It is remarkable that while Westfield Group and Simon Property Group are sizing up a tremendous growth opportunity in Europe, Centro Properties Group, with their vastly different capital structure, is selling large chunks of their portfolio at wholesale prices in a race to survive.
In answer to Simon Property Group’s disclosure last week of a 3.5% stake in UK retail REIT Liberty International, Westfield Group has announced their own 2.96% position in the firm. With Liberty coming into play and appearing more and more likely as a takeover target, Simon quickly answered on Tuesday by raising their stake in Liberty to 4.22%.
The real question is whether Simon and Westfield will work together in their bid for this choice UK retail portfolio, or if a bidding war will break out. The stakes are an irreplaceable foothold in the world of British retailing. Some of the highlights of the Liberty portfolio include London’s Covent Garden Estate, a prime tourist destination.
Analysts have noted that the acquisition of Liberty could only be a long term strategic maneuver rather than an attempt to capitalize on any share price discount to Liberty’s Net Asset Value (NAV). Prior to these recent disclosures, Liberty was trading below the NAV of its holdings, yet the stock has soared since the announcements, closing up 5.3% in Tuesday’s trading. Furthermore, the Financial Times reports that “A potential price for Liberty of about £12 a share was being talked about in the London market, a premium to the last stated net asset value of £10.95 per share.”
FT.com | Daniel Thomas | August 27, 2008
“Westfield bought 10.7m shares in June and July at an average price of 835p. The company said that the stake was being held for “investment purposes” and declined to comment further. Simon, likewise, has refused to comment on its intentions, although it is unusual for the company to build indirect stakes in rival developers. This is also its first investment in the British property market.”
Bloomberg | Simon Packard | August 26, 2008
“There’s a track record of takeover collaboration between the two companies,” said John Perry, an analyst at Deutsche Bank AG with a “sell” rating on Liberty. “This looks like positioning for something down the line.”
The Wall Street Journal |William Boston | August 27, 2008
“Both groups have now clearly pulled up a seat at the table,” said Merrill Lynch property analysts in a note to clients. “They could be either working together and looking to divide up the assets, or the move by Westfield could be a defensive move to try and keep new entrants out of this market.” Westfield is currently building the U.K.’s two largest malls. Its Westfield London project is scheduled to open in October and Westfield Stratford City on the grounds of London’s 2012 Olympic Games complex is targeted for a 2011 opening. Simon, based in Indianapolis, operates 323 U.S. properties and 51 in France, Italy and Poland but none in the U.K.”
August 27th, 2008 at 3:10 pm
Given the fragility of credit markets and the possibility of a double dip recession, I don’t see how expansion into a new foreign market in which you have no experience makes any sense.