 
> For their 1000 shares with an nta of $3.47 ($3,470.00) they are going to receive 918 shares with an nta of $2.81 ($2,810.00) and a kick along of $285.00.
> 
> ...




Is NTA the best way of valuing the merits of the bid? Because the dynamics of Scentre will be very different to a straight up REIT. I'm asking because I don't really know the answer to the question. I've only read what's in the paper.


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## skc (4 December 2013)

McLovin said:


> Is NTA the best way of valuing the merits of the bid? Because the dynamics of Scentre will be very different to a straight up REIT. I'm asking because I don't really know the answer to the question. I've only read what's in the paper.




The Scentre group NTA will command a higher multiple than the current discount applied to WRT's NTA. It'd be a blended number between WRT's and WDC's current multiples, probably weighed in WRT's number.

The "capital return" is red herring as well. Not only is it applicable only to 92 shares out of 1000, it is funded by debt. The preso says EPS accretive to both businesses but I suspect a large part of that comes from this increase in debt.

Now I wish I didn't close my short...


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## nulla nulla (4 December 2013)

skc said:


> ....Now I wish I didn't close my short...




I wish I had closed out my long at $3.11 - $3.12


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## drsmith (4 December 2013)

skc said:


> Yes that's what it appears. It's all a bit of a joke, all these asset shuffling under the Westfield banner.
> 
> Back in the days there were 3 Westfield entities along the geography and landlord/developer lines. They were merged into a single entity some time ago (about 10 years from member). Then WRT spun out in 2010, and now they split the head company again back along geography lines, and putting the development business back in WRT entity. *Whatever rationale they applied to spinning out WRT in the first place, just got thrown out of the window.*
> 
> What have they achieved after all that and were there any real value created aside from fees to advisors/bankers etc?



When WRT was established (2010), there was also an associated equity raising. The rationale then was about reducing overall group debt in the wake of the GFC. 

My bolds.


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## McLovin (4 December 2013)

skc said:


> The Scentre group NTA will command a higher multiple than the current discount applied to WRT's NTA. It'd be a blended number between WRT's and WDC's current multiples, probably weighed in WRT's number.
> 
> The "capital return" is red herring as well. Not only is it applicable only to 92 shares out of 1000, it is funded by debt. The preso says EPS accretive to both businesses but I suspect a large part of that comes from this increase in debt.
> 
> Now I wish I didn't close my short...




The Lowys sold out of WRT earlier this year. In hindsight it looks like it was a move aimed at completing this sort of a deal. WDC will get control of WRT's pristine balance sheet (and $10b of equity backed by A grade retail property) for a song. They can then juice up the new entity with more debt to fund development. Seems like the real winners are WDC.

I guess you need to work out what the value of that equity to WDC is, but I would think even conservatively it would be more than book, given the ability to lever it.


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## skc (4 December 2013)

nulla nulla said:


> I wish I had closed out my long at $3.11 - $3.12




It's a short term buy for me at $2.95 imo.



drsmith said:


> When WRT was established (2010), there was also an associated equity raising. The rationale then was about reducing overall group debt in the wake of the GFC.
> 
> My bolds.




I guess one could argue that the debt market conditions during the GFC was very different.

But it reminded me how the NBA (basketball league in the USA) once moved the 3 point line further back to create better spacing and increase scoring. 3 seasons later, they moved to 3 point line closer to... you guessed it... to increase scoring. 



McLovin said:


> The Lowys sold out of WRT earlier this year. In hindsight it looks like it was a move aimed at completing this sort of a deal. WDC will get control of WRT's pristine balance sheet (and $10b of equity backed by A grade retail property) for a song. They can then juice up the new entity with more debt to fund development. Seems like the real winners are WDC.
> 
> I guess you need to work out what the value of that equity to WDC is, but I would think even conservatively it would be more than book, given the ability to lever it.




It's all still slightly confusing with respect to Lowy's interest across the different vehicles. The WDC (New) won't really have any more control over Scentre Group from what I can tell... Nonetheless, given the board of both entities are still littered with Lowy's and co., calling it a family business is probably harsh but true.


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## nulla nulla (4 December 2013)

skc said:


> It's a short term buy for me at $2.95 imo.




A few of them have hit buy levels today. Problem is trying to work out whether they are down due to a sell down of A-REIT's that may continue or is it portfolio managers selling off holdings to free up cash to take up WDC?


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## McLovin (4 December 2013)

skc said:


> It's all still slightly confusing...




That's an understatement!

I guess my theory is that in an open auction WRT would fetch a higher price or bigger share of the merged entity.  Don't ask me how much WRT should be getting though!

ETA: Here's a recent transaction they did at an implied cap rate of 5%.


> WESTFIELD GROUP TO SELL INTEREST IN KARRINYUP, PERTH IN A TRANSACTION THAT VALUES THE CENTRE AT $740 MILLION, A 19% PREMIUM TO BOOK VALUE
> 
> 10 September 2013
> 
> ...




If you apply that cap rate (probably not reasonable) to the entire portfolio of WRT you get a value of ~$16b a hefty control premium.

Hmm...I may have to have a better look at WDC. Money for nothing and your chicks for free.


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## nulla nulla (4 December 2013)

nulla nulla said:


> Looks like the market has looked through the smoke and mirrors and assessed that the deal favours the WDC share holders at the expense of the WRT share holders. Apart from the 82 shares (1000 WRT to 918 Scentre) that WRT holders will receive $285 for (which is the only shares that they receive the equivalent nta value of $3.47 for) by my calculations the WRT share holders will be much worse off.
> 
> For their 1000 shares with an nta of $3.47 ($3,470.00) they are going to receive 918 shares with an nta of $2.81 ($2,810.00) and a kick along of $285.00.
> 
> ...




This didn't look right, Should be:

1,000 x $3.47 = $3,470.00
   918 x $2.81 = ($2,579.60)
Capital Return($  285.00)
Shortfall                   $   605.40 per 1,000 share held?

If Scentre trades at a discount to nta like WRT 14% of nta the share would trade in a range around $2.42

I can't see where this deal can be equal to a buy out of WRT at $3.47.


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## McLovin (4 December 2013)

nulla nulla said:


> This didn't look right, Should be:
> 
> 1,000 x $3.47 = $3,470.00
> 918 x $2.81 = ($2,579.60)
> ...




It's 82 shares at $3.47.

And 918 shares in Scentre.


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## nulla nulla (4 December 2013)

McLovin said:


> It's 82 shares at $3.47.
> 
> And 918 shares in Scentre.




The 82 shares at $3.47 ($285.00) is supposed to represent the difference between 1,000 WRT shares and 918 Scentre shares.

I worked out the shortfall on the basis that the 1,000 WRT shares with a nta of $3.47ea ($3,470.00) is converting to 918 Scentre shares with a nta of $2.81 ($2,579.60) and the compensation for the change over is only $285.00 per 1,000 WRT shares held. There is a shortfall in the value on like for like of $605.40 per 1000 WRT shares held..


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## McLovin (4 December 2013)

nulla nulla said:


> The 82 shares at $3.47 ($285.00) is supposed to represent the difference between 1,000 WRT shares and 918 Scentre shares.
> 
> I worked out the shortfall on the basis that the 1,000 WRT shares with a nta of $3.47ea ($3,470.00) is converting to 918 Scentre shares with a nta of $2.81 ($2,579.60) and the compensation for the change over is only $285.00 per 1,000 WRT shares held. There is a shortfall in the value on like for like of $605.40 per 1000 WRT shares held..




But you can't value what you're getting based on NTA. The merged entity will be an owner and manager of real estate. Using NTA you're excluding the value of Scentre's management revenue (or more correctly the savings to WRT in not having to pay managment fees) because it doesn't show up on the balance sheet.

I don't disagree that WRT are probably not getting what they should but I don't think you can quantify it in such black and white terms.


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## nulla nulla (4 December 2013)

McLovin said:


> But you can't value what you're getting based on NTA. The merged entity will be an owner and manager of real estate. Using NTA you're excluding the value of Scentre's management revenue (or more correctly the savings to WRT in not having to pay managment fees) because it doesn't show up on the balance sheet.
> 
> I don't disagree that WRT are probably not getting what they should but I don't think you can quantify it in such black and white terms.




Maybe I look at shares differently to you? I pretty much assess all shares based on NTA. Net Tangible Assets is pretty much what any company is worth if the share holders decide to liquidate the company and realise the assets for distribution to the share holders. 

It is normally also the starting point in respect of any takeovers. If a buyer isn't offering shareholders nta plus a premium, why would/should they sell? With management revenue staying in house, through self management, this means there will be a greater proportion of earnings or Funds from operations available for distribution. This should mean that the yield and return on equity improve. This should mean that the share price (WRT is currently trading at a discount to nta) should close the gap on nta and even move to a price incorporating a premium to nta.  

Time will tell as to whether the market is prepared to factor in a premium to nta or a larger price as a multiple of earnings. However the initial market response has been fairly negative.


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## McLovin (4 December 2013)

nulla nulla said:


> Maybe I look at shares differently to you?




Maybe you do. 



nulla nulla said:


> Net Tangible Assets is pretty much what any company is worth if the share holders decide to liquidate the company and realise the assets for distribution to the share holders.




No, it's not. It's the value a bunch of management and financial accountants have ascribed to the company's tangible assets. Are you really telling me that if WOW shut up shop tomorrow it would only realise $2.59/share or TLS $0.35/share?



nulla nulla said:


> It is normally also the starting point in respect of any takeovers. If a buyer isn't offering shareholders nta plus a premium, why would/should they sell?




No it's not. The starting point in a takeover is the forecast future cash flows of the business. I have never, ever seen someone mention NTA as the basis for a takeover. Even in property, cap rates seem to be the standard metric (FWIW the NTA is a function of adjusting the cap rate). I worked in M&A for a few years, so I'm not talking out of my hat.



			
				 nulla nulla said:
			
		

> If a buyer isn't offering shareholders nta plus a premium, why would/should they sell?




Because the bean counters who came up with the number in the first place haven't gotten around to writing it down to it's realisable value. That happens all the time.

NTA probably worked a treat back in the 60's when the old hammer and anvil businesses were laden with heavy manufacturing equipment, these days, outside of some very particular stocks (property trusts and LIC's), it is a pretty irrelevant number, in my humble opinion. You'll end up  pretty much ignoring all the earning power of a business because it trades above it's NTA.


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## coolcup (4 December 2013)

There is no doubt this is a highly complex deal and your suspicions are correct - it is a dud deal for WRT shareholders. Let me take you through the high level analysis:

1. Ignore the capital return

The capital return is smoke and mirrors. It is using leverage to boost WRT's EPS (which drives the quoted 5% accretion). WRT could do this in its own right and is not a benefit of the transaction.

2. The rest of the deal is simply a WRT acquisition of WDC's Australian platform
So, WDC is basically selling:
a. the half share in all the australian assets it owns; and
b. the management rights to WRT including property / development and asset management

The question then becomes, what is WRT buying these for and is this a fair price?

The way the transaction is being effected is that in exchange for the assets WDC is selling, WRT is allowing WDC shareholders to own roughly half of Scentre Group going forward while WRT shareholders will own about half themselves. In determining the price, WDC management stated that they looked at the relevant amount of earnings that WRT and WDC brought to the table of Scentre Group and then valued them at the same multiples. In other words, if WRT contributed half of Scentre's earnings and WDC contributed half, then each group of shareholders would get roughly half of the vehicle each. This sounds fair, right? Wrong.

This ignores the fact that the earnings WDC is bringing to the table are very different in nature to the WRT earnings. WRT basically has a high quality rental stream of earnings from a half share in the Australian Westfield portfolio. WDC is bringing their share of the Australian assets along with the development / property / asset management business earnings. By valuing all the earnings at the same multiple, WDC are ignoring the fact that the management business earnings are very different in nature and more volatile than the rental streams from the properties. WRT's average cap rate is ~6.5% or thereabouts, equating to a 15.4x EV/EBIT multiple. Applying that sort of multiple to development / property management earnings is simply too high and inflates the value of the WDC management business and therefore gives the WDC shareholders an unfair share of Scentre going forward. In effect WRT is paying WDC a very high price for the management business.

This is highly reminiscent of the initial stapling of Westfield Holdings, Westfield America Trust and Westfield Trust to form WDC. That transaction was very complex to analyse but effectively ended up with the two trusts paying a significant premium / multiple for the earnings of the development / management business Westfield Holdings. It is hardly surprising the Lowy's have sold down their stake in WRT some time ago and retain a strong interest in the welfare of WDC going forward.


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## nulla nulla (4 December 2013)

McLovin said:


> ...... I have never, ever seen someone mention NTA as the basis for a takeover. Even in property,....so I'm not talking out of my hat.... You'll end up  pretty much ignoring all the earning power of a business because it trades above it's NTA.




With respect, I am not trolling for an argument, however I only need to point to the offers of both Dexus and GPT for CPA, both of which are projected arround nta. We are not talking about facebook or google or twitter, we are talking about A-REIT's. The proposal in respect of WDC/WRT is also based around the WRT nta.


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## nulla nulla (4 December 2013)

McLovin said:


> Is NTA the best way of valuing the merits of the bid? Because the dynamics of Scentre will be very different to a straight up REIT. I'm asking because I don't really know the answer to the question. I've only read what's in the paper.






McLovin said:


> But you can't value what you're getting based on NTA. The merged entity will be an owner and manager of real estate. Using NTA you're excluding the value of Scentre's management revenue (or more correctly the savings to WRT in not having to pay managment fees) because it doesn't show up on the balance sheet.
> 
> I don't disagree that WRT are probably not getting what they should but I don't think you can quantify it in such black and white terms.




I find it curious that you went from the position of asking "whether nta was the best way of valuing the merits of the bid" to stating "you can't value what you are getting based on NTA". From my personal perspective, nta is a good starting point, supported by return on equity (or FFO for the purists) and yield. 

From what I have read today, holders of WRT are not getting the best of this proposal. I'm happy to be corrrected when someone points out how this proposal will greatly benefit holders of WRT and would be even happier when this great deal is reflected in a share price that rises to or above nta. I don't think it is unreasonable to expect the share price of WRT to match the nta or go higher, when you see so many other A-REIT's (in Retail) trading at nta or higher.  As always, do your own research and good luck.


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## McLovin (4 December 2013)

nulla nulla said:


> With respect, I am not trolling for an argument, however I only need to point to the offers of both Dexus and GPT for CPA, both of which are projected arround nta. We are not talking about facebook or google or twitter, we are talking about A-REIT's. The proposal in respect of WDC/WRT is also based around the WRT nta.




I'm not looking for an argument either but..

You were the one who said...



> Net Tangible Assets is pretty much *what any company is worth* if the share holders decide to liquidate the company and realise the assets for distribution to the share holders.




(my bolding)

So naturally, I assumed you were talking about any company. 

NTA is how a bid might be pitched to retail investors but the actual number crunching would be around cap rates, not what the REIT's own accountants think the NTA should be. It would be like having an IP generating $10k/year in rent, you think it's worth $200k but I don't like the area and I think it's worth $100k. Now either I'm offering you 50% of NTA when I lob in an offer, or your NTA is unrealistic to begin with, I use a cap rate of 10% you use a cap rate of 5%. I'm sure you can work out what would happen to asset values if they were blindly accepted as being fact rather than opinion. 

At least with a LIC that invests in equities you have a real market value not a theoretical value based on cash flow.



nulla nulla said:


> I find it curious that you went from the position of asking "whether nta was the best way of valuing the merits of the bid" to stating "you can't value what you are getting based on NTA". From my personal perspective, nta is a good starting point, supported by return on equity (or FFO for the purists) and yield.




Right, like I said then I hadn't read the announcement. I don't pay much attention to REIT's and the deal was pretty complex, but my immediate reaction was...



> Is NTA the best way of valuing the merits of the bid? *Because the dynamics of Scentre will be very different to a straight up REIT. *




Again bolding mine.




> From what I have read today, holders of WRT are not getting the best of this proposal.




And I've been agreeing with you.

Anyway. Enough said. Goodnight.


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## nulla nulla (8 December 2013)

For what it is worth, I have looked through the Westfield proposal to restructure WDC and WRT and tried to work out, at least for my own interests, how it will work out and how it may impact on holders of WRT shares. Basically the nitty gritty of it as I see it is:

WRT will do a capital return to Shareholders of $850 million dollars equal to 82 shares per 1000 held at the nta rate of $3.47. The number of shares on issue, 2,979,214,029, will effectively be reduced by approximately 244,956,772 shares to 2,734,257,257 shares.

WRT will be rebranded as Scentres Group. The Australian & New Zeaand holdings of WDC will be transferred into the rebranded WRT (here-in-after referred to as WRT II). By way of compensation for the transfer of assets, WDC share holders will receive 1,246 shares in WRT II for every 1000 WDC shares held.

WDC currently has 2,113,501,814 shares on issue (according to comsec/iress) which should mean that WDC share holders will receive 2,633,423,260 WRT II shares. WRT II should subsequently have approximately 5,367,680,517 issued shares.

The release provides the following table as a break up of the proposed share allocation:


  *Issued shares*  *Percentage*  *WRT* 	2734 		51.40%	 *WDC* 	2582 		48.60%	 *WRT(II)* 	5311 		100.00%	

The release figures are probably more current than comsec/iress so I will run with them.

WRT II will inherit the management team of WRT (currently employed by WDC) and will be self managed going forward. This will save WRT II $55 million per annum currently paid each year to WDC as “management fees”.

WRT II will subsequently have total assets under management of $37.9 billion: 
$18.5 billion of these assets will be 100% owned by WRT II; 
a  further $10 billion of the assets will be the WRT II portion of jointly owned assets with other investment partners; 
and the final $9.4 billion of assets will be the portion of jointly owned assets owned by the investment partners. It would appear that WRT II will maintain a controlling interest in jointly owned assets to protect their right to manage the assets.

The release confirms that WRT will be kicking approximately $9.5 billion assets into WRT II (after the $850 million buy back). Equity in WRT II will increase to $14.9 billion, meaning WDC is kicking in a net of $5.4 billion to WRT II. The gearing of WRT II will increase to 38.2% from the present gearing of WRT of 22.5%. However, it should be remembered that WRT is doing a capital return which would increase the gearing of WRT to around 30%. Notwithstanding there is a lot of debt being transferred into WRT II.  The release also shows that the nta of WRT II will drop to $2.81 in comparison with the nta of WRT at $3.47. 


  *WRT* *	WRT(p)*  *WDC*  *WRT II* 	Assets		13.7		13.7		14.8		28.5		Borrowings		-2.9		-3.75		-7.1		-10.9		Liabilities		-0.3		-0.3		-0.8		1.1		Minor Int		0.0		0.0		-1.6		1.6		Equity		10.4		9.5		5.4		14.9		Securities(b)		2,979		2,734		2,582		5,311		NTA		3.47		3.47	 	2.81		Gearing		21.5%		29.0%	 	38.2%	
* WRT(p) is WRT post the $850mill capital return.

I spoke to a young lady at Westfield Investor relations. The advice was that this proposal should not be considered wholey on the basis of nta. However when I asked “why not?” the adviser did not have a prepared answer. We then discussed the intangibles of WRT II including: the $0.6 billion projects in progress; the $2 billion projects in the pipeline; the savings of $55 million per year through self management; and possibly the one with the most potential, the ability of WRT II to enter into joint ventures in respect of the  $18.5 billion of 100% owned assets that they would retain management rights for while freeing up $8-$9 billion capital for further expansion.

The WRT distribution forecast for 2013 is 19.85cents per annum which appears to be 100% of FFO. The WRT distribution forecast for 2014 is 20.4 cents per share. If WRT II continues this pattern share holders can expect to receive 21.5cents per annum per share, an increase over the projected WRT distribution for 2014 of 5.2%

Hard call, what does the market think?  Immediately after the release, WRT fell and WDC rose. The initial market reaction appeared to indicate that the deal favored WDC against WRT.





However the sell down of WRT over Thursday and Friday was actually less severe than the corresponding sell down of other A-REIT’s like CFX, Charter Hall and GPT. Then I noticed news articles wherein  ratings agency Standard & Poor were putting Westfields on “Credit Watch negative” following a similar Credit watch warning from Moody’s.  Moody’s Chairman actually indicated that divesting the Australian Assets would weaken the Westfield Corporation as the Aus/NZ centres appear to be the better assets. By implication this would suggest that WRT II will get the better part of the deal?

I suspect that McLovin and the Westfield Investor relations advisor are probably correct in that the proposal should not be evaluated on the basis of nta. The intangibles outlined above will probably add significant value to WRT II. When you consider how much GMG trades above it’s nta and their share price as a multiple of earnings, there is no reason WRT II can’t do it also…is there? As always do your own research and good luck.


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## nulla nulla (11 December 2013)

Today's Sydney Morning Herald BusinessDay section is running an article by Carorlyn Cummins: *"Westfields faces investor backlash over split".*

http://www.smh.com.au/business/prop...backlash-over-split-terms-20131210-2z3wa.html


I have taken the liberty of posting some extracts from Ms Cummins article:
"Westfield is facing an investor backlash to its proposed split, with institutional managers threatening to vote the deal down if the share component of Westfield Retail Trust is not reworked. The concern is the gearing level of WRT is too high and would require partial asset sales to joint venture partners, which could dilute the underlying asset portfolio. The proposal is subject to approval by 75 per cent of Westfield and WRT security holders at meetings expected to be held next May".
Ms Cummins includes two quotes from analysts:
*John Kim, at CLSA*, said: " the proposed transaction was an acknowledgment by the Westfield Group that the WRT experiment has been a ''disappointment'', given the huge transaction costs involved and WRT's discount to net tangible assets since listing in December 2010.
''Another negative from the transaction is that pro-forma gearing in the new Scentre will be 38.2 per cent, considerably higher than WRT's 21.5 per cent, with S&P putting WRT's A+ credit rating on CreditWatch negative.
''We appreciate that the new group will have a significantly higher asset base of $28.5 billion compared to WRT's $13.7 billion, with active earnings from management income, nevertheless it is still a material increase in gearing.''
And:
*Andrew Smith, fund manager at Freehold Investment Management*, said:.."by splitting into geographic domiciles, Westfield's management was attempting to maximise value for the two entities".
''Prima facie, these suggested changes for WRT make sense and the new vehicle Scentre will have a lot more appealing characteristics than the former WRT".
''The perceived negative is the increase in gearing for WRT, however there is a strong likelihood that a partial sale of existing assets to super funds will help to lower the debt levels.''
But he added: ''Although there is some time for the deal to be worked on, there is the prospect of the terms of the deal being reworked or sweetened to get approval from WRT investors".

It would seem that some retail share holders are not the only ones concerned about the proposed redistribution of equity. The proposed restructure of WRT/WDC to WDC/Scentre(WRT II) as previously posted is:


  *WRT*  *WRT(p)*  *WDC*  *Scentre* 	Assets		13.7		13.7		14.8		28.5		Borrowings		-2.9		-3.75		-7.1		-10.9		Liabilities		-0.3		-0.3		-0.8		1.1		Minor Int		0.0		0.0		-1.6		1.6		Equity		10.4		9.5		5.4		14.9		Securities(b)		2,979		2,734		2,582		5,311		NTA		3.47		3.47	 	2.81		Gearing		21.5%		29.0%	 	38.2%		Equity	 	51.4%		48.6%	 


While the total number of Scentre shares is understated by 5.9 million shares "securities held by executive share option plan trust in WRT" the break up of the WRT/WDC ownership of Scentre will be 51.4%/48.4%. 

The proposed ownership break up of Scentre looks heavilly weighted in favour of WDC shareholders. WRT are putting in a net of $10.4 billion in assets geared at 21.5% before the proposed capital return or $9.5 billion in assets at gearing of nearly 30% after the capital return. WDC on the other hand is only putting in a net of $5.4 billion of assets and "goodwill" (Self management, income from assets under management etc). While the assets will increase to a gross of $28.5 billion, the increase in debt reduces this to a net of $14.9 billion assets geared at 38.2%.

If the perspective was that share holders in WRT and WDC took ownership of Scentre on the basis of equity, WDC share holders would only receive around 750 Scentre shares for every 1000 WDC shares held. The structure of Scentre would be :


  *WRT*  *WRT(p)*  *WDC*  *Scentre* 	Equity		10.4		9.5		5.4		14.9		Securities(b)		2,979		2,734		1,554		4,288		NTA		3.47		3.47		3.47		3.47		Equity	 	63.7%		36.3%	 


That is obviously not going to happen. While the restructure in Scentre could open up "shareholder value" it seems that WDC is definitely getting a premium for their contribution. Not surprisingly the institutional shareholders in WRT are rumbling about needing a "sweetener" to approve the deal. Even less surprising is the hit the WRT share price has taken since the proposal was announced.


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## VSntchr (30 May 2014)

nulla nulla said:


> Personally I think the independent directors of WRT should be sacked for failing to act in the interests of all the WRT shareholders. The meeting has been postponed for up to a fortnight. It would be interesting to see if ASIC takes any interest, even if only to look after the small retail share holders that appear to be being steamrolled.




I was reading the news flow yesterday and couldn't help but chuckle each time the reporter would make another joke about something causing a delay in the meeting.

On a more serious note though, it really doesn't feel like a publicly owned company does it!?


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## nulla nulla (30 May 2014)

The proposed restructure of Westfield Group (WDC) and Westfield Retail Trust (WRT) where in Westfield Trust would become Scentre and acquire Australian & New Zealand assets from the Westfield Group hit a big snag yesterday when less than 75% of WRT shareholders approved the deal. Proxies in favor of the restructure, counted before the meeting, totaled 74.1% and it appeared there was insufficient support at the meeting to carry the vote.

 WRT shareholders were in uproar after learning that in the WDC meeting held in the morning, Frank Lowy advised the WDC shareholders that they would proceed with the demerger of Aussie & NZ assets even if they didn't get approval for the restructure from WRT shareholders. The situation was not helped when it was disclosed that the Lowys had discussed this with some major shareholders in the week leading up to the meeting, where the market in general had not been advised.

 While the proposed restructure would not have a negative impact on those fund managers that have a portfolio of proportionally weighted investments in both WDC and WRT (what they gain in WDC is balanced by what they lose in WRT), the proposal does have a negative impact on those WRT share holders that do not have WDC shares or a balanced portfolio weighting of shares in WDC.

 In effect the proposal is for WRT to rename as Scentre and buy out the Australian & New Zealand WDC assets through the issue of scrip in Scentre to WDC shareholders and to take on debt from WDC. This would result in WRT going from a debt gearing of 21.5% to 38%, a NTA of $3.47 to a NTA of $2.81 and end up with borrowings going from $2.9B to $10.9B. Understandably the WRT share holders didn't think this reasonable even with the so called sweetener of $300m less debt.

 Personally I think the independent directors of WRT should be sacked for failing to act in the interests of all the WRT shareholders. The meeting has been postponed for up to a fortnight. It would be interesting to see if ASIC takes any interest, even if only to look after the small retail share holders that appear to be being steamrolled. 

This post was originally put up before 8:00am today but appears to have been deleted when the site upgrade was implemented. Thank you Joe for retrieving it and enabling me to repost it without having to type it again etc.


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## nulla nulla (30 May 2014)

VSntchr said:


> I was reading the news flow yesterday and couldn't help but chuckle each time the reporter would make another joke about something causing a delay in the meeting.
> 
> On a more serious note though, it really doesn't feel like a publicly owned company does it!?




Seems to be treated as a personal milking machine with all the cream going to a select few.


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