Westfield Unhurt by Lowy Tax Woes

The mall giant's investors shrug off allegations of family tax evasion as Westfield's Peter Lowy prepares for U.S. Senate testimony

by Brad Howarth

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Bank accounts held in the small European principality of Liechtenstein are normally prized for their privacy and advantageous tax benefits—not as a path to being named in a U.S. Senate probe into offshore tax havens. Tell that to Peter Lowy, U.S. operations chief of Australian real estate giant Westfield Group (WDC.AX), or to his father, Frank, Australia's second-wealthiest individual and the chairman of Westfield, the world's largest owner of shopping malls. A Senate report released last week alleges both father and son used bank accounts in Liechtenstein to hide money from Uncle Sam as well as the Australian government.

The Lowy family denies any wrongdoing and will have the chance to make its case in person this week, as Peter Lowy is scheduled to appear before a Senate investigations subcommittee on July 25. (Representing the family as attorney will be Robert Bennett, Washington superlawyer who defended President Bill Clinton during the Monica Lewinsky scandal a decade ago.)

Meanwhile, the elder Lowy already has rejected the assertion in a written statement issued July 17, denying that he or his family have taken any steps to hide assets from Australian taxation authorities. "No attempt was made to save any Australian tax," Frank Lowy said in his statement. "Nor is it considered that any Australian tax was in fact saved."

Australian Investors Shrug It Off

The events that led to the allegations began unfolding in 2002 with the theft of 1,400 customer records from Liechtenstein's LGT Bank by a former employee. German tax authorities later got their hands on those records and subsequently passed them along to their counterparts in the U.S. On July 16, the chairman of the investigations subcommittee of the Senate's Committee on Homeland Security & Governmental Affairs, Senator Carl Levin (D-Mich.), accused Peter Lowy of deliberately hiding funds from the Australian Tax Office in 1998 by creating an LGT foundation and using a U.S. corporation to conceal his family's ownership of the assets. (Peter Lowy was raised in Australia but is now an American citizen based in Los Angeles.)

So far, Westfield investors have shrugged off the matter. While the affair has made headlines in Australia and the U.S., it has barely rated a blip on the radar for Australian equities managers, none of whom has revised advice as a result of the scandal. The Sydney-listed Westfield Group owns 118 malls in the U.S., Britain, Australia, and New Zealand. The portfolio includes 55 properties in the States, covering 63 million square feet of retail space, including the 1.5 million-square-foot San Francisco Center and the 874,000-square-foot open-air Westfield Century City mall in Los Angeles. The company has committed $635 million to the redevelopment of the retail precinct at New York's World Trade Center site (BusinessWeek, 12/4/06).

Holding Up Better Than Its Rival

Given the extent of its American holdings, Westfield has shown notable resilience in avoiding most of the fallout from the subprime mortgage crisis. For the 12 months ended last December, Westfield reported earnings from operations of $1.75 billion, an increase of 11.6% over the previous year. However, the total profit including property revaluations and adjustments was down from $5.44 billion to $3.35 billion.