Westfield America Trust, Simon and Rouse agree to acquire RNA
14 January 2002
Countries: United States
Westfield America Trust (WAT), The Simon Property Group (Simon)and The Rouse Company (Rouse) have joined to acquire the assets ofRodamco North America (RNA) for a gross value of approximatelyA$10.5 billion, reflecting a purchase price equivalent to 55 Eurosper RNA share and including the assumption of RNA’s debt.
The value of the assets being acquired by WAT is approximatelyA$4.5 billion which includes the assumption of A$2.5 billion ofdebt. Settlement is expected to take place in the second quarterthis year. Upon completion of the acquisition, RNA will beimmediately liquidated and the net proceeds paid toshareholders.
As a result of this transaction, WAT will become the 2nd largestshopping centre owner in the US.
Overview of the Transaction
Of the 36 regional and super regional shopping centres in RNA’sportfolio, two smaller centres will be sold and 34 will beallocated between the three entities.
- 14 of these centres, accounting for 43% in value, will beacquired by WAT.
- this includes 12 centres which are either wholly owned or jointventured with third parties.
- 9 centres are held in joint ventures with either WAT (1 centre- Garden State Plaza), Simon (4 centres) and Rouse (4 centres). Ofthese, WAT will acquire:
– RNA’s 50% interest in Garden State Plaza (which will now bewholly owned by WAT).
– RNA’s 50% interest in Franklin Mall in Toledo, Ohio, togetherwith the 50% interest currently held by Rouse.
The addition of the RNA centres will increase Westfield’spresence in its existing markets of northern California, LosAngeles and Ohio and open up two new markets in Chicago, Illinois,and Tampa, Florida, providing an improved geographic spread ofassets across the US.
It will increase the number of clusters of Westfield centresfrom 7 to 11, providing greater branding and leasing opportunitiesand marketing efficiencies.
Based on an initial review of the portfolio, developmentprojects amounting to A$2.3 billion have been identified in respectof the RNA centres which will be carried out over the longterm.
The transaction includes a number of non-core assets (with WAT’sshare being approximately A$500 million) which are intended to besold over time.
It also includes an investment in a relatively small third partyproperty management business which will be jointly owned with Simonand Rouse.
The transaction will be accretive to WAT and is expected toprovide a one-time increase in WAT’s distribution per unit of 7% onan annualised basis.
The RNA centres to be acquired by WAT have sales per square footof US$420 and an occupancy level of 92% and will add a further 1.4million metres of retail space to the Westfield portfolio, takingthe total retail space to 5.8 million square metres.
The RNA centres are high quality shopping centres in goodlocations, and in the case of the Century City centre in LosAngeles and the San Francisco centre in downtown San Francisco are,like Garden State Plaza in New Jersey, among the best in thecountry.
The chairman of Westfield, Mr Frank Lowy, said the transactionwas beneficial to all parties – WAT, its joint bidders and RNAshareholders.
“The speedy and pragmatic resolution of the impasse allowsWestfield to achieve its objectives. It places us now in theposition we wished to achieve in the long-term in relation to asubstantial number of the RNA properties in which we had aparticular interest. We are now able to take advantage of this andmany other opportunities for further growth in the US,” Mr Lowysaid.
Simon and Rouse were natural partners with WAT given bothcompanies were already involved in joint ventures in eight of theRNA properties.
“We are delighted that we have been able to conclude thistransaction in partnership with two of America’s leading RealEstate Investment Trusts (REITs) in a way that creates value forall parties,” Mr Lowy said.
The Supervisory and Management boards of RNA are recommendingthe proposal for the asset sale and subsequent liquidation of RNA.RNA anticipates holding a shareholder meeting in February toapprove the transaction and allow for the distribution of thetransaction proceeds.
Westfield Holdings Limited (WHL) has agreed to vote its 24.9%shareholding in RNA in favour of the transaction and suspend legalproceedings against RNA pending completion of the deal.
The addition of the RNA centres to the Westfield Americaportfolio complements and builds on the acquisition of 9 newcentres from the Jacobs Group announced in December, 2001, takingthe total number of centres in the US to 61.
Capital Raisings by Westfield America Trust
WAT proposes to fund its portion of the RNA acquisition and provideworking capital through a number of capital raisings totalling $2.4billion:
- A placement of ordinary and preference units to Australianinstitutions for A$1.15 billion, underwritten by UBS Warburg.
- An additional investment of A$900 million in a combination ofordinary units and Westfield America Inc., common stock byWHL.
- A placement of A$200 million in ordinary units to one or moreEuropean investors.
- A non-underwritten retail offering of ordinary units for A$150million, at the same price as the institutional placement, by wayof a prospectus to be issued in late February 2002.
The transaction is subject to the customary approvals by RNAshareholders and the capital raising is subject to WestfieldAmerica Trust unitholder approval at a meeting expected to be heldin March, 2002.
Following the capital raisings WAT’s market capitalisation isexpected to exceed A$5 billion which would then make WAT the 2ndlargest listed property trust in Australia.
Impact on Westfield Holdings Limited
WHL will receive a liquidation distribution in respect of its24.9% shareholding in RNA. RNA has estimated this liquidationdistribution will be between 53 and 54 Euros per RNA share afterallowing for Dutch taxes, and with no dividend entitlement for theperiod from March 1, 2001 through to the closing date. This willresult in WHL receiving funds of about A$1 billion in return forits shareholding in RNA, the majority of which will be re-investedin WAT as part of the above capital raisings.
WHL originally purchased its shareholding in RNA from ABP for51.12 Euros with full dividend entitlement from March 1, 2001. Anycapital gain derived by WHL from the transaction will be offset bydividends foregone.
The transaction will increase the number of centres in theWestfield Holdings worldwide management portfolio from 96 to 108,with assets under management increasing from A$25.9 billion to A$30billion. This continues the rapid growth in assets under managementfor Westfield Holdings which in the 10 years since 1991 have grownfrom A$3.5 billion to the current figure of A$30 billion.
The exchange by WHL of its shareholding in RNA for units andshares in WAT and Westfield America Inc. will not materially changeWHL’s earnings. However, the addition of the RNA centres will leadto increased management fees and the potential for futuredevelopment income for WHL.
During meetings with investors over the last six months in TheNetherlands, it appears that there may be a market forWestfield-listed vehicles that invest in regional shopping centersin the US, Australia/New Zealand and the United Kingdom. To thatend, WHL will investigate the possibility of listing itself,Westfield Trust and/or Westfield America Trust on the EuronextAmsterdam stock exchange.
WAT and Westfield America Inc., were advised by Merrill Lynchand Goldman Sachs in the US and by UBS Warburg and ABN Amro inEurope and Australia. WHL was advised by Deutsche Bank and SalomonSmith Barney.