It’s no wonder Frank Lowy and his Westfield group really like Australia and the Federal Government and take calls from the Prime Minister, the Treasurer and officials about updates on retailing conditions. Of all the companies to have benefited from the Government’s stimulus spending packages, Westfield stands out.

Without the impact of the cash splashes, Westfield would be struggling, weighed down by the millstones that its operations in the US, and lately the UK, have become.

The solid performance of Westfield’s Australian shopping centres has enabled it to ride out the slump in its US business where the 55 malls are being hurt badly by the recession and surge in unemployment; and in the company’s developing UK centres with that economy still depressed.

Westfield yesterday said in the interim report that income from its Australian centres 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 that form the heart of the centres.

Its story was in the detail: while overall, portfolio occupancy at June 30 was 96.2%, up 0.2% from the March 2009 quarter, its 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%.

That 6.2% fall in specialty store sales in the company’s 55 US malls has driven Westfield’s problems. If it hadn’t been for the 44 centres in this country (and the 12 in New Zealand), Westfield would been flooded with red ink.

“The Australian portfolio is performing above our expectations while conditions are stabilising, albeit at lower levels, in the more challenging environments in the United States, the United Kingdom and New Zealand,” managing directors Peter and Steven Lowy said in yesterday’s statement.

But because of impairment losses of almost $3 billion in the half, Westfield is now in the same league as the likes of Centro Retail (with its US and Australian malls and a $2.68 billion loss) and Centro Properties, with an even bigger loss of about $3.5 billion yesterday. The losses were generated by that mythical factor, the “non-cash write-down”.

Overall, Westfield made a net loss of $708 million for the six months ended June 30, compared to a profit of $1.285 million in the first half of 2008.

The statutory result reflected included non-cash mark to market gains on financial instruments of $932 million and asset devaluations of $2.9 billion.

Westfield’s operating earnings, its preferred measure of profitability, was $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 $1.446 billion, up 18% (or 6.3% in constant currency terms). But again the actions of the board and management 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.

Peter Fray

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