WESTFIELD EXPANDS GLOBAL PLATFORM INTO BRAZIL
10 August 2011
The Westfield Group (ASX:WDC) today announced its entry into Brazil through the strategic acquisition of a 50% interest in Almeida Junior Shopping Centers S.A. (Almeida Junior), a vertically integrated owner, manager and developer of Brazilian shopping malls. As a result of this acquisition, WDC will expand its global platform into the growing Brazilian shopping centre market.
The Chairman of Westfield Group, Mr Frank Lowy AC, said: “Today’s announcement represents an exciting and significant strategic investment for the Group which expands our global franchise into this large and high potential market.
“This is our first new market entry since we entered the United Kingdom in 2000 and follows the restructure of the Group in late 2010. Whilst the climate in the world financial markets is volatile at present, this transaction is in the Group’s long term investment and funding plan, and one we have been investigating for an extensive period of time.”
WDC will invest R$740 million (A$440 million) and become a 50% owner and active partner in the company to be renamed Westfield Almeida Junior Shopping Centers S.A.
Westfield Almeida Junior will own and operate five shopping centres in southern Brazil, including two currently under development. The company, led by its founder and CEO, Mr Jaimes Almeida Junior, has been operating shopping centres in Brazil since 1993. It undertakes all aspects of shopping centre design, development, construction, leasing, marketing, management and ownership along similar lines to WDC.
The Co-CEO of Westfield Group, Mr Steven Lowy AM, said: “The underlying characteristics of the Brazilian market combined with a strong and diversified local retailer base and growing consumer spending makes Brazil a strategic long term growth opportunity for the Group.
“Mr Jaimes Almeida Junior has had a long history of success in the Brazilian shopping centre industry building a company with a strong cultural fit with Westfield. This partnership is an exciting launching pad for us into the region and we plan to significantly expand our business in Brazil through development and acquisition.
“We will bring the Group’s global expertise and capacity in shopping centre management, development, leasing and capital markets, and provide a number of senior executives to the company. We would therefore expect that, over time, our Brazilian partnership will become a major contributor to the earnings and development pipeline of the Group.”
Mr Jaimes Almeida Junior, who will become the CEO of Westfield Almeida Junior, said: “I am very pleased to partner with Westfield, one of the world’s leading shopping centre groups. Our objective is to transform our company into a leading shopping centre group in Brazil.”
Brazil is the seventh largest economy in the world with a GDP of approximately US$2.1 trillion and a population of approximately 190 million people. Brazil has seen high economic growth over recent years as well as a substantial increase in its middle class population. Over 110 million people in Brazil are now considered to be middle class or above.
Retail sales have grown strongly since 2000 with shopping centres in Brazil representing only 18% of the country’s total retail sales compared to 52% in the United States and 41% in Australia. In addition, shopping centre space per capita of population is relatively low in Brazil, at 0.05 square metres (sqm) per person, compared to 1.37sqm in the US, 0.54sqm in Australia and 0.21sqm in the United Kingdom. The ownership of shopping centres is also highly fragmented.
The underlying characteristics of the shopping centre industry in Brazil are similar to the other markets in which WDC operates. There is an established industry of anchor based centres with the majority of income sourced from a wide offer of local and international specialty stores on mainly five-year lease terms and rents, similar to Australia, indexed annually to inflation. The average size of a specialty store in the company’s portfolio is smaller than in WDC’s existing markets at approximately 70sqm.
Under the terms of the transaction, Westfield will invest a total of R$740 million (A$440 million) in acquiring a 50% interest in the company, valuing the company at R$1,480m (A$880m). The valuation for the company represents an 11.2 times EBITDA multiple on first year forecast earnings.
WDC’s investment includes a direct capital injection into the company of R$400 million (A$240m), which will result in the company having no net debt and providing it with the capacity to grow over time.
The company owns and manages three existing shopping centres throughout the state of Santa Catarina, a high income demographic region of Brazil with a population of six million people. It will also continue the development of two new shopping centres in Blumenau and Florianopolis (the capital of Santa Catarina), with completion expected by year end 2011 and 2012, respectively. The company will have a 55% market share of the shopping centre space in the state.
The total portfolio comprises approximately 157,000sqm of retail space with almost 900 stores. The sales productivity for the centres is high with occupancy cost ratios for the established centres at the lower end of the industry’s peers.
The company is based in Sao Paulo and employs approximately 1,000 people.
WDC will be directly involved in the management and growth of the company. The board of the company will comprise an equal number of representatives from WDC (one of whom will become the Chairman of the company) and the Almeida Junior family.
As a result of the transaction, the Group will operate in five countries – Australia, New Zealand, United Kingdom, United States and now Brazil. The Group’s assets under management will increase by almost A$1 billion. The Group expects to achieve an unlevered internal rate of return in excess of 15% on its invested capital.
The transaction is expected to be earnings positive and is forecast to contribute 0.3 cents to Funds from Operations in 2012. The accretion is expected to increase further in future years as a result of both the income growth from Westfield Almeida Junior’s existing portfolio as well as the anticipated growth in the overall size of the business.\n\n
The Westfield Group (ASX Code: WDC) is an internally managed, vertically integrated, shopping centre group undertaking ownership, development, design, construction, funds/asset management, property management, leasing and marketing activities and employing over 4,000 staff worldwide. The Westfield Group has interests in and operates one of the world’s largest shopping centre portfolios with investment interests in 124 shopping centres across Australia, the United States, the United Kingdom, New Zealand and Brazil, encompassing around 25,000 retail outlets and total assets under management in excess of A$59 billion.
This release contains forward-looking statements, including statements regardingfuture earnings and distributions. These forward-looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this release. You should not place undue reliance on these forward-looking statements. These forward-looking statements are based on information available to us as of the date of this presentation. Except as required by law or regulation (including the ASX Listing Rules) we undertake no obligation to update these forward-looking statements.