Westfield Unhurt by Lowy Tax Woes

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While Westfield's stock is down 20% this year, that's in line with the Australian stock index, and the company has held up better than some of its smaller rivals. The financial meltdown has placed significant strain on competitors, including rival Australian shopping mall owner (BusinessWeek.com, 1/14/08) and manager Centro Properties (CNP.AX). That company has struggled to meet debt obligations, and on July 15 sold 29 of the 31 properties in its Centro America Fund to an undisclosed U.S. pension fund for $714 million, a 10% discount to their book value.

In a research report issued June 19, Sydney-based Deutsche Bank (DB) property analyst Matthew Bertram rated Westfield a "buy," with annual earnings per share growth projected at 6%, despite the possibility of slowing U.S. retail sales. "Westfield remains well placed in our opinion, vs. other property stocks that may struggle to provide stable earnings into [2009]," he wrote. Given its well-capitalized balance sheet and $7 billion liquidity, Westfield "has the capital, resources, and experience to take on potential acquisitions during a downturn."

Broadening Its Focus to England

Citigroup's (C) head of property research in Sydney, Quentin Velleley, attributes Westfield's success to a prudent capital management strategy that saw it issue equity before the subprime crisis hit, while keeping its debt ratio at or below 30%. "It was almost as if they were preparing themselves for something like this," Velleley says. "They don't have the refinancing problems and kept the same capital management agenda they have always had."

Westfield acquired many of its U.S. properties during the 1990s, selling those in underperforming markets while redeveloping those in more prosperous areas. It avoided purchasing properties in the past decade when they have been expensive, and actually sold eight U.S. properties to Centro for $550 million in May 2006.

More recently the company has broadened its focus to include expanding its assets in England, where it has a 50% stake in the development of the Westfield London mall in Shepherd's Bush. It also controls the Stratford City development alongside London's new Olympic precinct.

No Stranger to Intrigue

While Peter Lowy currently manages the U.S. business, Westfield's strategy is very much the legacy of his Czech-born father and the company's chairman, Frank Lowy, who opened his first mall in the Sydney suburb of Blacktown in 1959 after emigrating to Australia from Israel. But despite his integral role in the company's development, analysts credit Frank Lowy with creating a healthy succession strategy through his sons, Peter Lowy and Westfield Managing Director Steven Lowy, backed by a well-regarded management team.

Frank Lowy is no stranger to international intrigue, having been embroiled in a corruption scandal involving Israeli Prime Minister Ehud Olmert in 2007. All charges were dropped after an investigation. A strong supporter of soccer, Lowy was an instrumental figure in the creation of a new national Australian competition. He also has served as a board member of the Reserve Bank of Australia, and has received one of Australia's highest honors, a Companion to the Order of Australia. In 2003 he created an international policy think tank for foreign affairs, the Lowy Institute for International Policy, and was subsequently awarded the Woodrow Wilson Award for Corporate Citizenship in 2006.

Howarth writes for BusinessWeek from Sydney .