Westfield split plans anger UniSuper
UniSuper, which holds an 8.5 per cent stake in WRT, has opposed the restructure of assets that are jointly held between WRT and Westfield Group, believing the changes favour Westfield Group to the detriment of WRT.
“In simple terms, one could say we bought an apple, and now we are being asked to accept an orange,” UniSuper said in an investment update to clients.
The boards of Westfield Group and WRT have proposed merging WRT, the jointly owned Australian and New Zealand shopping centres, and management rights currently held by Westfield Group, into a new entity called Scentre.
Westfield Group’s international business, which includes malls in Britain and the US, would become Westfield Corporation.
UniSuper said it bought into WRT because WRT was a lowly geared landlord, earning steadily growing rental streams which converted into growing dividends.
Scentre would have much higher levels of gearing and higher risk associated with property development management fees.
The proposed restructure hit a brick wall last week when the vote by WRT security holders on the matter was postponed at the last minute amid heated debate about its merits and the strong possibility that the restructure would be rejected.
Since then, Westfield Group has unveiled plans for an alternative restructure without the involvement of WRT.
Under “Plan B”, the Australian and NZ assets could be run by a new entity named Newco Australasia, independently of WRT.
WRT has warned its security holders that they could be worse off if they do not accept the original restructure proposal at a vote on June 20.
WRT says it is unlikely there will be another opportunity for WRT to acquire all of the Westfield Australian and New Zealand property portfolio.
Also, investors may prefer to invest in NewCo Australasia rather than WRT, which could affect WRT’s security price.
UniSuper said Plan B was just a thinly veiled warning to voters thinking of rejecting the restructure plans at the June 20 vote.
“We hope WRT security holders see through this,” UniSuper said in its newsletter.
UniSuper said Newco Australasia would not necessarily be more attractive than WRT.
After incurring the costs of the restructure, Newco would be highly geared and be forced to sell assets as investors demanded lower debt levels.
This would be a good outcome for WRT given that it has first right of refusal to purchase the properties.
Furthermore, one could not assume that NewCo would always trade at a premium while WRT would trade at a discount.
Because Newco would be a riskier proposition, it could potentially trade at a premium in a strong bull market, but revert to a discount when investors are more cautious.