Westfield Trust to sell 50% stake in Indooroopilly for $300M
03 October 2000
Westfield Trust today announced it had contracted to sell its50% investment in the Indooroopilly shopping centre in Brisbane toCommonwealth Funds Management (“CFM”), the owner of the other 50%of the shopping centre, for $300 million.
The sale price of $300 million represents a yield of 5.7%, whichis 46% above Westfield Trust’s current book value of $206 million,for its 50% interest in the centre.
The sale follows CFM’s invocation of a “roulette” clause in thejoint venture agreement for Indooroopilly. Under this clause CFMoffered its 50% stake in the shopping centre to Westfield Trust for$300 million. This offer was declined, at which time CFM had theright to purchase Westfield Trust’s share for the same price. CFMelected to exercise that right
Westfield Trust has substantial financial resources and is wellplaced to make property acquisitions. Nevertheless, WestfieldManagement Limited, the responsible entity of Westfield Trust,decided against purchasing CFM’s share for $300 million on thebasis that it was in the best interests of Westfield Trustunitholders to sell its share for $300 million.
This price was far in excess of the centre’s current book value,or the expected market revaluation due in December this year.Westfield Management Limited believes that the growth prospects forthe shopping centre do not warrant such a price and that itsprospective internal rate of return based on that price wouldtherefore be unacceptably low.
If Westfield Management Limited believed that the growthprospects could justify this low initial yield, then it would havepurchased CFM’s 50% interest on behalf of the Trust for $300million.
Westfield Trust is traditionally a natural buyer of this qualityof asset and has generated significant income and capital returnsover many years through the active management and expansion of itsshopping centres.
However, in this case, the price was so compelling that it wasin the best interests of unitholders to sell.
The sale will result in an increase in distributions toWestfield Trust unitholders because it effectively raises capitalat 5.7%. These funds are intended to be redeployed in othershopping centre acquisitions and redevelopment opportunities thatwill achieve a yield substantially greater than this cost offunds.