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Westfield Results Demonstrate Decline In U.S. Mall Market

Tyler Durden's picture




 

Westfield, the world's largest mall operator, announced results earlier today, which demonstrated substantially accelerating real estate writedowns, primarily in the US. For the six month period ended June 30, Westfield announced $2.5 billion in property revaluations, after posting $2.6 billion in comparable charges for the entire 2008 year period: the company is finally marking its asset book to something vaguely resembling reality. 

As a result of deteriorating operations, the company also announced it would reduce its dividend payout from 100% of earnings to 75%, in anticipation of a liquidity crunch resulting from over $19 billion in debt maturing between 2010 and 2014.

Other notable data: U.S. retail sales on a per square foot basis declined by 6.2% from $437 to $410 just over the past six months, and by 10.8% from June 2008: the worst deterioration of any of the company's regional properties.

Furthermore, cap rates have increased by over 0.3% across Westfield's four regions over the last 6 months, with the U.S. surprisingly representing the highest end range.

Also, notably the weakest retail categories were jewelry, fashion and leisure, all of which declined by over 10% year over year.

Net-net: the news that the deterioration in the U.S. mall market shows no indication of abating, and rent capacity is substantially deteriorating, not only for the company's 8,889 US malls, but for bankrupt GGP and its competitors, will likely be sufficient reason for other garbage REITs with deteriorating performance metrics to see their stocks jump once again for no other reason aside from... well, no other reason, which seems to be same principle that drives stock trading each and every day in all other garbage sectors.

 

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Tue, 08/25/2009 - 22:25 | 48344 Anonymous
Anonymous's picture

I look at that top graph, the maturity schedule, and I lick my god damn lips. This whole mess is just beginning...

Tue, 08/25/2009 - 23:50 | 48419 passive_lurker
passive_lurker's picture

Timmy and Ben will do everything in their power to prevent the free market from functioning properly.

I hope it won't be enough.  The economic reset button needs to be pushed although I wonder if things will be any different on the other side of the abyss.

Wed, 08/26/2009 - 01:47 | 48493 D.O.D.
D.O.D.'s picture

From where you are now, you can't imagine what the bottom will be like.

Tue, 08/25/2009 - 22:27 | 48345 Fish Gone Bad
Fish Gone Bad's picture

The Mills Corp. shopping mall in Orange Ca., "The City" is turning into an outlet mall.  People are walking around with drink cups and fast food.  I did not see a lot of shopping bags there like there used to be.

Tue, 08/25/2009 - 22:40 | 48362 hohack
hohack's picture

Just need a casino.... and $$$

Tue, 08/25/2009 - 22:35 | 48350 Pizza Delivery Man
Pizza Delivery Man's picture

Tyler-

Bitch please...the recession is over.

This is sarcasm - For those who fail to realize internet sarcasm.

However,.........Asia has enough $$$ to buy whatever they want (they've already started buying mortgages)

Tue, 08/25/2009 - 22:44 | 48358 Terminal Frost
Terminal Frost's picture

Food courts and steamed green shoots.  Tasty.

The depth of the financial pain to be felt in the real economy in the next 36 months is staggering.

CRE balloons/maturities....CHECK.

Alt-A and Option ARMS....CHECK.

Increasing unemployment....CHECK.

State and local budget crises....CHECK.

Disastrous fiscal/social policies coming out of Congress....CHECK.

Tue, 08/25/2009 - 22:49 | 48372 Project Mayhem
Project Mayhem's picture

We are go for main-engine ignition.

Tue, 08/25/2009 - 22:52 | 48375 Terminal Frost
Terminal Frost's picture

Thank God for the Zimbabwe Ben booster rockets.

Tue, 08/25/2009 - 23:36 | 48408 TumblingDice
TumblingDice's picture

Obama(tm) remote control system activated.

Wed, 08/26/2009 - 00:19 | 48436 texpat
texpat's picture

Inflate the money bag!

Tue, 08/25/2009 - 22:39 | 48359 BrianOFlanagan
BrianOFlanagan's picture

I'm no REIT bull, but the numbers above are actually better than expected.  And if cap rates on U.S. malls are really 6.8%, then REITs are going higher - much higher.  If you put a 6.8% cap rate on SPG, it's an $80 stock.

Tue, 08/25/2009 - 23:33 | 48403 Anonymous
Anonymous's picture

SPG diluted over 20%. $80 puts it at almost an all-time high? Have another beer...

Wed, 08/26/2009 - 15:55 | 49035 Gilgamesh
Gilgamesh's picture

Simon @ 80 tomorrow if this pace keeps up.

Wed, 08/26/2009 - 00:09 | 48429 KevinB
KevinB's picture

I dunno - my wife and daughter drove from Toronto to Buffalo to go shopping last Sunday. When she returned, she said that traffic at the mall was significantly less than she normally sees, and the two restaurants they ate in were offering great deals (4 course 12-oz prime rib dinner for $23) and were simultaneously empty. And an old girl friend runs an independent burger joint just outside Cleveland, and she says business at her place (average check is less than $7 per person) is going well, but higher priced independents and even some chains like Applebee's are closing stores. It just doesn't sound like an environment where REIT's are going to recover soon.

Wed, 08/26/2009 - 00:13 | 48432 MinnesotaNice
MinnesotaNice's picture

I don't think you can say "better than expected" unless you are making fun of CNBC...   :-)

Wed, 08/26/2009 - 00:43 | 48450 Anonymous
Anonymous's picture

The higher the cap rate, the lower the value of their properties.

Wed, 08/26/2009 - 01:09 | 48471 Anonymous
Anonymous's picture

The problem is that it isn't. Cap Rates for retail in the US currently averages at 8.12%. And it is heading higher. And if you look at the spread of caprates by region, the areas where Westfield has 60% exposure (West and South) have the higher caprates. So, the question that should be asked is whether 6.8% is the RIGHT CAP RATE to use for revaluing the assets.

I think the answer is a resounding no.

http://cbremarketing.com/ve/ZZN80Tq616031x9174XD

Wed, 08/26/2009 - 02:11 | 48504 Froggy
Froggy's picture

Most of those deals that Westfield did since 2004 transacted below 6% cap.  That range went up to 10% cap and with that maturity schedule (just like everybody elses) cap rates are going vertical.  How do you refinance your 5.5% cap deal from 06 that was levered up 80-90% Interest Only 5 year money when your FMV is now 9% cap?  Throw in rents dropping 20% and vacancies persisting in the 10-15% range, and pretty soon your LTV is 150%+.  How do you underwrite that deal to a more moderate 60% LTV without kicking in a shitload of cash?  Answer: You can't.

Wed, 08/26/2009 - 08:00 | 48552 BrianOFlanagan
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Agreed that those that used 80-90% leverage are in trouble.  But that is not Westfield and most of the major REITs.  Westfield's leverage is only 34%.  Simon's is 56%.  Cap rates may indeed go to 10%, but if they don't, REITs are going higher.  Again, I'm no bull, but I respect the bull case.

Wed, 08/26/2009 - 09:32 | 48601 PragmaticIdealist
PragmaticIdealist's picture

But it's not all about the cap rate, that's only one half of the equation.

What about rents? How can you or the bulls possibly expect strong growth rate in rents when the economy has been overleveraged at an unsustainable level for decades culiminating in massive writedowns and losses of equity and asset values and then unemployment?

 

Any slightly rosy picture of the rents is going to fail miserably absent some sort of stagflationary scenario.

Tue, 08/25/2009 - 22:50 | 48360 KeyserSöze
KeyserSöze's picture

Tyler didn't you hear Hanz and Franz from Goldman today...the plan is set...Unlce Ben is going to put CRE refi's and backstops on every piece of shit coming in the maturity window that you are talking about...That would swell the balance sheet for the fed...to 4 trillion....

We have seen Australia, Canada come out and say that they are going to start selling their currencies soon...around 82 and 93 respectively ...look for major FX CB manipulation coming to a trade desk near you....as the USD dollar collapses.....

Wed, 08/26/2009 - 00:22 | 48437 texpat
texpat's picture

From watching FXA every day, selling USD will set the equities ball rolling downhill again.

The balls must be getting hard to juggle.

Wed, 08/26/2009 - 06:43 | 48541 aus_punter
aus_punter's picture

serious question... when did the RBA say they are going to start selling AUD ?.... I know they have sold some around 83.5 but have seem no mention of anticipated sales

Tue, 08/25/2009 - 22:42 | 48363 Gilgamesh
Gilgamesh's picture

Cue RoboTrader posting a pic of the REIT-Retail 3D Heatmap today (over 90% green, half with >3% gains).

 

Over/Under on when/if Moody's downgrades DDR unsecured to non-IG?

Tue, 08/25/2009 - 22:43 | 48366 Project Mayhem
Project Mayhem's picture

Look I don't understand what people are complaining about -- China will buy our worthless paper, and send us valuable goods -- goods for us to purchase in massive, vapid, spiritually vacant malls across this great land.  Now let's all say the pledge of allegience together.

Tue, 08/25/2009 - 22:47 | 48370 Terminal Frost
Terminal Frost's picture

When do I start teaching my daughter to speak Chinese?

Tue, 08/25/2009 - 23:54 | 48421 Ghettomedic
Ghettomedic's picture

She'll learn quickly enough when she's nannying their kids for minimum wage and savings bonds.

Wed, 08/26/2009 - 05:08 | 48527 Anonymous
Anonymous's picture

hahah totally agree

Wed, 08/26/2009 - 00:10 | 48430 KevinB
KevinB's picture

Ask Jimmy Rogers...

Tue, 08/25/2009 - 22:49 | 48373 crzyhun
crzyhun's picture

Overcapacity, overcapacity, overcapacity.

Tue, 08/25/2009 - 22:53 | 48376 deadhead
deadhead's picture

"...the company is finally marking its asset book to something vaguely resembling reality."

This shit better not start happening with our banks, damnit!

Sincerely,

Rahm

 

Tue, 08/25/2009 - 23:03 | 48387 Anonymous
Anonymous's picture

sincerely?? from rahm?? don't you mean fuck-you?

Tue, 08/25/2009 - 23:57 | 48423 TumblingDice
TumblingDice's picture

Imposter!

Wed, 08/26/2009 - 00:05 | 48426 MinnesotaNice
MinnesotaNice's picture

lol

Tue, 08/25/2009 - 22:57 | 48380 Anonymous
Anonymous's picture

Westfield shares up at the moment in Australia.?????????????

Tue, 08/25/2009 - 23:04 | 48389 Hephasteus
Hephasteus's picture

Understimate your losses to make yourself look more valuable and attractive for as long as possible. Then cover the stench up till it uttery cracks the foundation of business. Coming to every publicly held company in america near you.

Tue, 08/25/2009 - 23:36 | 48407 Anonymous
Anonymous's picture

Once upon a a time in Amerika, we were farmers who lived on our land and farmed our land and grew our own food and had our own water and if we needed something we made it. So the merchants said. What good are these people to us? We can't make money off of people who are self reliant and don't need us for anything, much less do they even come to town that much. In the old days, stores were small because most Amerikans grew their own food and didn't need much from the store. These malls are a relic of our consumerist past. Gone are the days, when we spent money we didn't have on stuff we don't need. To you merchants out there that sold us stuff we didn't need on credit, I have a message for you from the streets. If you enjoyed your little run ever since the creation of the stupid credit card in the 1960's and you enjoyed making money off of us, I say to you, soon the other side of that coin is coming and fast. If you thought the Rodney King riots in 1992, in La La land were something, you haven't seen anything yet. If I could I would say to you, that I am sorry to see you killed and your shops burned. But I can't. I simply have no compassion for you. You enjoyed the FED food as it was served up. You enjoyed the consumerism that you said we needed because it served your interest well. It allowed you to live in gated communities while the rest of us had to fight among ourselves in our mixed communiites living in crappy houses and living paycheck to paycheck working at crappy jobs all so we could keep up with some fake ass moron who we see living high on the hog on the boob toob. Yes it is all the same to me. I paint with a broad brush but I have to. The days are coming when the crooked ways must be made straight. In those days of the troubles, there will be no time to parlay, to bargain, to argue minute points of some law that never was. There will be burning and killing and revenge taken whether real or perceived, it won't matter. The police, as they did in LA, will be hiding in their cop shops , afraid to come out saying to themselves, why should we get killed for this lousy job. Oh yes, my dear friends, such is the way it will be. If I could whisper in the ears of the thieves who have stolen, the thieves who have taken, the murderers who have killed and made my people go kill the innocent for their sakes, I would tell them. Prepare yourselves. For me, I am a humble man, a good man and killing will not come easy to me for it is not in my nature. But I must tell you now, there are those that it is nothing more than second nature to them. Angry Vietnam veterans still mad as hell about that stupid unnecessary war of long ago. Gulf war veterans angry at a country that sent them in harm's way for no good reason. So you see FED creeps and others who read this blog who know what I am talking about, really know. I speak to you. Your days are nearing a end. Enjoy the last times of your lives. When the string you up and ask me , how say you, give us the sign, I will , extend two thumbs down. This is my pledge. This is my sacred honor. We will give it all for this nation, for this country, for this land that we love, make no mistake about it.

Wed, 08/26/2009 - 13:03 | 48848 straightershooter
straightershooter's picture

Care to share the timing of this coming R&R (Riot and Revolution)?

Wed, 08/26/2009 - 13:48 | 48885 Argos
Argos's picture

The revolution comes on the same day the television broadcasting goes down for good.  Well, maybe a few weeks after that.  There's a lot of weight loss that is going to have to happen first. J6P is looking a little to hefty for a revolution.

Tue, 08/25/2009 - 23:53 | 48420 JohnKing
JohnKing's picture

Secondhand shopping and church bubble on the way:

Many empty storefronts are left behind in the wake of dozens of retailers filing for bankruptcy over the past couple years, Trobaugh said, and different types of tenants are filling the empty retail space. They include churches, libraries, tutoring services, tech schools and secondhand shops.

 

Mall News

Wed, 08/26/2009 - 00:11 | 48428 MinnesotaNice
MinnesotaNice's picture

Nice... church in a vacated, money losing mall... nothing more American than that... the plate glass display windows... the abandoned shelving and displays... the traffic worn carpet... I'm feeling more spiritual already... makes me want to get married again just so I can drink in the ambiance.

Wed, 08/26/2009 - 00:48 | 48453 Anonymous
Anonymous's picture

Well now that shopping is gone, the American masses will need to return to our old favorite opiate. Whatever keeps us from asking questions of power....

Wed, 08/26/2009 - 00:37 | 48442 Anonymous
Anonymous's picture

Church's aren't paying $46.00 a sq. ft for rent and neither are retail stores as the sales per sq. ft go from $410 to into the $300's.

Wed, 08/26/2009 - 00:40 | 48445 Gubbmint Cheese
Gubbmint Cheese's picture

REIT's "prepared for their journey and waved goodbye.. and slipped the surly bonds of earth to touch the face of god. "

as with the dot.com era.. reality can be deferred, but it can't be ignored forever.

financial gravity will always endure.

gc

Wed, 08/26/2009 - 01:31 | 48484 Spartacus
Spartacus's picture
Redbook: US Retail Sales -0.7% First 3 Wks Aug Vs July

This one appeared on http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=e9c443ed-ba33-4e1b-955e-39a77518446f. on 25th Aug 2009.

Why this was not reported in Bloomberg?

Wed, 08/26/2009 - 01:41 | 48489 George the baby...
George the baby crusher's picture

How about a Chinese language schools in the empty malls?

Wed, 08/26/2009 - 01:50 | 48496 Project Mayhem
Project Mayhem's picture

haha

Wed, 08/26/2009 - 06:04 | 48533 Pizza Delivery Man
Pizza Delivery Man's picture

Any currency traders awake?

It's gona be quite a day :)

Wed, 08/26/2009 - 07:44 | 48550 Anonymous
Anonymous's picture

I am not a trader. WOW, it is going higher, maybe much higher. Is Ben doing something to celebrate his re-appointment?

Wed, 08/26/2009 - 06:38 | 48539 Anonymous
Anonymous's picture

spx earnings - erm Operating Earnings - ASSumed to be 73!
Of course there will be the usual "one Time"(wink) writeoffs
etc. So GAAP earnings will be ? What? Greater than Zero?
Thats good - Right?
I mean ex "principia" - I Am Isaac Newton - OK?

Yeah - lets partaay.

Wed, 08/26/2009 - 06:40 | 48540 Anonymous
Anonymous's picture

what will the bottom be like?

It will be a reflection of the culure and values of the majority of humans occupying these here territories.

Thats frightening.

Wed, 08/26/2009 - 06:45 | 48542 aus_punter
aus_punter's picture

19 bn... big deal....Kevin Rudd and his moronic treasurer will backstop that in a heartbeat....sell protection on Westfield straight away !!!

Wed, 08/26/2009 - 12:08 | 48795 Anonymous
Anonymous's picture

I like how they're holding their AUS cap rates at 6%. I expect this baby to blow out by about 50% - 100% when all is said and done.

I have also advised all Aus relatives to use this window of "optimism" to get out of their real estate investments, NOW.

Good luck punter.

Wed, 08/26/2009 - 08:34 | 48563 Anonymous
Anonymous's picture

This isn't just a cyclical problem with the malls, internet shopping is stealing their lunch too, just as they had Main Street's. Does anyone go downtown to shop?

Wed, 08/26/2009 - 08:57 | 48577 e1even1
e1even1's picture

went to the local westfield last evening to see QT's new film (one of his 3 best btw. highly recommend).

i estimated the mall occupancy at 70%. the parkling lot was at about 30% and the few people in the anchor Macy's were mostly empty handed. this has been the norm for this westfield for about a year.

Wed, 08/26/2009 - 09:47 | 48620 Printfaster
Printfaster's picture

The Fed is extending the cash for clunkers program to include trash.

Wed, 08/26/2009 - 11:53 | 48770 jamesjoyce
jamesjoyce's picture

It's pretty laughable that Westfield beleives that mall cap rates in the US are 6.8%. Malls are not trading becuase everyone in that space knows that NOI erosion over the near-term is going to be huge. Also, try and find decent financing for a mall property. I can assure you that it will not be sub-7% and certainly not above 50% LTV. The REIT space has come back way to quickly and if you look at the fundamentals in that space, they are terrible. Retail may be the worst.

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