The Westfield Group (ASX: WDC) has announced the establishment of a £530 million wholesale fund to own interests in four Westfield shopping centers in the United Kingdom with a gross value of over £2.1 billion.
The fund, to be named the Westfield UK Shopping Centre Fund, will own 25% interests in Westfield Merry Hill, Belfast and Tunbridge Wells and will purchase a 25% interest in Westfield Derby post completion of its current redevelopment. Westfield will continue to retain a 25% interest in the properties.
The establishment of the fund continues the Group's funding strategy. The Group has raised over A$7 billion in the last 6 months through various transactions including the recent A$3 billion rights issue, the issuance of A$1.25 billion of Property Linked Notes over interests in six Australian centers and the formation of joint ventures in the United Kingdom and Australia.
Westfield will act as fund manager of the new fund and will continue to act as property, leasing and development manager for each of the centers. The new fund will, together with the other transactions in the last six months, increase the Group's management of assets on behalf of outside investors from A$12.8 billion (at 31 December 2006) to approximately A$16 billion.
This announcement follows the subscriptions from two cornerstone investors representing 67% of the fund. The remaining third of the fund will now be marketed to a wider group of wholesale investors.
"We are excited to announce the initial closing of the fund, which provides a further source of long term capital for the Group," said Group Managing Director, Peter Lowy.
Westfield currently manages a portfolio in the United Kingdom of ten properties with a gross value of approximately £3.9 billion.
"Under the Group's development program, the gross value of the United Kingdom portfolio is expected to grow to around £10 billion over the next five to seven years," said Group Managing Director, Steven Lowy.
The fund will purchase its interest in the initial portfolio (Merry Hill, Belfast and Tunbridge Wells) for approximately £380 million, representing an initial yield to the fund of approximately 4.3% after costs.
The fund will acquire a 25% interest in the completed Derby centre before October 2009. The price will be based on the annualised net income of the centre at the time of transfer capitalised at 5.00%, estimated to be around £150 million.
The sale price for the 25% interest in Merry Hill of £262.5 million is consistent with the price Westfield achieved for the sale of a 50% interest to Queensland Investment Corporation in December 2006. Westfield purchased its interests in Belfast, Tunbridge Wells and Derby as part of the MEPC transaction in 2000 and has achieved an unlevered internal rate of return since acquisition of approximately 17% per annum.
This transaction is not expected to materially impact operational earnings or distribution for the year ended 31 December 2007.
M3 Capital Partners has acted as financial advisor and placement agent in relation to the establishment of the fund.