No Cash Call, Westfield Shares Rise

  Westfield joined the 'losers' club for the June half year yesterday after it was clobbered by falling property values in the US, but supported by the company's strongest business, its Australian shopping malls.Over decade ago Westfield headed for the US to start building an empire there because it saw too few opportunities in Australia; then early this decade, it started eyeing the UK and then moved into that market, to build the base for another arm.Now both the US and UK are millstones around its corporate neck, dragged down by debt, recession and falling property values.But Australia is sound, strongly performing and the difference between a small loss and a terrible outcome, had Westfield been depending on its offshore business for revenue and earnings.Westfield said in the interim report yesterday that income from its & #160;Australian centers posted the biggest gain in any of its markets, rising 6.2% in the six months to June and sales by 5.1% for specialty stores which form the heart of the centres.In contrast specialty store sales in the US fell by 6.2%.The surge came as the Federal Government's spending schemes and stimulus packages helped & #160;consumer and business confidence improve to & #160;the highest levels for almost two years, and helped boost sales at a range of retailers, such as Woolworths, JB Hi-Fi and others, many of whom are Westfield tenants. & quot;The Australian portfolio is performing above our expectations while conditions are stabilizing, albeit at lower levels, in the more challenging environments in the United States, the United Kingdom and New Zealand, & quot; managing directors & #160;Peter and Steven Lowy said in yesterday's statement.But because of impairment losses of almost & #36;3 billion in the half, Westfield & #160;is now in the same league as the likes of Centro Retail (with its US and Australian malls and a & #36;2.68 billion loss) and Centro Properties, with an even bigger loss of around & #36;3.5 billion yesterday.The losses were generated by that mythical factor, the 'non-cash write-down'.Overall, Westfield made a net loss of & #36;708 million for the six months ended June 30, compared to a profit of & #36;1.285 million in the first half of & #160;2008.The statutory result reflected included non-cash mark to market gains on financial instruments of & #36;932 million and asset devaluations of & #36;2.9 billion.(The company had asset devaluations of & #36;3.3 billion for the 2008 year, so that's a massive & #36;6.2 billion for the group in the past 18 months and mostly since July 1, 2008).Westfield, like other real estate groups, such as Stockland and Mirvac, preferred to concentrate on the operating earningsWestfield's operating earnings, its preferred measure of profitability, were & #36;1.040 billion, up 12.1% (or up 8.3% on a constant currency basis).The company said earnings before interest and tax (EBIT) was & #36;1.446 billion, up 18% (or & #160;6.3% in constant currency terms).But once again the actions of the board and management (dominated by the Lowy family), belie the soothing tone in the brief comments.Westfield is forcing shareholders to bear a share of the load with distributions to be slashed this half (and presumably for the full year) with a new basis for future distributions applying from the 2010 interim payment in a year's time.As well the company says it will not start any new developments until the middle of 2010 at the earliest.That's a six months extension of the development pause announced in January.Westfield's said full-year operating earnings forecast is unchanged at a range of 94 Australian cents to 97 cents per share, but interim distribution had been cut to 47 cents a share, from 53.25 cents a year ago, a fall of 11.7%.But the number of issued securities was increased by an equity issue in the six months, meaning that the rise in operational earnings wasn't enough to pay an unchanged distribution for the half year.Looking to next year, the & #160;company will retain about & #36;500 million a year by cutting distributions & #160;to a range of 70% to 75% of operating earnings and associated income hedging, from the previous policy of & #160;up to 100%.That would imply a cut of around 22-25 cents a security for securityholders over 2010.Westfield & #160;raised & #36;3.3 billion of equity and & #36;3 billion of debt since the start of the year to bolster the balance sheet.Gearing at June 30 was 34.8% and it had liquidity of & #36;7.5 billion at June 30, a year ago it had gearing of 32.9% and liquidity of & #36;7.3 billion.Gearing at December 31, 2008 was 34.6% and Westfield said it had liquidity reserves of & #36;8.7 billion, so if anything there's been a worsening in its financial position in the past six months.Westfield also said on Wednesday it had extended & #36;US1.4 billion of a global syndicated debt facility due to mature in January 2011, to August 2012.The dependence of Westfield on its Australian base was clearly shown by the & #160;comparable shopping centre net operating income for the & #160;portfolio which grew by 3%, & #160;with the Australian and New Zealand portfolio growing by 6.2%.The US and UK portfolios declined by 0.6% and 4.1%, respectively.Portfolio occupancy at June 30 was 96.2%, up 0.2% from the March 2009 quarter.But that disguised the importance of Australia and the problem in the US.Westfield's Australian centres were 99.5% occupied at June 30, the US was a worrying 90.4% and the UK, 97.3%.Australian rents rose 5.6%, far in excess of rents from those other countries.For the six months, comparable specialty retail sales for the group's centres in Australia grew by 5.1%; in New Zealand sales were down by 0.2% and the US declined by 6.2%.In the UK, industry statistics show retail sales in London grew by 4.8% and were up 0.5% nationally.Westfield shares rose 58 cents or 4.6% to & #36;13.03 on a day when the overall market was up around 1.1%.The reason for the strong rise was the company ruling out another cash call.  

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